“27% Annual Yields.” Sound Good Too Good To Be True? It Is.
TL;DR
-
A brand new DeFi platform, Ethena, is selling a 27% annual yield for customers that stake its stablecoin (which sounds manner too good to be true, and possibly is).
Full Story
In center college, Kevin (our intern) spent a complete summer time forming a ‘deep friendship’ and ‘unwavering bond’ along with his hero, Criss Angel, on Fb.
(That is one thing he nonetheless holds declare to today — and none of us have the center to inform him that he was nearly definitely being catfished).
There’s a parallel with that story, and Ethena — which is a brand new DeFi platform, selling a 27% annual yield for customers that stake its stablecoin.
Which sounds manner too good to be true.
And it most likely is. Let’s Dive in:
We have to preface this with a reminder that stablecoin initiatives like this one, which supply ridiculously excessive yields, tend to fail miserably.
(*Cough cough* Terra).
Excessive yields can typically be maintained in a bull market, when nobody’s asking questions…
However when circumstances weaken and people begin pulling their cash out — it is arduous to liquidate a number of massive holdings with out ‘destabilizing the stablecoin,’ and crashing its value.
So how’s Ethena making an attempt to distinguish itself?
It’s stablecoin yield pulls from two sources:
Staking Ethereum (which earns ~5% per 12 months), and by shorting Ethereum futures (incomes ~20% per 12 months).
Right here’s what that final bit means:
Shorting = betting the worth of a crypto/share will go down.
Futures = betting on the long run value of a crypto/share, by agreeing to purchase it at a set value, on a set date sooner or later.
So when somebody ‘shorts futures’ — they’re betting that these futures consumers ‘guess on the long run,‘ is flawed…confused? Identical.
Right here’s an instance for you:
-
Somebody buys a futures contract, guessing that Ethereum goes to be price much less than it’s right now, in two months time →
-
You suppose they’re flawed, so that you borrow their futures contract from them and promote it →
-
You wait for 2 months, and (hopefully) are in a position to purchase the contract again for lower than you bought it, and accumulate the distinction.
All that’s to say: if you stake Ethena, you’re primarily lending your cash to the mission and saying “Go stake/make investments my cash and ship me a relax.”
To which they’re responding — “Positive, we will supply 27% annual returns.”
Which sounds:
-
Pretty!
-
Approach, manner, WAY too good to be true.
(It’s giving ‘Kevin’s relationship with Criss Angel’ vibes).
