Yield farming and risks

Not much of a crypto guy myself. I do share memes on instastories, playing mostly to understand how things look like in case world changes completely I won’t be the guy asking my son to guide me on this front, like the elderly ask the younger ones about using a smartphone.

Anyway, looking at youtube videos and stuff everything looks peachy. Or the guys doing stuff in this area have 6 figures they always play with.

Now, taking a step back, assuming you have a certain amount of money and you don’t want them eaten by inflation, sitting in your bank account, you’re thinking about a bank deposit. Now, when banks say they’ll give you 0.1% APY and you make a quick calculation: fee for opening the account, transaction fee, withdrawal fee… you put 1000$ and you get back 900 something… doesn’t sound right.

Now, DeFi comes into play and all the web3 stuff… And they promise you 10–40% APY on stablecoins. And guys on youtube explain how you can make 40–200% with delta neutral strategies and no risk. Was curious about one of the videos and because one transaction hash has not been blurred. Actual transfer 10$, in video: 100k (and it was showing how you can make 2k/month).

On topic, I had a look at Anchor Protocol. Current APY is ~19.5% (seen in some video it was 20%+ in Dec 2021). Which sounds more than good: you put in 1000, after one year you get 1200 back… 100–120 back… 100k… 20k profit.

Scenario I am looking at is plain and simple, deposit and earn that interest. No borrowing, leverage, LP tokens, whatever.

Now, in order to deposit, you need to have money in this terra/luna ecosystem. After checking a number of options, seems that one of the best is to:

• buy LUNA on binance.
• withdraw to your terra station wallet
• here you swap it to UST
• and deposit the UST.

Now, I am a cautious, not risk adverse. And the thing that was concerning me was the fees and commissions.

• moving money to an exchange from your card/bank account — this varies a lot, maybe will write another article about it (you can also search on the internet)
• transaction fee for step 1: assuming you have USDT and you’re buying LUNA, there is a transaction fee (0.4%-0.5%)
• transaction fee for withdrawal LUNA (from binance to your wallet): 0.02LUNA
• swapping from LUNA to UST: about 30 cent
• price difference (which can be ~1% between LUNA’s price on binance and luna’s price when you swap it)

So you’re losing a few dollars (2–3$) on moving this money.

In 1 year, you should get 19.5$ interest for 100$ deposited. That is 1.6$ per month. So you need to keep that 100$ for 2 months just to get back to the same amount you had in USDT on binance.

Now, if you’re depositing 1000$ or 100.000$, you have about the same fees as you have for 100. So if you deposit 1000$, you cover the fees paid in about 1 week. afterwards you’re in profit.

If you’re more risk adverse, you can look more into using the aUST tokens you get when you deposit UST on Anchor Protocol to short stocks via mirror protocol or go with additional ~delta neutral strategies and so on.

If you are thinking about just playing with 100$, you can make more money by buying some tools and doing some manual work in your spare time. Plumbers, carpenters, welders and so on are also needed and they might make more money than your desk job.

How was your experience with yield farming/anchor protocol?