David Angliss, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s weekly take on what’s happening in the fast-changing and volatile cryptocurrency space.
Making money in a bull market has convinced more than one trader that they’re a genius – and we all know what a year crypto has had.
But Apollo Capital also has a market-neutral crypto investment fund, and the numbers are in for the first year of its performance.
The fund, which only pursues money-making strategies involving stablecoins, has returned 33.65% since its inception in December 2020. The fund currently has $55 million under management, David Angliss says.
“We’re literally just simply supplying liquidity in the form of a stable token,” Angliss says.
Most readers will be familiar with stablecoins, but for those who aren’t, these are tokens pegged – at least in theory – to a fiat currency, almost always the United States dollar.
The leading stablecoin is Tether (USDT), which is the No. 4 crypto by its market cap of US$76 billion, and the No. 1 coin by trading volume. Some US$59.8 billion in Tether had changed hands in the 24 hours to Friday afternoon, more than double the amount of Bitcoin.
Apollo’s strategies involved Tether and USD Coin (USDC), the No. 2 stablecoin, as well as the MakerDAO’s stablecoin Dai; Frax; Origin Dollar (OUSD), a yield-bearing stablecoin from the team at Origin Protocol; alUSD, from self-repaying loan protocol Alchemix; and FEI, another algorithmic stablecoin, from the Fei Protocol.
They didn’t use Terra USD, because of security and hardware constraints, Angliss says.
But the Terra ecosystem is “definitely one that we want to tap into in the future. … We 100 per cent would have done it if it was [Ethereum compatible], but we just didn’t have the hardware setup.”
Apollo pursued its strategies on the Ethereum, Polygon, Binance Smart Chain, Avalanche and Celo blockchains, as well as Abitrum scaling solution for Ethereum.
Although it could have, Apollo wasn’t lending its stablecoins on a borrowing platform like Aave but engaging in what’s known as yield-farming.
Crypto projects need liquidity to operate, so they offer rewards for providing it.
For example, Alchemix lets users borrow Alchemix Dollars (alUSD) using Ethereum as collateral. But alUSD would only be useful if they could trade it for a more widely used stablecoin like Tether, so Alchemix rewards users with ALCX tokens for staking alUSD in a pool that users can swap other stablecoins against.
“Okay, so typically, we would farm once a week,” Angliss says. “And whichever protocol that we’re supplying stable tokens to would reward us in their native token, and we’d simply convert that back to a stable token. And then just repeat that process.”
“So we wouldn’t actually be holding an asset with price risk for longer than a week, if that makes sense.”
Of course, there are other risks associated with a 33 per cent reward.
“New technology, new people, new developers trying new things,” Angliss says.
Angliss says that Apollo will typically check out whether a protocol is on DeFi Safety and has received at least a 50 per cent score there. If it hasn’t been rated, Apollo will try to find their audit documents and check a website called RugDoc.
“We’re also going to the Telegram (chat app), and have any questions answered that we need, reach out to the devs on Telegram or Discord,” Angliss says.
There’s also the risk that a stablecoin won’t prove so stable after all. Dai lost its price peg during a March 2020 coronavirus-inspired panic, for example. Angliss said Apollo takes that risk into consideration.
Some of Apollo’s best returns came from yield-farming Frax/mUSD pool on the stablecoin ecosystem mStable on Polygon; providing liquidity to the stablecoin pools of decentralised exchange DFYN, also on Polygon; providing DAI and USDC liquidity using Snowball on Avalanche; and taking part in the early Maple Finance and Pendle Finance vaults on Ethereum.
The firm also received excellent returns providing liquidity to Tracer DAO’s pools on Arbitrum. That didn’t involve stablecoins, but by going long and short simultaneously, Apollo was able to receive rewards in a market-neutral way.
“We just have to monitor it quite closely.”
For everyday punters who want to try and get such returns, Angliss cautions that there is a steep learning curve involved. A yield-farming rewards have vesting periods and token distribution schedules that make calculating returns tricky.
“You need to be really vigilant reading how you’re going to rewarded, and if you’re going to incur penalties for leaving a pool too early.”
Protocols also sometimes promise rewards using different formulas, making comparisons difficult. “You only really know the APY after you’ve done an audit of your books, taking into account gas fees spent and all that sort of jazz.”
Centralised defi projects BlockFi and Celsius solve that complexity for retail investors, although their yields aren’t as stellar as what Apollo just got. Celsius is offering 10.07 per cent APY on leading stablecoins, for example.
With projects such as Olympus DAO and Tokemak providing liquidity-as-a-service offerings to DeFi, it’s not clear how long this era of yield-farming will last.
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