Tempus Takes #2
Monday 4 April 2022
A note on the Anchor UST 19.5% APY
When we talk about yields, no one can ignore UST’s whopping 19.5% APY on Terra’s Anchor. As a giant new protocol, Terra has thrown a massive amount of incentives into Anchor to increase the adoption rate of UST as crypto’s new benchmark stablecoin. The growth rate in deposits perhaps was even more than what they expected, forcing them to top up $450m into Anchor’s Yield Reserve before a long-term fix could be tabled. It was later passed that UST’s yield will move in line with its monthly Yield Reserve percentage change, with a limit up/down of 1.5% per month, starting in April.
Given the market turmoil in recent months, the high yield has led to a flood of money to Terra Anchor for stable yield return. At 19.5% APY, a drop in rates is not a question of if but when.
Per our calculation, there is approximately a -$4m cash drain each day. With $360m in reserve, it would be emptied in 90 days. Therefore, we expect a full -1.5% cut in APY on 1st May.
As the yields drop, the borrowing demand will also drop in terms of expected market behaviour, falling from the current 12.7% borrow APY. People are borrowing at 12.7% to deposit at 19.5%. As the rate drops below the bAssets’ yield, we would also see reduced bAsset TVL. In summary, without continuous incentives, the rates should cycle down towards similar rates as other USD stablecoins.
The new 4pool on Curve: UST and FRAX to the conquest of the algo stablecoin throne
Terra and Frax have just announced a partnership that will introduce a new pool, named 4pool, on Curve made of USDC-USDT-UST-FRAX. Terra and Frax will direct their huge voting power on Curve ($3.8 mln CVX) to ensure this pool receives as many incentives as possible. On top of that, Redacted Cartel, one of the biggest CVX holders in DeFi, will join this alliance by directing its voting power towards the 4pool.
The creation of this pool could have, among others, three main consequences:
- Stablecoin yields: the 4pool could become the main stablecoin yield farming alternative to the 19.5% APY on UST.
- FRAX: if the 4pool market share goes between 20% and 40% of the current 3pool (USDC-USDT-DAI), the new demand for FRAX could imply a FXS buyback whose size could be between 35%-70% of the FXS circulating supply with a resulting significant price spike.
- DAI: Do Kwon explicitly stated that one of the 4pool objectives is to “starve the 3pool”. Considering that DAI is purposely absent in the 4pool, it could experience a decrease in demand with a resulting decrease in the peg stability.
Yield commentary
For the broader market, versus our first Tempus Takes publication 2 weeks ago, non-UST stablecoins’ APRs have generally gone up by about 0.3%.
During the same period, Tempus has launched 2 new stable coin pools on Ethereum for USDC and DAI. Both fixed rates are still considerably above the current market’s variable rates.
On Fantom, users have taken the opportunity to lock in high fixed rates in Tempus’ pool, bringing the pools’ fixed rates towards the market rate.
Disclaimer
The information provided in this article is provided for informational purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation to buy, sell, or otherwise transact in any investment, including any products or services, or an invitation, offer, or solicitation to engage in any investment activity. You alone are responsible for determining whether any investment, investment strategy, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. In addition, nothing in this article shall, or is intended to, constitute financial, legal, accounting, or tax advice. We recommend that you seek independent advice if you are in any doubt.
