July 18, 2024: The Persistence of Opportunity 💸😱
$sDOLA hits Llama Lend, and the half life of free money
Another banger from the industrious Llama Risk team…
In this piece they review crvUSD Peg Keeper tokens $USDT and $TUSD relative to several jurisdictions based on a 2024 BIS paper. They conclude Singapore and the United Arab Emirates are the most favorable, and the whole thing is worth a read.
Some days it almost feels as if the big kids are starting to get serious now that retail has scattered…
sDOLA
Like free money? Every now and then in DeFi, if you pay attention, you can scoop up some free money before others recognize. Of course… nothing in this piece is financial advice!
A good free money hack appeared earlier this week, with the launch of Inverse Finance’s $sDOLA market on Llama Lend. The yield-bearing stablecoin was offering 50x leverage…
Even a redacted left-curver like myself could have figured out how to make money on this one…
But why, praytell, does free money like this ever exist? Perhaps just because nobody noticed? This post only had 157 views…
Why, oh why, does free money ever exist onchain in the predatory dark forest of MEV bots taking out multimillion dollar flashloans to make a few pennies?
It seems to happen very often in DeFi. For another example, for several weeks, vote incentives are overly efficient by almost 50%
It’s not just a single week snapshot, but has in fact been consistently elevated for a while. Partly because since Mich got burgled, he’s sadly had to give up his role of splashing his excess $CRV around the ecosystem to fuel adoption.
Others may step up, particularly if they notice the “free money” opportunity here. Essentially, if you incentivize a pool where you are also the primary LP… well, we’ll stop here because we don’t do financial advice. We’ll only note that there’s a lot of moving parts.
MEV bots are only going to care about opportunities to profit within a single block, which are guaranteed money. These are accordingly, extremely competitive.
Longer term arbitrage plays… things like yield farming, lending market rate discrepancies, incentives… they’re all too slow to be of interest to the greediest bots. Longer time horizons introduce too much risk that other players can dilute your yield, so such opportunities are relegated to retail farmers.
There’s an old joke…
Two economists are walking down the street. One of them spots a $100 bill on the ground and says, "Look, a $100 bill! Aren't you going to pick it up?" The other economist replies, "No, if it were really a $100 bill, someone would have picked it up already."
Often times, as when people boast of some new pool launching with sky-high yields that go viral on social media, the effect is short-lived. As users ape, it quickly equilibrates to a fair market rate where people stop aping.
For the sake of the aforementioned sDOLA, the opportunity already fell off just a bit:
Other factors at play… the opportunity may not be of sufficient magnitude to be of interest. Here the total supplied to the market is just $100K, so after factoring in things like gas costs and time, whales may not care.
One might ask, will the 7.15% projected APY disappear and put me underwater? But it’s been pretty good if you look at the history…
Then there’s the question of risks. Subtract a few points for the Lindyness of Llama Lend and crvUSD. It’s perfectly rational for users to want to wait, sometimes even requiring a few safe years to build up a solid track record. For this particular market, you can see plenty of people scared off… Curve is fresh off a hack, combined with Inverse’s prior tangle with bad debt.
For the latter, at least, we’ve personally completely buried this line of FUD. For several years now the spectre of this bad debt has been continually raised against Inverse protocol, and we’re declaring that we’ve officially passed the point where this is remotely fair.
The fear of bad debt undermining Inverse may have been a concern in the immediate days after the incident, where devs could have chosen to just fold up shop, launch new anon accounts and start over from scratch. It probably would have been the easier path.
Instead, they opted for the more challenging but honorable path of finding a means to pay it back and steadily executing. Basically they just built a profitable business and ran it, not always the easiest thing to manage in DeFi.
The team is very nearly past the 50% mark, so congrats to Inverse on their persistence.
What utter class acts… if anything the team’s response makes me feel safer holding $DOLA than the broader market consensus.
Of course, YMMV. We’re often quite lonely in perceiving the risks of various stablecoins to be safer than the overall consensus.