What’s with all these Ponzi type APR on Stablecoins?
What’s with all these Ponzi type APR on Stablecoins?
I know there are a few places where you can be a LP and gain about 4% APR for your stablecoins like USDC and USDT.
You can also just keep it in your US savings account or buy bonds and get 5-6%. This I understand.
But I keep seeing these protocols like Mute.io which is KOI now and Zk Finance and they claim they pay 20% for staking your stable coins.
You need to add it to the pool and then add it to some farm. And you get 20%. My question is where is this 20% coming from?
On many LP you only get 3-4%. And they are paying 20%. I would understand if this was some memecoin which gave 20% APR because those are at risk of going -90% but for a stable coin, paying 20% almost sounds Ponzi like.
What is going on here ?
The APR usually comes from trading fees and also the DEX that is trying to attract liquidity will incentivize users by offering their native token as a reward for staking in certain pools. Trading fees are usually not that high, unless the price is really volatile you will see a higher APR for a few days but it is misleading because you won’t earn that percentage in a year, you will only earn it if volatility, demand, and liquidity remain exactly the same.
As for token rewards, the exchanges are basically printing their own money. When they first launch their token, emissions will be high to make their APR look attractive, but this has the side effect of causing hyperinflation so the token’s value will go down and the APR will go down along with it. To combat this, the developers will come up with different mechanisms to make their token deflationary and pump the price back up.
The printing their own money aspect does look like a scam, but to be fair, some newer DEXs have tried to create governance models which give their token lasting value rather than being just a get rich quick shitcoin.