My Stablecoin Farming Strategy
Assuming you’ve read my in-depth post on stablecoin farming, the question I always get after explaining all the complexities is “well what do you do?”
Which is a good question, since that’s probably the most honest perspective on how I think we should manage risk in this environment.
The things I want to optimize for are:
- Maximizing my stablecoin yields
- While making sure I can sleep at night
- And accounting for systemic “black swan” mega blowups
The last question is really important, because stablecoins are an inherently risk-off asset, but by being in crypto you are automatically pretty risk on.
You could get hacked. You could lose your ledger and seed phrase (you’re using a hardware wallet, right?). Tether could fail. Ethereum could fail. The government could make off-ramps illegal. Coinbase and Gemini might kick you out for suspiciously large transfers. You might get your bank account shut down.
Crypto is risky! And it’s hard to keep that in perspective when you spend all day in it and nothing bad has happened to you.
So how do you find the balance? Here’s what I’m doing.
First, I remain very bullish on Alchemix. Their V2 should be launching really soon, and I’ve been stockpiling stables in AAVE waiting for it to launch. The AAVE deposits are temporary, I just don’t feel like having to move my funds again once they launch.
After V2 launches, I’m going to put all my stablecoins in there, pick whatever their most aggressive strategy is, and then borrow the maximum amount of alUSD against it.
Then I’ll convert that alUSD back to USDC, send it to Coinbase, and take it out of crypto entirely.
Why? Because I’ll happily give up some yield to know at least half of my stablecoins are safe from a catastrophic meltdown. And with this strategy, my original amount are still earning yield, and I can withdraw the earned interest periodically into my tradfi account.
It’s pretty cool to think about. Say you have $100,000 in USDC. You put that into Alchemix, and maybe you’re earning 20%. Not only does Alchemix give you 2x leverage if you use max debt, but they can also earn a higher yield rate than you can because of their transmuter math. And in V2, we’ll have a lot more strategies to choose from than just the Yearn DAI vault, so higher yields are more possible.
Now you have $100,000 earning $20,000 a year. And you can borrow $50,000 in alUSD, convert to USDC, and cash out to fiat.
That to me is the best blend of high yield, low management, and downside protection. I’m not interested in doing risky stablecoin farming strategies because if I want to go risk-on I’ll just invest in newly launched projects I think have a bright future. I’d rather put risky money into something that can 10-100x, not something that will hopefully earn me 60% over a year but also might explode and lose all my stablecoins.
So that’s my main strategy. Second to that, I really like the MAI-USDC pool on Polygon. Qi is a great protocol that’s been running smoothly for about a year now, and MAI has been remarkably stable. So I feel good about holding a position in that pool, especially since it often pays 15-30% APR. I like that better than the UST based strategies since, again, something about UST just makes me uneasy.
But again, if you’re fine with the whole Anchor & UST setup, just put your money there. I’m honestly not trying to FUD it, that’s just my gut feeling about it.
The last thing I’ll mention is that I feel pretty comfortable borrowing at 25-40% LTV depending on the collateral in order to farm some of these strategies. For example, now that we have the RAIDER lending pool on Polygon, I’m using that to borrow some stables against my RAIDER to farm with. It’s a nice way to get yield on RAIDER without having to lock it up. You can do the same with most collateral by searching for the corresponding pools on Rari or Market.
I think the leveraged stablecoin farming is particularly interesting with the new option to use stETH as collateral as well. Sticking your stETH in AAVE where it keeps growing while you can access some of the liquidity to go do other things with it is pretty slick. I’ll likely start messing with that in the coming months as well.
If you know any good modifications on this strategy that you’d like to share only with other paying subscribers, drop them below. Or shoot me a DM on twitter.