Hello and welcome to The Ether. Today is Monday, January 3rd 2022. This episode of The Ether is brought to you by Orbital Command, a community validator on Terra dedicated to educating, expanding, and promoting the LUNAtic community. Take advantage of their Terra Luna Intel Report on Telegram, bringing you the hottest news and updates on all things Terra each and every day. Use the link in the show notes below to find it. You can also support their community efforts by considering them next time you’re delegating or re-delegating your LUNA. Today on The Ether, we have the LUNAomics Q&A. Let’s take a listen.
Okay, so yeah, and Uniracer. So thanks for answering a lot of those questions that were posted on that thread. Really appreciate that. And then for everyone else that posted questions and/or answers to those questions with sources. That’s super helpful. And that’s just a great way to contribute and get involved. I am limited in my time today. So I can only be on for one more hour. So Uniracer, if you want to take over after I get off. Hopefully we can get through all of these questions before an hour’s done. And then we can… If there’s anybody that wants to contribute to any of the questions that were asked, or if there’s more questions that want to be… More questions that people have, then we can jump into that to. Eric Lowe, he asked, “I want to hear your thoughts on protecting your Terra assets if the government does something to try to regulate this space.” I’m playing around with the idea of just doing an organization offshore, and the United Emirates seems to have a very interesting way to structure a business with zero capital gains, zero income tax. But I think if you start an entity, anywhere offshore, and you’re a US citizen, you have to pay capital gains no matter what. But there is a layer of security that if you start something offshore, that the regulations that the US government passes, the entity is not under the jurisdiction of the US government. So even though you have to pay capital gains from that entity, you’re not regulated by the rules that they pass. So say they outlaw US citizens from trading UST, from what I understand, you can still trade it in an offshore entity because that entity is under the jurisdiction of another country, and you just have to operate under that jurisdiction. So I’m just looking at different possibilities of entities offshore. And I want to be completely aboveboard with the IRS and pay everything that I need to pay, but at the same time, be able to trade freely the things that are available.
TheLongHaul, asked a question, “I have a question about Anchor’s sustainability, do you think that there’s going to be the 20% APY over the long term, say, 5-10 years?” It’s super… There’s a lot of speculation on different things. Some people say that it will stay 19%. If you look at the yield reserve, it’s dwindling every day. It’s super hard to predict anything in DeFi. Everything happens so fast. So I would just say there’s no way to know the sustainability, but to know that opportunity never disappears, but it migrates. And so if Anchor Earn does go down, just know that there’s opportunity somewhere else. And one of the greatest skillsets to have is to be able to spot where the opportunity is or where it’s going, and to get there before everyone else does. I think that’s something that I try to do. I can’t say that I do it as well as I’d want to do it. But yeah, like when Mirror and Anchor first came out, it was super easy to see the writing on the wall that the yields are going down, and they wouldn’t stay at 200% forever. And so you can base a plan on enjoying the 200% for a month or so. And then you have to start making plans of okay, what’s what’s your next move. So, to me what I’m looking at is I’m seeing there’s a ton of liquidity that’s headed toward the Terra ecosystem. And there’s a lot of inefficiency in different things right now due to the lack of… Illiquidity. And so like the difference between LUNA and bLUNA, the reason why there’s that spread is because there’s no liquidity. And so whenever there’s a lack of liquidity, you can always take advantage of the arb. You can always arb the difference and the spread. So, with all this liquidity that’s coming into the market with Astroport, and just other people coming in, there’s gonna be a tightening of that spread and disappearing of arb opportunities, unless you know how to program a bot, and you can frontrun people and get the difference really fast. Those arb opportunities, I believe in the next year or so will slowly disappear. So that can’t be like a main part of your strategy. But there will be other places where there will be low liquidity and you can arb the differences between the spread. But I think that the main opportunity is to take advantage of that liquidity, if people are entering the market, it’s going to be pushing the price of LUNA up. So for me stacking LUNA is like an insurance, it’s a hedge against the influx of a lot of people onboarding into LUNA. So yeah, that’s something that I always say, is that opportunity never disappears, it just migrates. And then to not be afraid of that, just to look for where it’s going, and then to get there first.
What is your option on insurance? And is it really worth it? As a premium seller, I used to sell options in the traditional markets. And they say that 95% of all options expire worthless. That fear is always overstated in the marketplace. And so even if you pay car insurance, it’s very rare that you cash in on that insurance. And the people that really make the money are the ones that are selling you the insurance, it’s never the people that are paying the insurance. So because I kind of understand that from the other side of selling it, and I made a good amount of money selling premium to people, I never take the opposite side of that trade unless it’s like life insurance or something that’s just a risk that I’m willing to pay a small amount for a big cash out, risk to reward wise. But for Anchor and the money that I have been there, I have not insured it. But to each his own.
This comes from k:Peazy. “I’d like to know… You say you manage your LTV when you hit 50%. So my question is, if your LTV is 47%, would you go to sleep?” [chuckle] That’s a really good question. “Do you go to sleep? You don’t fear if you dip while you’re asleep you get liquidated?” Yeah, there’s a lot of times that before I go to sleep, I’ll just check and if it’s close, like 47% or something, I’ll just manage it. And then I’ll sleep better.
Luna Mooner, he asked, “I want to gain as much LUNA as possible apart from Anchor Borrow, do you think it’s worth it to risk IP loss in LUNA-UST LP, which has 100% APR, or would the LUNA-bLUNA LP be a safer strategy because it has no IP loss, albeit a lower 30% APR?” Both of those are good because both of those are… There’s some use for your LUNA that you take out. I… The less steps possible, the better. And then I’m always looking at the overall risk of what I’m doing. So say I want to take out like 30% LUNA and I take out 30% LUNA that and I don’t want to go above 40% LTV, I want to stay below 40% LTV. That means I can only take out another 10% UST, and so I’m only going to be able to pair a certain amount of LUNA, and then the rest of the LUNA will be in my wallet to go into an LP. The thing that you’re… One thing to keep in mind when you do the bLUNA-LUNA is the step of converting bLUNA to LUNA and the spread. I’m getting more and more comfortable with it because Astroport is actually narrowing that spread to a place where it seems like it’s irrelevant. I’d really like to see how that LP will respond during a crash. Because during your crash, those spreads tend to widen and you tend to take a loss. So I know if I have LUNA in my wallet, that I can just immediately sell that and pay down the loan. Whereas there’s an extra layer of risk when you have it in bLUNA. So there’s always that risk when you carry bLUNA. The other risk is, say you don’t… If your question is like, “Why not not have UST and instead of having UST, you replace it with bLUNA and then put it in the LP so that you don’t have the impermanent loss risk?” And when you when you do that, and you take out the UST, you actually increase the volatility of price in what you’re using with the borrowed money. So there is a bigger risk. If having the LUNA-bLUNA pool LP is the same thing as just having all LUNA. So the reason why I have 30% LUNA or maybe like 25% LUNA and the rest UST, is if LUNA takes a dip, only half of my underlying asset will be affected because UST will stay stable. So if LUNA goes down, and my collateral is going down, and with my collateral, so is my underlying asset, there’s just way more risk the more LUNA that you’re holdings. So yes, it when it goes up, it’s really good and that’s the reason why we’re stacking LUNA, but you have to look at the downside risk as well, as holding all of your underlyings in LUNA and bLUNA. So that’s why I like to kind of be a little bit conservative.
I like 30% LUNA, for the most part. Right now I have about 40% LUNA just because we had that dip. So I had LUNA-UST in my LP. And when we had the dip, because of impermanent loss in the pool, I picked up about 600 more LUNA. And after I picked up the 600 more LUNA, I withdrew my liquidity and then I converted my UST part to LUNA so that I wouldn’t suffer the impermanent loss on the way up. So right now, we’re, we’re higher than when I cashed everything out. I’m still holding 40%, all in LUNA right now. And that part is kind of like an art. There’s no hard and fast rules of what to do after you withdraw your liquidity. It’s totally different for everything. So for me, I’m anticipating that $80 was kind of the low, and then we’re gonna go up and we’re gonna break $100. And so I want it to just be all in LUNA, when that happens. And if it turns around and starts going down and breaks below $80, then I have a mental stop that if we break below 80, then I’m going to convert half of that LUNA back to UST and maybe pay down my loan with that. So I always am kind of gaming it. And that’s more the trader in me that can’t… There’s no hard and fast rules around that. But I do that.
MoonCoinell, he says, “What price points do you set your LUNA price alerts to make sure you’re paying down your positions when necessary and what exchange setting do you use as your price oracle of choice for those notifications?” So I just use KuCoin because that’s a brokerage firm that I actually use when I’m not in the Terra ecosystem. And then my price alerts, I just set it like $10 above liquidation so that I have enough time to move things around to make sure I don’t get liquidated. And every day, I have my phone with me and I’m constantly just looking at what my LTV is, and a lot… You’re going to hit the 50% LTV before that $10 buffer on your price alert. So if that $10 buffer happens on the price alert, that’s really like, for me, I got to make some moves, I need to move things around. But if it hits that 50% and I’m just checking it through the day and I get to like 47%, 48%, I kind of keep my eye on it, but once it hits 50% I’ll just move things around. I’ll adjust my position.
Adam Beachnau, he says, “How do you manage security on Terra as part of your risk management? Do you use hardware wallets? Do you use Ozone?” So no, I don’t use insurance. And no, I don’t use any hardware wallets. I used to use hardware wallets but there is no option to use hardware wallets with your mobile phone with Terra yet, as far as I know. So because I manage on my phone… And I don’t do it often. I haven’t seen that… There’s probably three times last year that I had to use my phone but I always want to be ready. And it always happens at the worst time.
0x_luna said, “When’s the best time to re-enter LUNA-UST LP after the LUNA price drop? And what are your thoughts on looping bLUNA once before LUNA-UST LP? What are your thoughts about using KuCoin Luna3L for stacking more LUNA?” Yeah, I think using KuCoin’s leverage is something that if you feel comfortable doing you can do, you just got to be very careful. In any time that you use leverage, I like to just have everything in one place. I don’t like going back and forth between KuCoin and TerraSwap. And it’s pretty much the same thing. So I just like to use it… I think KuCoin charges a little bit more for their margin. The interest on it is a little bit more, I believe. But yeah, any of those are options, you just have to be really safe. When you do it. I try to never… When I’m on KuCoin, I don’t go above 30% loan to value so I kind of manage my loan to value on KuCoin on their margin accounts the same that I do on Terra. So when is the best time to re-enter UST after LUNA price drops? So I assume that’s talking about when LUNA drops and you have the impairment loss and you’re picking up more LUNA, when’s the best time to pull out? I have a target of 50% LTV that I’ll pull it out at and just collect that extra LUNA. But like this past time, it was like at 48%. And I had an extra 600 LUNAs, and I posted about it and then Cephii or Cephii, I don’t know how to pronounce his name, but he said, “Why don’t you just take it?” So I was like, “Yeah, why don’t I just take it?” So I took it and then converted my UST part to LUNA. So yeah, that’s more of an art than a hard and fast rule. So that’s one thing that I wanna say, there’s a lot of people that are asking the intricacies of this stuff. And there are no hard and fast rules for it. I’m just throwing out the strategies to the community and saying, “Hey, this is the possibilities, this is what you can do.” And then just take it as principles, and then tweak it to your own personality, your own risk tolerance. There’s nothing right or wrong about it, just play around with it and try to be safe and try not to get liquidated and have fun with it.
Jorsh, “Do you consider your UST-LUNA LP liquid?” Yes. So that’s super easy to withdraw your liquidity. When you withdraw your liquidity, you’re not dependent on the market. You’re the one that’s providing the liquidity, so you’re not dependent on any kind of market. You can withdraw 100% of your liquidity within an instant with no problem. So because you can withdraw your liquidity and you can easily take that UST half and pay down your loan, that super, super liquid. And then the LUNA part, that’s a little less liquid, because you got to convert your LUNA to UST. But it’s still very liquid to convert LUNA to UST. Normally, that’s one of the deepest pools that we have. So you could use Astroport, or you could use TerraSwap. And it should be super easy to do that. So that’s the reason why I like that pool. It’s just super liquid and you can get in and out real easy without affecting the price.
Ben_Gainz1 says, “With someone without leveraged income or loans or doing into LUNA would LP to generate cashflow still be a better scenario? Or is that 2022 plan of just LUNA for more LUNA work best in your opinion, if you need the cash flow for expenses to do that?” “If it’s only a wealth vehicle, LUNA for more LUNA is more lucrative.” I think somebody answered that question. Yeah. So there’s different objectives. If your objective is like, you want to use this whole system as like a second income, then the cashflow is more important. But then if you want to build wealth, and you want to build like… You don’t want to spend it, you’re more accumulating it to have it generate cash for you later, then I would just use LUNA to stack more LUNA. So it really depends what your objective is.
Kenny_Neko asks, he says, “Does tax questions count for risk management?” Yes, it does. Hutch is on here and Hutch would actually be a great person to consult for that. I don’t even know what I’m going to do this year, or last year, for taxes. I’m still trying to figure that out. I understand every country is a bit different. But will there be a separate space for how you handle that aspect? I think Hutch makes a bunch of videos on that. And it would be really cool for him to do a Space on just taxes, especially now that everybody’s trying to figure that out. Hutch, you want to jump in and say anything about that?
Oh, sure. Yeah, I’d love to do a co-space with you. I know that wasn’t part of the pinned tweets, but since a lot of people are concerned about it, and since you’re so far a little bit concerned about it as we get closer to tax time, and hopefully there’s a little more clarity on whether Papi and TrackTerra or Koinly is going to come out with something. I think that would be a really cool space. Barring your specific question, I don’t know if there’s a lot I can offer. You know, it’s just such a broad topic.
Yeah, definitely. Yeah. But Hutch is the man. He’s the man for taxes and for sheltering your money for taxes and being up and up with the IRS. So I’m sure there’s a lot of LUNAtics that are going to be asking you for advice, and for your services.
Well, thanks. You’re the man for stacking LUNA. So let’s keep going with that.
Okay, we only got three more questions, which is awesome. We’ll have the rest of the time just to answer questions for whoever’s here.
I actually had some, when you’re done with the three, I wanted to circle back on the LUNA-bLUNA pool, because that was always my kind of risk management. And I figured it was yours, too. So I think it’d be cool to explore that a little bit more.
Okay, cool. So J B asked the question, “You said you do 25% borrowed for LUNA, and then either 15% to 20% UST for the LP pool. Have you considered just going 20% LUNA, 20% UST so you have an exact amount for each for LP on TerraSwap?” Yeah, so I look at that first… I look at the first percentage of LUNA. I look at that first. So the greater the percentage of LUNA that you buy with your borrowed capital, the greater your risk, just because you’re exposed to the price volatility. It’s great when it’s going up, but it’s risky going down. So because of that, I kind of like the 25% to 30% LUNA. People that are more risky, they could go up. So right now I’m at 40% LUNA, actually, because I got in at the low $80s, and I kind of felt like the market was going to move up. So if in your mind, you just know that the greater amount of loan to value that you’re using to purchase LUNA, you are in a higher risk space, and then the less the lower risk. And you kind of manage it, then I think you have the right mindset.
So I’m not hard and fast, like I only do 25% LUNA or 30% or 15%, I kind of just look at where the market is at. And if I feel like it has more upside, because maybe we just went through a dump, then that percentage might go to 40% like it is now. Whereas if we’re kind of at a higher part, and we’re making all time highs, and because we’re making all time highs, my LTV has dropped to like 15%, I might just push it to like 25%. So it just all depends on where the market is at where I set that number and I never do it because of the reason that I want half and half. I mean, I guess it’s organized in your mind if you do that, and maybe if you’re OCD, that could be a reason for doing that. But I look at where the market is, what the upside potential is, and where the… So the upside potential when it crashes is much greater. The downside potential is much greater when we’re making all time highs. I look at that in dictating my decision on how much LUNA I purchase with my borrowed money. That was a great question.
Igor says, “If you borrow 25% LTV and LUNA drops 75% in price, would then my collateral get liquidated? I don’t completely understand the ratios, especially if price of LUNA suddenly drops.” Yeah, I think that if you take out 25% LTV you get liquidated at a 66% drop. Again, that 66% drop is not so that you look at that and say, “Okay, I’m gonna hold this till 66%.” I’ll never hold it till it gets to that point but it kind of gives you a mental boundary of where you’re going to get liquidated. I look at my LTV way more than the percent pullback. So my LTV is my metric of when I manage so when it gets to 50% LTV, I’m always managing at that. I’ll never let it go above that 50% LTV unless it just gets there so fast that I miss it. But for the most part I am managing at that 50% LTV which is way in front of that 66%. So that’s 66% just gives you a boundary line of like, “Hey, this is how much space you have before you get liquidated.”
macro_boy2 says, “There’s a misunderstanding of the UST-LUNA strategy during expected dips. Number one, you expect a dip in LUNA. Number two use liquid asset to buy UST LP with the idea to increase LUNA in volatility you get impermanent loss. Why would you not just buy and hold LUNA and UST, and pay off your loan?” So when you do provide to an LP pool, you’re getting paid a certain percentage for providing liquidity. So whenever you provide liquidity for a pool, you’re constantly, daily, lowering your cost basis for the underlyings that you purchase. So that’s super nice. And the higher that is the better that is. Impermanent loss is kind of like if you look at a pool, the way that I view pools in my mind, in Hawaii, we have tide pools. And when the tide is high, the water comes in, fills the pools, and when the tide is low, the water goes out, and the pools are kind of drained, and it just ebbs and flows, it goes back and forth with high tide and low tide. Sometimes there’s king tides that are super high, and then sometimes it gets really shallow depending on the season and the cycle of the moon. So impermanent loss is the same way. When you contribute your pairs to a pool, and there’s a contraction in the market and the market drops, you’re going to pick up more LUNA and you’re going to lose UST. If you did nothing, if you didn’t pull out your liquidity when the market goes back up, and markets go back and forth, and with LUNA, it’s going to go up more than it goes down. So when the market goes up, you’re going to get that LUNA back. And then if it goes up past a certain point, and people start buying way more, then you’re going to lose LUNA, and then you’re going to lose LUNA and gain more UST. I’m sorry, you’re going to… Yeah, you’re going to lose LUNA and you’re going to gain more UST in the pool. But then it doesn’t go up forever, it’s going to drop again. And that’s just the dynamic of the market. And when it drops, it’s going to do the same thing over and over again. And it just kind of ebbs and flows. But as the market drifts higher, it balances out so every single time it drops and it goes up, it gets back to that 50-50 percent. So if you just hold it, you’re not going to lose your LUNA forever, or you’re not going to gain your LUNA forever. It’s gonna kind of fluctuate back and forth around that 50% mark.
So you got to kind of think of it like tide. It goes in and it comes out. It’s not permanently lost, it’s not permanently gained, it just kind of goes back and forth around a central point. Unless you’re in a pool, that the strength of these two coins don’t go back and forth. So like LUNA, the strength of LUNA, it will be stronger than UST when the price is going up, and then UST will actually be stronger when LUNA’s price is going down. And because the strength goes back and forth between UST and LUNA, the market demand for it goes back and forth. And so you have this vacillating, going back and forth between these two coins according to their strengths. So you never have to worry about losing all your coins in a liquidity pool of LUNA and UST. However, if you have your LUNA paired up with something, and I don’t like to say Psi, but say it is Psi or any other coin that’s weaker than LUNA, the demand for the stronger coin will always be greater than the weaker coin. Because in a down market, LUNA will probably outperform any other coin and in an up market, it will outperform any other coin as well. So when it’s paired with a weaker coin, and I could be wrong, but I do believe that you will lose LUNA long term. And if I’m wrong about that, please correct me at the end of this talk if there’s anybody that understands and has been in a pool with two coins that one of them is not stable. But from what I’ve seen and what I’ve experienced, I’ve lost LUNA that way.
So last question. Last question is from Mark P, it says, “I’m thinking about using my ETH as collateral. I don’t want to sell it. But I’ve seen the price of bETH on the 9th of December dropped to an extremely low price of 567 UST. Didn’t happen to the real ETH. Will this pose big liquidation risk, or those random swings are they not relevant? Thanks.” I think that they are relevant. And I’m hoping that those problems with the oracles are worked out. I heard that they were working on a patch for the validators to update the nodes that are running. So I don’t know, I haven’t seen those swings recently. So I’m hoping that those problems are solved, but I know some people got liquidated during that time. So yeah, I just…
I would be very scared of that. Because I think they said that the… All the people that got liquidated or a lot of the people that got liquidated, had the dual combo. And that, I think even you told me that if you have both LUNA and ETH, your collateral number doesn’t show up. So I think things get even a little glitchier. And that’s not a technical term, but I would just be concerned until they come out with a declaration saying, “Okay, everything’s great.”
Yeah. I don’t know. I don’t hold any ETH. And I think that it would kind of be… I don’t know, I would… Personally, ETH is not my favorite coin. And I would have no hesitation in selling it to buy more LUNA, but I guess to each his own. Everybody has their own their own opinions of what’s the best. So yeah, that’s the last question. If there’s anything that anyone wants to discuss, or any thing that you want to add, the floor is open.
Do you mind going into the bLUNA-LUNA pool. And you have definitely stacked more LUNA than I so this is by no means a challenge, or I’m not saying this way is better, but it seems like you’ve you’ve been doing it that way, and I’ve been doing it this way and arguably playing a little bit smaller. But I think a lot of people on this call maybe aren’t ready to just ape in. And I know some are, I’ve seen the comments. But let’s face it, you’re a season wily veteran option trader and you need nerves of steel and balls the size of an elephant, and so for people that maybe aren’t ready to go to bed with that kind of LTV, maybe… I think there’s some value into just exploring what’s possible with the LUNA-bLUNA pool. You got a few seconds for that?
Yeah, of course. So are you asking like… The way that I do it is I look at the amount that I have to borrow and take 25% to 30% to buy LUNA. Are you saying that with that 25% that you split it into LUNA-bLUNA and then you throw that into a pool?
So even just forgetting your metrics for just a moment, like the 25%, for people maybe that aren’t ready to roll as high of an LTV and like this is the way that I’ve done it and have not stacked even proportionately as much LUNA as you did. You aped in hard and it worked awesome. And that’s great but for those of us that maybe aren’t ready to take that leap, the way that I was doing it was I would get a lot of LUNA on dips and I felt better because I was buying them on relative dips. I wasn’t just doing it based on LTV And when it got to an all time high, I mean sure when it got to $55, I wish I would have aped in at $55, and when it got $75, I would have aped in at $75. But usually I would just wait for there to be dips, and then what I would do is I would get LUNA and bLUNA and then I would swap half my LUNA for bLUNA. I usually get pretty good swap rate because I was doing it during dips and so you’re right in that when you… Pool, you can even get a little bit of impermanent lost. But since I’m swapping while on the way in usually over 2% which may or may not be something in the future, but it may be there’s lots of letters of LUNA coming out that may put some some liquidity constraints on everything else. But assuming you can swap out whatever, 2% or maybe 1.5% is the new 2%, or 1.2% is the new 2%, I would try and swap wile on the way in, not put any in LUNA-UST because it defeated the purpose, and I was thinking while I’m buying low and so LUNA is going to go up, so why do I want any impermanent loss? So I would just… And then if things were crashing and I was concerned about LTV and on December 3rd, I was up managing like a banshee, I withdrew from the pool, I put my bLUNA… You’re looking to sell liquid LUNA… I’m looking to be over collateralized which entails that stacking is hard on the way up. But then it allowed me to just post my bLUNA as collateral, and since I withdrew it during a crash, my LUNA I would get a great swap rate. And so my favorite swap was on that night, I had like 330 LUNA, half to the pool, and I got 345 LUNA. So I got… And then I just provided all of that, and I actually had some room to spare. So I actually pulled out a little UST.
Hey Hutch, I think we lost you. I think we lost Hutch. Yeah, Z.ust you want to…
Yes. Hi. All right. Thank you. So my question is about the looping. I’ve never looped or unwound before. So I just want to make sure I know what I’m getting myself into if I decide to do this. You said you didn’t like the unwinding. And you got wrecked on the spread. You said there was up to a 30% difference in the LUNA-bLUNA during the drop. So, my question is, is that LTV more sensitive to price movements the more number of times you loop? For example, if the price of LUNA went down $10, would the LTV change more if I moved three times versus one time?
No, I mean, you have a certain amount of collateral. And that doesn’t change… When you loop you’re just adding more to your collateral, but you’re adding to your collateral with borrowed money. So your collateral goes up, you definitely have more collateral that’s available to you. But it’s kind of deceiving because some of that collateral is borrowed, right. So in the event that LUNA decreases in price, and say you get close to liquidation level, you don’t have anything in your wallet, or anything that’s liquid to pay down your loan anymore, because it’s all provided as collateral. So it becomes super problematic if you have to pay off your loan quickly. And the only way to pay off your loan is to go into your bLUNA vault that’s holding all your collateral, and withdraw that. Because if you withdraw your collateral at a time where LUNA is crashing, then at the point that you withdraw your collateral, you’re pushing your LTV up, because you’re taking your collateral out. So say you’re at like a 55%, because it’s crashed, and you don’t have any money in your wallet or any money anywhere to pay it back, because it’s all been provided, because you loop three times, you’re at a 50% LTV. And the only way you can pay that down is you have to withdraw your collateral. And so if you’re at a 50% LTV and you withdraw bLUNA, it’s gonna push your LTV up to close to 60% and you’re going to liquidate yourself. So you just got to be really careful that, say you do reprovide, and you reprovide three times, you’re gonna have… At the beginning of your looping, say you’re at 45% LTV and then you take all of that borrowed money, you buy LUNA, turn it to bLUNA, provide it, and then it goes down to like 30%. And then you do it again and it goes down to 25%. So now you think that you have all this collateral, and you push it up to 45% LTV, you take all of that, and then you buy LUNA with it. And then LUNA drops by 50%. And all of a sudden your collateral goes down by 50%. And that loan is now due or you’re going to get liquidated. It’s just super hard to unwind that position. And the best way to to really understand that is to try it. Try do it with a small amount. Put like 10 LUNA and loop it three times. And then just wait for a drop to see what happens. And then once you experience it and you experienced the pain, you’ll know exactly how it works.
Now I got you. I understand. Yeah, I hear you. So yeah, I get what you’re saying that that difference in that bLUNA-LUNA is like not enough to cover what you need to pay back. And also you’re running out of collateral. So to unwind that it’s… I get it. It’s tough, so I don’t want to learn it that way. [chuckle] So next question is just quick question. What do you do with the ANC rewards when you… From the borrow? Do use it to pay down the loan or are you trading back to get more LUNA?
You can do whatever you want with rewards. For me, I’m actually… I used it to buy more LUNA, sometimes I’ll use it to spend. And yeah, and I just posted about that aha moment, which is, I don’t know why I never saw it before, but if you take the rewards and you spend it, and you match it against the interest that you’re charged right now, because it’s kind of even an even, you have a tax free income coming in, because you can deduct all of your interest off of your income. Hey, Hutch, why don’t you finish your question and we’ll jump to the next one.
I’ll try, man, I’m so sorry. I’m gonna have to switch to Apple. Android is just killing me. What was the last thing you heard? I was like blabbing away. And then I realized I got booted.
So you’re saying that you would have bLUNA, you do the swap on the way down, take advantage of that 2% arb, and that’s kind of the way that you’re collecting or stacking more LUNA was on the LUNA-bLUNA. And then you provide your bLUNA to your collateral to lower your LTV. And then you’re kind of… if I understand that’s kind of what your tactic was.
Yeah you’re pretty close. So basically, since I’m usually only buying LUNA on dips and the best time… Because I think it is a taxable event to swap and I know you were gonna send me an article and I want to read that because I hope it’s not, but I think it’s going to be. So since I’m buying LUNA on dips, when I buy my LUNA, I usually swap very close to that time of volatility. So I’m swapping well, I’m getting a good swap arb. Then I provide LUNA and bLUNA into the LUNA-bLUNA pool. Very little impermanent loss, a little bit of skew, but I’ve swapped well going in. Then we go up for a while. And then things… And I maybe borrow more, and… I was doing LPs and stuff, and I should have just stack LUNA, but then we start to come down. So I would withdraw from the pool. The bLUNA, I’m not going to sell. I just provide so it entails that you’re not stacking as hard and that you are kind of over collateralizing because you’re not going to get dollar for dollar like with UST, right? I’m just providing… And then on the LUNA part, instead of even selling that I could sell that. I guess if things were really dire, I could sell that. But also, since we’re coming down and we’re crashing, I usually get really good arb on that. In fact, on December 3, when we went from $50 to$70, and back to$50, like back to $70, like overnight or whatever, I got a 4.7% swap. So I have a transaction history where I swapped 300 LUNA, that was like half of the pool, and I got 345 bLUNA for it. And so that’s been my thing is just to kind of over collateralize. What it entails is you’re not like riding LTV as hard as you are, which means you’re not stacking as much on the way up. And so you’re not going to go crazy, but I think for a lot of the people on the call that maybe aren’t there yet, because they’re not full degen options trader with nerves of steel yet. Do you think that’s a viable option with that?
Yeah, of course, I think that’s a really cool option. You should actually post the steps of that strategy so that people can see it. And…
I was planning on making a video.
Yeah, or make a video even better. I think that would be cool. What LTV are you at when you’re doing all of this?
So it was part of the video. I started to make a little graphic like an infograph. And it was almost like a compound curve with you at the top, right. And you ride, my guess is like, in the call at low 40s, like low to mid 40s, that’s your happy place. My happy place is like high 30s maybe like 41%. When I get to 41% I’m like Rain Man, I’m like, “I don’t know…” And for you, that’s 50%, right. [chuckle] And so I was gonna make a schematic with that. I’m gonna make a cool video and I’d actually love your take on it. But my second part of the question is
Yeah, I’d love to see it.
Okay, my second part of the question is, because after your call with the LP of the LUNA-UST is like, “Fuck, that’s brilliant. I gotta start doing that so like LUNA was at $85, and I did like I got some, and I borrowed and I put it up there. And then we shot to like $90-$91 and I saw like I was having some impermanent loss, I’m like, “Ahh!” And I just like, “Screw this, I hate this!” Because it went against everything. I’m trying to stack LUNA and I see it kind of getting watered down along the way. I probably should have stuck with it but then it got me to thinking especially with all this talk about the… Whatever liquidity pool that’s coming up and I answered it, what if like… You can’t time the markets perfectly and if you’re trying to time the markets like buying LUNA tops and selling LUNA lows, what if like… Pools, like meaning if we’re at a bottom or at a consolidation zone, you can actually just did… And then if we went to an all time high, then you switched it, right, and took your LUNA-bLUNA out.
That’s actually what we’re… I was talking to the Nexus guys on Sunday night. And they’re gonna do a really simple strategy that kind of does that, but with really clear metrics. So what they’re working on is a vault that uses about… So it takes bLUNA and then with 25% of the LTV, it will purchase LUNA and then when it gets to say, 40% LTV, that will kind of be the stop. It will withdraw LUNA from the pool, and then when the LTV is back to a safer place, then it will reenter. And then as the price of LUNA goes up, then that LTV will drop and it will drop below the 25%. And then it will push the LTV back up by taking out a little bit more LUNA and kind of rinsing and repeating that. So it uses the LTV as places to stop out and places to re-enter into the market. And then also to add more LUNA. So I think that’s gonna be the first stage of this vault. And then they’ll figure out the more complex things that might be harder to program, but add layers of it on top.
Well, cool. It’s at least validating to hear that it’s a possibility in your mind. But I’ll step down. I’ll let somebody else ask a question. Thank you.
I think Wall Street is has been raising his hand for a while. So Wall Street, what’s up?
Wall Street Mastermind 46:42
Hey, LUNAomics. So I think your 2022 Strategy… ‘Cause at this point, you’re all in on LUNA already, right? Like meaning all of your capital is pretty much… At least the capital that you’re investing with, is pretty much in LUNA right? But for the newer people who are maybe just starting out with LUNA, and they don’t have 100% of their capital in LUNA yet, and they have it in a bunch of different things. When you were first starting out, did you just like… Once you have conviction about LUNA, you just put everything in all at once? Or were you dollar cost averaging in and then buying the dips? How do you kind of think about that? Because I think typically people will say, “Oh, you should DCA in,” right? But it feels like you just went all in from the get go and then now you’re just using the price increases of LUNA to buy more LUNA. Because there’s no more capital, that there’s no more… I mean, there’s W-2 income, I guess. But aside from that.
Yeah, I don’t recommend anybody to do what I do. And I’m very… I think my risk tolerance is way more than the average person. But it’s because I’ve suffered more pain than I think the average person. One of the reasons why I put these things out is because I’ve gone through so much pain, and I know there’s… Anybody that’s on this space, and anybody that’s listening, and anybody that is putting their spare time into something like this, they have a dream for their lives that’s bigger than their current situation. And that’s… I think that we’re a rare breed. When I was in a situation where I was looking for answers and trying to figure out how to increase my income to match the level of my aspirations, I got hurt so many times. And I don’t talk about it, but I mean, there’s been times in the market that… One of the times was when I lost everything. To me back then, $75,000 was everything. And it took me years to build that up. And the 2008 crash, I lost all of it. And it was so emotionally hard that I had to walk away from the markets for about five years. So there’s a lot of pain. And I think just over the years, I’ve learned to stomach the volatility of my account, so that it doesn’t bother me. It’s almost like a muscle that has to be developed. And I tried to get my kids experience that. So now we see these huge swings of… In my kids accounts, they’re seeing these massive swings of 10s of 1,000s of dollars. And they’re okay with it. And one day there’ll be okay with 100s of 1000s of dollars, and then it will get to millions. So I think that that’s a specific skillset that I think is very valuable, but I don’t recommend anybody to do it pass their level of comfort.
So even the people that I teach in real life, I say, “Hey, just put the amount of money that you can lose, that you feel comfortable losing, put that money in first. As you get more comfortable, you can add a little bit more.” And that’s the way everybody kind of get started. And if you do things, right, and you do things… You understand how to manage the risk, and to leverage in when you’re supposed to, and protect your risk on the way down, it will get to a place where you’re playing 100% with house money. And when you get to that place, it’s very stress free. So right now, the amount of money that I make in crypto, my W-2… I still work a job. I still work a job, but my income from my job is about 1% of what I make. So I’m thinking of just doing my job for fun and donating all of my salary back to the organization I work for this next year. And yeah, it’s at a level where my W-2 wouldn’t even do anything to push up my earnings at all in crypto. And I think that’s kind of the goal. It would be cool. When you can get to that level, it’s very… It’s way more stress free. And I mean, I could lose everything and still be okay. I mean, I don’t want to lose everything, but I’m okay if I do. So I don’t know if that answers your question, but yeah.
Wall Street Mastermind 51:53
I mean, obviously NFA, right? And so everyone has to decide their own risk tolerance level and whatnot. In my mind just trying to think through like, okay, yeah, I can wait for the dip, and maybe it goes from $95 down to $85. And then, you got in for $10 cheaper, but at the same time, I’m just trying to balance out with, well, what’s the likelihood of it going up way faster than that? And then now, instead of getting… Now you’re getting way less LUNA, right? So I mean, anyway, I appreciate the answer. I know, you can’t tell us what to do, everyone has to decide for themselves. But I was just curious what you did when you first started, but it makes sense that you have that muscle and you’re a lot more risk tolerant, I guess, than most people.
Yeah. And it’s taken years to develop that to where emotionally, it doesn’t affect me. And maybe it does, and I don’t know it. But yeah.
LUNAomics. Sorry, I got brought up as a speaker. But I actually have a question. And I can’t quite figure out how to get the hand to… The raised hand thing. I just want to ask a question at some point. So I apologize to whoever I cut in front of, I apologize about that.
We’ll have camilo speak right after.
Okay. So yeah, I have two questions, two quick questions. One is, I’m pretty new to the LUNA ecosystem. So I haven’t been through that many big drops. And I’m wondering, how fast do the big drops happen? So I know, there’s been a few times where LUNA has gone down 30%, maybe 40%. Even I think 50% in price. I wasn’t around for those times. How fast from the beginning of that drop, through those moves is happenning?
You can go ahead and pull up a chart. If you just pull up the LUNA-UST chart, you can see how quickly it went down. It took days for it to get down there, probably a week. It was just one red bar after another red bar. It won’t crash… Well, hopefully it won’t crash that 80% in a day. You’ll have some time to react. So yeah, I mean, anything can happen in markets. And one thing that I hope that somehow they put into blockchain is circuit breakers. Because in traditional markets they have these circuit breakers that at every, I think it’s 4% on the NASDAQ, it will just stop and let the markets reorganize and come around a consensus bid and ask, and then they’ll reopen. Just because if the market is just going down and down and down and there’s no circuit breaker, the fear that it generates is so large that nobody wants to take… Somebody’s using the bathroom without the mute button. But the fear that generates is so big that it can’t… That people don’t want to take the other side of the market. So when nobody’s willing to buy, the bottom just falls out. And that’s why traditional markets have the circuit breakers. And at some point, I’m pretty sure that crypto markets will adopt the same type of technology. It would be really helpful, I think, for crypto markets to have that.
Yeah, actually, I think something similar to that happened on Wonderland TIME, a couple of weeks ago, where the devs actually went in and paused liquidations for a few minutes or maybe an hour or something like that, in order to do what you just said, basically, but in a manual way. But my other quick question, and I know that this was kind of just asked, I just want to push you a little bit harder on this. If you were starting out right now with LUNA at the price that it currently is, would you just… With your assumption that LUNA is going up and everything like that, would you just buy? Like, would you just market buy, basically, right now with all your funds? Or would you DCA in? Or would you run a bot? If you were starting right now, and just you speaking about your situation, who you are with your psychology, and you were looking at the market as it is right now, how would you go about acquiring your first amount of LUNA?
So if I had to do everything over again, I’m carrying hardly any debt outside of crypto because it doesn’t make a difference what kind of loan I can take out now and put it in crypto, because the crypto side of my life is large. But if I had to start from zero, the first thing I would do is take out a loan. I take out a loan because I have the foundation’s down. I talked about that of budgeting, you have more income than you have loan, then you invest, and after you invest you risk manage, and after you risk manage you scale. And in the scaling part is the taking out loans, I’m confident enough in the budgeting part. My finances are in order, my credit is good. I have income outside of crypto, that I can pay off loans, if I need to pay off loans, pay the minimum of loans if I need to pay the minimum of loans. So having that foundation, I would take out a loan. And then with that loan, because… And I would take out a loan that is a long term loan, like the longest term loan that I possibly could. So a home equity loan, with a fixed interest rate is the safest type of loan, because you can predict your payments, there’s no balloon payment for 15-20 years. So all I need to do is calculate the minimum amount that it will cost me to take out that loan per month. And if I can come up with that money every single month to pay down that loan, or the minimum of that loan, then that’s what I would do. So I would take the money from my loan with a long term perspective in mind of, whatever yours is going to be.
So now that I know that I have access to this money, and I know how much it’s going to cost me and I know I can handle that cost, and I know the duration of that loan, I would want to get the longest loan possible because that’s a very important metric to have in your head when you go into something like LUNA. Because say you go in to LUNA and your timeframe is a week, you have to be much more careful of your entry point. But if my timeframe is three years, it doesn’t matter if I get in this week or next week or $5 down or 20% pullback down or… All that becomes irrelevant. So there’s no risk for me to take the lump sum of my home equity line of credit purchase at the market, what LUNA is, and then just buy and hold it, or turn it into bLUNA, throw it into the bLUNA vault. And then now that I’m on borrowed money, or now that have access to borrowed money, that borrowed money, I’ll be a little bit more careful of how I deploy that borrowed money because that really depends… Like I’m going to have to pay back that loan… That 60% LTV, so I’ll be way more careful in deploying that borrowed money against my collateral because I don’t want to get liquidated and I would use that borrowed money to leverage into LUNA on dips or at a certain LTV and kind of do my strategy, my 2022 strategy of accumulating more LUNA as my LTV drops. So yeah. But, say I took out a loan that I had to pay back quickly. And so my time horizon wasn’t as long or I didn’t have the luxury of having a long timeframe, I would be way more careful of my entry points if my time horizon was shorter, when that loan becomes due. If it’s money that I just have that I know that… Like if it was a 401(k), and I was cashing out my 401(k), I would even care. I’ll just dump it all in, and then just manage the price volatility afterwards.
Got it. Okay. Thanks.
camilo salah 1:00:54
I got a question. So…
Okay, last question for me and then I gotta go. Uniracer, can you take over from here after this last question?
camilo salah 1:01:03
Thanks. Thanks, LUNAomics. So when borrowing UST on Anchor to buy more bLUNA, there’s an APR associated to that borrow. So when should this interest be paid? Or when are these interests due? If I do nothing, are they deducted automatically from the collateral every month? Or how do the…
Yeah, so I that question… And I don’t mean to be rude or anything. But on the pinned tweets, that’s a frequently asked question. So you can just go straight there and read it. So one of the things I asked, and the reason why I put the pinned tweets there is so that we can all be on the same page, and that we don’t repeat the questions and have to have the same questions answered every single Space. So I’d really appreciate if everybody read through the pinned tweets so that we’re all on the same page. And then if you do read through it, and you don’t understand, you can ask a question, then that’s perfectly fine. Yeah, the whole reason for the pinned tweets is so that we can be on the same page, understand the same things and then process it. So yeah, the questions on the loans, it is on the pinned tweets, I think on the bottom of the page.
camilo salah 1:02:25
Okay, I’ll look for it.
Awesome, thank you. Okay, let me see I’m… Orbital Command, I’m gonna put you up as a co-host if that’s okay with you. And then if you and Uniracer could… If you guys want to discuss more things on the space. I have a meeting I got to jump into. Super cool hanging out with all of you. Thank you for jumping into the Space. Alright, have a good one.
Thanks for checking out another episode of The Ether. This episode was brought to you by Orbital Command, the community validator on Terra dedicated to educating, expanding, and promoting the LUNAtic community. Support their community efforts by considering them next time you’re delegating or re-delegating your LUNA. This was a Space hosted by LUNAomics, doing a little question and answer. For terraspaces.org, I’m Finn. Thanks for listening.