Hello and welcome to The Ether. Today is Monday, December 27th 2021. This is the LUNAomics 2022 Luna Investment Strategy Discussion. Let’s take a listen.
Hey, Adam, are you there?
Adam Beachnau 0:56
Yeah. Hey, how’s it going? Can you hear me?
Yeah, I can hear you.
Adam Beachnau 0:59
Yeah, it’s a… Thanks for this good idea. Good way to start the week talking about LUNA. What’s better than that, right?
Yeah. Yeah. How’s everybody’s Christmases?
Adam Beachnau 1:08
Yeah, it was not a super fun Christmas for us. We were supposed to travel to… I live in the Pacific Northwest, in Seattle. And we were going to travel to the east coast. But my sister got COVID, and we canceled all our plans. So it’s been… But I guess we’re not the only family to have to cancel Christmas plans. But that’s… Besides that it was good, just pretty chill.
Yeah, I think the same thing… Here in Hawaii, we’ve had a huge fight. And my family just got over COVID a week ago, I got it first and then it spread to my family. But everybody recovered pretty quickly, so I’m grateful. So I wanted to do this Space to discuss more risk management of the strategies, because I didn’t have… I didn’t want to write everything down in the tweet. But that tweet, Strategies for 2022, was kind of like a broad stroke. I didn’t really give details on everything. And I didn’t want people to jump into this, using LUNA to stack more LUNA, without understanding the risks involved, because it is kind of risky, especially if you loop it several times, and then it goes down. I got caught in me doing it. And I got liquidated, probably 30% of all my LUNA in May. That wasn’t fun. [chuckle] But…
You’re talking about risk borrowing on Anchor Protocol? Is that what you’re talking about?
Yeah, yeah. So the main strategy that I have, the underlying strategy is that I invest 100%, because I used to have different investments. But I moved it all over to LUNA when I saw the use case for it. So I started in 2017, I had like… I started with Bitcoin at $4,000. And then when Ethereum came out I moved it all to Ethereum. And then when Binance came out I moved it all to Binance, but I had a little bit in everything. And then once I started using… So I was in Ethereum, and I was using Synthetic, because my background is… I’ve traded options for the past 20 years, sold premium options. And so I was always looking for a way to trade with blockchain. And so when Ethereum came out with Synthetic, I was trading on that platform. But it didn’t really make sense because the fees for every trade was… If you weren’t trading hundreds of thousands of dollars per trade, it just didn’t make any sense. So my friend, he introduced me to Mirror. And when I started trading with Mirror, and the transaction speeds are really fast and and the fees are really low, it’s kind of what I was looking for. But then one thing that Synthetics provided that… Or Mirror provided that Synthetics didn’t have was being able to provide liquidity. So that was like a really big thing because when Mirror first came out, they were offering over 200% APR under…
Sorry, I’m kind of winded, I’m walking my dog. Yeah, they were offering 200%. So at first I thought it was a scam. And I didn’t really understand what LPs were. That was kind of my first exposure to liquidity pools and providing liquidity, but because I was a trader I started understanding the whole principle behind it. How the banks when they would provide a market or IPO, they would really make the majority of the profit, because they have a little put for every buy and sell. And instead of just allowing the big banks to do it, they’re letting individual investors provide liquidity and then get paid according to their share in the pool. So once I understood that, I was like, “Fuck, this thing is going to change everything.” So then I moved most of my capital from traditional finance, other protocols or other… Other protocols into Mirror and just started trading MIR. And then from there, it was researching what LUNA was. And I was using so much UST with my trades, and I realized that I could also profit by buying some Luna because in my using UST on Mirror, I was burning LUNA. So it was just the natural… It just made sense to buy a bunch of LUNA and once I started seeing the returns from the 200% APR, then I just kind of never went back. So that’s kind of how I got started.
Adam Beachnau 6:29
Yeah, that’s great. So it’s kind of like you found a pathway. You didn’t even really hear about LUNA, but you were just… Started trading on Mirror and then discovered LUNA through that pathway. And I think that’s really one of the great things about the Terra ecosystem is that there’s… It’s not just about the coin. It’s about the stablecoins, right? The coin being LUNA. It’s about having this ecosystem of financial apps, and particularly with Anchor, right. I mean, who doesn’t want 20% yield on their money? And every time I tell people about it, even people who aren’t in crypto, they’re just so shocked that there’s something out there that you could get that. And of course, you have to explain the risks that go with it, but it’s just such a compelling thing. And you see that as well with Mirror and being able to trade synthetic assets, that it has this pull, right. It has this sort of gravitational pull to bring people in. And I think that’s why you see the things like we just saw recently with total locked value being number two, and it’s one of the things why I’m so bullish on LUNA myself.
Yeah, and I think one of the things that is just amazing about LUNA is, so when I started investing traditionally, I didn’t have a lot of money. I think in my story I talked about starting with $6,000. It’s actually less than that, because I would use my HELOC, or professional lines of credit, or 0% interest cards, that’s the way I started investing was with that, and credit. But I always did it wisely. I would look at the credit that I borrowed and then look at my W-2 income and make sure that even if my investment didn’t work out that I’d be able to cover my loan. So I did it in a way that even if I blew up, I wouldn’t be at risk. But I’ve always been comfortable using credit and put that credit to work to make money. So once I saw that LUNA, the way that it captured value from the UST demand, and I was creating the demand for UST, it was a no brainer to buy LUNA. And when I saw how LUNA is deflationary, and it also pulls value from the demand for UST, and then Anchor dropped. And Anchor, that was a game changer for me because Anchor allows you… It gave an added utility to LUNA. So the same way that I could buy a home and then leverage my home, take out a loan from my home and invest it in the stock market, I could do that with LUNA. And if LUNA was deflationary, it would appreciate in the same way that a home would appreciate, because, yeah so… So I saw that and I thought, “Man, that’s just… That’s crazy.” So I could buy LUNA just like I could buy a house and then borrow off of LUNA the same way that I borrow off the house, and I never have to sell my house. I can keep my house borrow off of it and make more money with that money.
So that was kind of the mindset of my strategy in putting together just the foundational apex asset. That I would buy LUNA, keep it forever, never sell it. If it’s deflationary and the demand for UST would increase, then that means that LUNA would get more scarce and more scarce, and over time, it would increase in value just like a home would increase in value. And it would also give me more borrowing power that I could put to work, and invest in LPs, and create cash flow, and do all kinds of things with it. So when Anchor dropped that was just a game changer, because it gave an added utility for LUNA. So that was kind of my path. And so I invested 100% of everything into LUNA, borrowed what I could off of LUNA in a safe way. But then I got greedy and I looped… So I would borrow LUNA, convert it to bLUNA, re-provide, borrow off of that, re-provide. I probably did three loops when the borrowing capacity was greater, because it went from like four to 15, and then to 24. And I looped it all the way up. And then when it crashed, the unwind is really, really tough, because when you unwind, and you need to now pull your bLUNA out, and to pull your balloon out you have to eat that spread. And because everybody was doing it at the same time, the spread between LUNA and bLUNA, you look at it as three points now. And I see Cephii does that all the time where he’s taking that spread between LUNA and bLUNA. But when there’s a crash that spread, actually I think it was like 70. You could do 70… You could only get 70 LUNA for every 100 bLUNA that you sold. So…
I’m sorry, are you talking about the crash in May?
Yeah, the crash in May, right. Yeah, so when it crashed, that spread widened to about 30%, where it didn’t even make sense to unwind it. So I just sat on my hands and got liquidated. And I told myself, I would never do that again. And what’s interesting is when listening to Cephii’s story, Cephii actually got into the ecosystem after the crash. So he was watching how the whole community was responding to the crash. And when he saw that it was responding in a healthy way, he actually jumped in, I think, probably when it was $5, or getting to $5. And he actually did the exact same thing that I said I would never do. So he started looping in but he started looping in at the right time. And then when it took off, he had all of that leverage that he used at the bottom. And then that kind of taught me a principle of, you don’t have a right or wrong strategy, it’s really your timing, because looping is a good thing, if you do it at the right time, a terrible thing if you do it at the wrong time. So now it’s just like trying to time when I leverag in, but I never do more than one loop. So if I buy LUNA and then I try to keep it in my wallet as liquid LUNA that I can liquidate at any time to pay down my loan. But if it’s moving up, and my loan to the money that I have in my liquid LUNA, the ratio of it… If I have way more in my liquid LUNA than I do in my loan, then I’ll take the difference and I’ll convert it to bLUNA and provide it, so that I have extra collateral. So I try not to loop it in a crazy way. But sometimes I will.
Adam Beachnau 13:39
Yeah, and I think this concept of leverage is such a good one, because… And I like a lot of the stuff that you tweet about around… It’s really about risk management, and I, myself, haven’t jumped too much into using my LUNA for leverage to buy more LUNA so looping it, as you’d call it, but I thought your example on the house was really good, because that’s something… And I’ll preface it by saying I’m not… I don’t encourage anyone to do it. Do your own research and kind of figure out your own risk level. But I sort of borrow against my house because US banks are giving me 4%. And I can go on and on and immediately turn that to… Even if I just wanted to do it on UST, 20%. So I’m getting this massive premium. And if I want to invest that, then if I make some gains, I can put it in crypto and do other things. But it’s sort of like, leverage is all about… It’s not necessarily a bad thing. Use it to your advantage and know the risks you have associated with it, right?
I think especially in this inflationary environment, it’s almost like it’s a gift from the government. I mean, the government is in such massive debt right now that they can’t possibly pay back their debt. So the only way that they can pay back their debt is to decrease the value of it through inflation. So the more dollars that they print out, the less their debt is. And I don’t know how much of the general public really understand that, but the government in printing all this money, it’s not because they’re generous, and they want to give money to all these people. They’re so far in debt that they have to dilute it. But the problem with that is that when they print out all this money, and they do it through the banking system and whatnot, just since 2019, they printed 40% of the entire money supply. So from the beginning of the country, like the inception of our country till now, 40% of all the money that’s circulating has been put into the system since 2019. That’s, that’s a crazy amount of inflation. If there’s any protocol that said, “Okay, this year we’re gonna increase our token supply by 40%.” I mean, there’d be a mass exodus from that protocol, but that’s what the US government’s doing. And so what happens when… The bad thing about that is people that are saving, and people’s 401ks, or people that have savings in the bank, and CDs, and bonds or whatever. And it’s just sitting there. It’s almost like you’re staking your token, you’re staking your US dollar. And your US dollar, if you’re in a 401k, is like locked up till you’re 65. And if you take it out, there’s a penalty. If you think about the monetary policy of the US, and you compare it to tokenomics of DeFi, the US has the worst tokenomics ever, because they make you stake your token, and then they penalize you if you take it out before you’re 65. And while you’re staking it, they’re printing out a massive supply, devaluing your currency that you put it in.
And so when you start looking at money through the lens of tokenomics, and you see what the US government is doing, it’s just logical that you jump on the side of the Fed. So instead of saving your tokens, you get into debt. And so if you get into debt in a responsible way, like you take out debt at 0%, or 3%, and then you take that loan at 0%, 3%, and you put it into DeFi that’s yielding you 200%, that’s just a logical thing to do. But you have to do it responsibly. So you don’t ever want to take out debt that you can’t pay off if DeFi blew up. So I manage all my debt, looking at my monthly payments and making sure I can cover my monthly payments, when I do take out a debt. But it just… To me, it makes sense to do that, but I think that there’s a foundation. So I did tweet about that, that the foundation is, you have to know how to budget, you have to know how to spend less than you make so that you have a margin. That’s the first tier of responsibility that I think any investor has, is just to budget. Spend less than you make. And you can do that by spending less or making more.
So once you have that first tier set, then you can go to the second tier, which is now you have margin leftover, you have more money than month. And then with that money, instead of spending it on stupid stuff, you invest it into something that’s going to increase in value. So to me, that’s LUNA or that… To me, I’ve looked for different things to invest in, and even real estate. Real estate has appreciated maybe 30% per year. Well, you have LUNA that’s appreciating at, like 1,000% a year and more. So even in the realm of cryptocurrency, LUNA is one of the best investments that I’ve seen, for me to put my money in, and that’s why I’ve just gone all in. So once you invest, then the next step is risk management because once you invest it, you don’t want to lose it. So my number one rule in risk management when I put things in LUNA is, I don’t want to get liquidated now. And then after you have those tiers developed then it’s scaling, and you can scale through taking on credit, taking on debt. And then that’s when everything goes exponential because there’s so much credit that’s available in our system. You can get 0% cards, you can get professional lines of credit, you can get HELOC, and all at 0%. So once you have that foundation set of managing your money, first budgeting, then investing, then risk management, then you can start getting into credit and scale it, and that’s where the real power is. That’s how I went from $6,000 to $5 million in a couple of years. It’s really, you’re taking the power of the Fed and you’re using it to your advantage.
Can you tweet about those three, like I understand the credit card part, 0% APRs, but a couple of them you mentioned, I just completely forgo… Not forgot, I can’t remember what those are. You said lock or something. But can you tweet about those? That will be really helpful.
Yeah. Okay. Yeah, I actually have. I think it’s… But I can put it into indexed tweets. I need to go back and look at the tweets that I’ve done, and then organize it into the indexed tweets.
I have your tweets saved, but I haven’t got a chance to look at deeply in entirety.
Yeah, so I’ll find that tweet and I’ll stick it on the pinned tweet, that indexed tweet. I call it interest rate arbitrage. So there’s a whole bunch of stuff on there, in my pinned tweet, on interest rate arbitrage, and really using the interest rate of traditional finance, 0% to 3% on different loans, and then putting it into DeFi and getting 100%. That’s where I think the real opportunity is right now is in the…
Arb interests between the two separate entities, yeah. I think in Canada, we used equity. You can get equity on the markets, but in US, I don’t know what’s the term they call. I haven’t seen anything like that here. So maybe it’s different. I mean, you can get the equity or cooked line of credit, per se, and then maybe you have like, a million dollar house, so you can get $30,000-$50,000 line of credit on it. And then maybe they charge you probably at a rate of whatever the prime is, or maybe something more than prime. And then you can use that money, and then you can pay the interest off in a year’s time or whatnot, right? Or monthly, or whatever. So is there something you were discussing earlier? I joined a little late, but I thought when I joined, I heard about that.
In the beginning, I was talking about how I got into the LUNA ecosystem. But yeah, so with the… Using interest rate arbitrage, one thing that… A lot of people look at inflation as a bad thing, like we’re going to experience this hyperinflation and whatnot, and you can actually use it to your advantage in really powerful ways. I mean, I think one of the most powerful ways is with LUNA, because it’s the demand for UST that drives the burning of LUNA. And so if you think about it, if we hit this hyperinflationary environment, and we can spend UST with an Alice card, which I saw a tweet that it’s coming out pretty soon, that is going to fuel a huge demand for UST. Because gas that used to cost $2 now costs $5. Milk has doubled in price, lumber’s higher. So, because there’s this huge inflationary pressure, people are going to have to spend more US dollars. And if there’s a way to spend UST that converts the USD, it’s going to create this huge demand, a greater demand for UST, and a greater burn of LUNA. So if you think about it, holding LUNA is really a perfect hedge against hyperinflation. So that’s one way that you can make hyperinflation, or the government’s printing of money, you can use it to your advantage just by buying LUNA.
The other thing is, if you look at anything that you can put a lien on. So like I live in Hawaii, and so there’s a huge demand for rental cars. So I just started dabbling with Turo. Turo’s an app that you can download on your phone, and you can allow people to rent your car. So I had a Jeep and I put it on Turo, and people started renting out my Jeep. So it produced a cash flow from a car that I already owned. And pretty soon that Jeep was rented out so much that I couldn’t use it. So I had to buy another one. But I bought another one with the profit of the one that I rented out. Then my friend told me, “Hey, did you know that you can put liens on your car?” And I never knew that you could put liens on vehicles before. So I took the deed down to my local credit union and said, “Hey, I want to borrow off my car.” So they allowed me to borrow $25,000 off of my Jeep, and I took that $25,000 and I put it into LUNA. So I had more LUNA and then I borrowed off my LUNA to UST, and then provided it to the ANC-UST pool that was generating over 100% return on investment. So if you look at how much I was generating from the UST pools, or the ANC-UST pools, and how much I was making on the principal increase of LUNA that I was using as collateral, I actually made more with that $25,000 that I borrowed off the Jeep, than I was making cash flow renting the Jeep out. So when I had the Jeep that I was renting out, I was probably making $2000 a month on it. But I was making like $3000 a month with that capital that I borrowed off my Jeep and DeFi. So altogether, I was making like $5000 a month, leveraging the arbitrage between traditional finance and decentralized finance.
So there’s so many different opportunities when you start putting the pieces together, and you see what’s going on in traditional finance, and you use the tools of under collateralized or total uncollateralized loans in traditional finance at 0%, and you match it with these 100% yields that you can get in DeFi. It’s just a complete game changer. And now, just between that interest rate arbitrage, I’ve learned to make so much in DeFi that it doesn’t make… I calculated it at the end of this year, and my traditional job pays me 1% of what I made this year. It’s just crazy.
So how do you keep track of it? I understand arb strategy and all that, but like alerts or notifications, or simple spreadsheet, maybe? Like the leverage of bLUNA, I understand you’re not gonna get liquidated again. But then you have to remind yourself, “Of take this or… Break it before you lose or get liquidated,” right? Take it off, you know.
Yeah so there’s a tweet that I have in my indexed tweets called Risk Management, and it goes in depth into how I set my loan to values on Anchor. Basically, what I do is I look at the potential of a pullback. And just to make things simple, LUNA can pull back 50% at any time. So if LUNA can pull back 50% at any time, that means your loan to value is going to double. So if I have a loan to value at 25%, if Luna drops by 50%, my loan to value is going to go from 25% to 50%. If I have a loan to value of 30%, and it drops by 50%, then it’s going to double to 60%, I’m going to be right at liquidation. So I look at a 50% pullback as kind of the level of where I would want to live, so right around that 30% mark. But then if you only take 25% of your loan to value out, then you’re not really making use of the extra capital, right. So I’ll take 25% loan to value, I’ll take that capital and put it into something that’s would be considered a little bit higher risk, like an LP or something. I’ll put that money in LP, but then it doesn’t make sense just to let capital sit there, especially when it’s free capital. So then I would take the remaining amount from 25%, all the way to 45%. And I take that remainder, and I put it in Anchor Earn, so at least it’s yielding me an additional 20%.
And that is not at risk of volatility of price, because it’s stable, right. So it’s in Anchor Earn, and at any time, if my loan to value gets to 50% or 55%, I can just pull it straight from Earn and pay back my loan and bring my loan to value down. And if it keeps going down, then I’ll go into my risk investment. And then liquidate… So if it’s an LP, I’ll liquidate… I’ll unstake my LP, and then I’ll withdraw my liquidity. But I won’t sell the underlying token. I want to keep the underlying token and I’ll just use the 50% of the UST to pay down my loan until I’m in a safe place. And then when it turns around and starts going back up, then I’ll borrow the UST again and match it with the token that I previously had. And then provide it and produce the cash flow again. And then if worse comes to worst, then I’ll finally liquidate the token side of the LP. So that’s basically how I… That’s like a basic foundation of how I view risk management when using the Anchor loan. Does that make sense?
Yes, perfectly. It is like an individual, basically, how you set it up, what’s your threshold, and how you’re going to take care of it. Yeah.
Yeah, and then I set up… So there’s a website called cryptocurrencyalerting.com. And that’s also in my Risk Management tweet. And I just set up different levels of… I have a spreadsheet that shows me what prices I’m going to hit 50% LTV, what price I’m going to hit 55% LTV. And then I set up alerts at those price levels that will call my phone when LUNA hits those price levels. So everything is on my phone. So at any time of the day or at night, if I hit a 55% loan to value, cryptocurrencyalerting.com will call me, and then I’ll just manage it and pull it down. So I’m always kind of connected to it. And that’s the kind of the price you have to pay to leverage at higher amounts to get the higher yield. But because I’ve been in traditional finance and done option trading, I used to do that all the time. So I’m very used to getting woken up in the middle of the night having to manage a trade on the futures markets, because futures trade 24 hours a day. I’ve kind of lived my life like that for the past 20 years. So it doesn’t bother me to have to manage it.
Fantastic. Good to know.
Yeah, so if you don’t like getting woken up in the middle of the night, and you don’t like that kind of stuff, then I’ll keep my loan to value maybe at 20% or something. And you’re not going to get those crazy yields and stuff. But I mean, it’s still massive yields compared to anything that you can get in traditional finance.
Yeah, crypto is 24/7, you never know what’s gonna happen next moment. So it’s better to have those alerts coming in.
Yeah, yeah. Somebody else had a question. What was the… I heard somebody…
Yeah, I mean, it’s pretty… It’s kinda a little bit off-topic but not really. But due to recency bias…
You’re kind of breaking up. I can’t hear what you’re saying.
Hello. Yeah, you’re kinda breaking up. I don’t think…
I’ll come back when I a better connection.
Yeah. So I think one of my main concerns is, people that read those strategies… One of the main things is just don’t loop to your heart’s content. Buy LUNA with the borrowed amount, and then convert it to bLUNA, re-provide, and just keep doing that. Because when LUNA does pull back, and it will pull back at some point, it’s that spread to convert bLUNA back to LUNA widens considerably. And hopefully, with White Whale and these different protocols that are adding liquidity, it won’t widen as much as it did in May, but it will still widen to a place where it’s painful. So I’d watch that. And the way that… The flow that I have when I look at leverage is I assume that LUNA is going to go up in price. That’s my underlying assumption, that LUNA is going to 10x this year. And there’s tons of reasons for that, and Cephii hits a lot of those reasons in his Spaces. But I think anybody that looks at the tokenomics of it, looks at the utility, the protocols that are coming out, the demand for UST, I mean, there’s so many things that point toward LUNA easily 10x-ing this year. And even if it doesn’t, 10x this year, it will 10x in the next year and a half, two years. So with that underlying assumption, if you do take out a loan, and say, your loan to value is you take it out at 45%. As LUNA increases in value, your loan to value is going to decrease. And it’s going to get to 25%, and 15%, and 5%. And when you have a loan, that’s taken out at 5% loan to value, you really don’t ever have to pay that loan back. It really depends on how quickly LUNA goes up in price. But if LUNA goes up in price considerably, like 10x loan, I don’t know if I’m doing the math correctly, but a 45% loan to value could turn to a 4.5% loan to value. I don’t know if that’s exactly correct, but the principle is that the loan to value decreases to where you never have to pay that loan back.
So I think we’re in a very special time right now. I don’t think that there’s going to be explosive growth in LUNA forever. And so I feel like utilizing just this season of stacking LUNA with more LUNA makes the most sense just because we’re in that season. And so I don’t know how long the explosive growth will be. It’s like on a adoption curve, right, that exponential logarithmic. And so if you’re stacking LUNA with LUNA, and you can, say, 2-3x your LUNA bag, in the next year when LUNA 10x, at the end of that time you’ll have this capital to work with, and so much LUNA to work with that, to me, that’s the time that I’m going to play with all the derivatives, and learn all the derivatives and get into the yLUNA, pLUNA, LunaX, and all the other derivatives. I think it’s going to take a lot of discipline for me not to get involved in those things, because I just love learning and I love jumping into those things. But I think the most profitable thing this year, and I kind of showed that on the spreadsheet, is to just get as much LUNA as you can while it’s on this tear. And then once you have all this LUNA, then learn how to deploy it into these different… Into different utilities once you have it, but I don’t know.
I have a question. Firstly, thank you so much for sharing this free knowledge with everyone who’s in the space, you don’t know the kind of work that you’re doing. So I just wanted to be thankful for that. Having said that, could you just elaborate a bit on the cash flow aspect of the strategy? So you take your LUNA…
Inder, I’m so sorry to bother you. I just wanted to interrupt real quick, Adam is unable to speak. He had a couple of things he wanted to say. I’m so sorry, Inder, I did not want to speak over you. He just DMed me. If you could remove Adam and then add him back on, so then he can also speak as well. So sorry, Inder, I did not mean to speak over you.
All good. All good. No worries.
He actually wanted you to re-add him as a co-host, so that he could bring speakers up while you were talking.
Oh, okay, got it.
Yep, yeah. And if you want, you’re more than welcome to add me as well, so I could help facilitate if you need.
Sure. It won’t let me add Adam, for some reason. I’m trying to add him. Yeah, it won’t let me add him. I don’t know why. Who was that that was speaking that offered to co-host?
It was me, Jaser.
Okay, I just sent it did you get it?
Yep, just got it. Thank you.
Jaser, how’d you get in contact with Dez Bryant?
So actually, my barber… My longtime best friend barber was actually his barber as well. And then I worked on his project. I was CTO, interim CTO for his Personal Corner platform and gotten set up for that. Yep.
Damn, that’s sick, dude.
Thank you appreciate it.
Awesome, man. He’s doing a lot of moves with NFTs too, yeah. He’s in that world.
I was gonna ask you about your feelings on Astroport, it’s coming out tomorrow. Trying to see what your thoughts on it, if you’re going to get into it, if you’re going to provide some LP or not, and maybe the risks behind that.
I haven’t really been paying attention too much to launches of different things. I’m just going to be focusing on stacking LUNA. [chuckle] I’ll probably dabble in it after everything, and I know that there’s lost opportunity costs or whatnot, because you can get all these tokens at early investor prices but I think I’m okay with… And I think that that’s one of the things that I’m trying to develop right now, is just… I think everybody that’s in this space, one of the things that we all have in common is that we get into things early. I mean if you’re in LUNA right now, you’re in early and it’s because of something that’s in your character that looks for things that are new. And so for me that’s definitely a part of my character, and so it’s very hard for me not to jump into, everything about Astroport, everything about Prism, everything about Spectrum. But I think the most profitable thing for me to do right now is to silence all that noise and just to focus on how do I stack LUNA in a way that I can use leverage to stack it. Because right now, with the price increasing you almost have to use leverage to scale with the price of LUNA. When it was $2, you could buy a whole bunch of LUNA with your W-2 income, but now when it’s $100, to buy 1000 shares, you need $100,000. And so it makes more sense to use the increased value of LUNA to buy more LUNA, which is what that spreadsheet that I posted and the strategies kind of show. So if you’re going to use LUNA to buy more LUNA, then the next thing is you have to really know how to manage risk so that you don’t lose LUNA. So you got to expose yourself to risk to get the reward. And most people will avoid risk, and in avoiding risk they avoid the reward. But if you develop skillset around risk management, then you can mitigate risk instead of avoiding it. And when you mitigate risk, you can expose yourself to risk and the rewards of that risk without getting rekt.
I think that’s a great segue to my question as well, if I may.
Yeah, go ahead.
Yeah, I just wanted again, to… If you could just elaborate a bit on the cash flow strategies. So using LUNA to get some leverage, using that leveraged money, what is the best… I mean, risk/return… I mean, strategy that you can think of to… In case LUNA pulls back, and I need to manage my leverage, how can I get liquidity instantly? Or not instantly, but yeah. Basically, how do I manage that? If you can just speak to that a little bit, that’ll be great.
Yeah, sure. So in that… Or in the tweet on 2020 strategy, I talked about cash flow, and using the borrowed amount from Anchor to invest in cash flow LPs. And one of the things that happened in the ecosystem this year is, as protocols were dropping… So it started with Mirror, and it started with Anchor, and you had these two foundational protocols of the Terra ecosystem. And both were needing liquidity for their protocols. And they started at like 200% APR for their LPs. And so when they started with 200% APR, that was great. But the more people that get into it, the rewards are spread among a larger amount of people. And so it’s just natural that the APR dropped. And so even though it starts at 200#, it dropped all the way down to, I don’t know, I forget what it dropped down to, 40%, or something, on Anchor. And at the same time, you have all of these new protocols that are dropping that are… Like when Valkyrie dropped, I think it was offering 10,000% And everybody and their brother in the Terra ecosystem, just flocked to Valkyrie, and took advantage of that 10,000%. As soon as the next protocol dropped, everybody jumped to that protocol. And then Valkyrie got wrecked, and everybody that was holding LPs got wrecked. So I think what we’re seeing in the Terra ecosystem is that it’s an unsustainable way to attract liquidity just by providing more APR. Because the next guy is going to come and provide a higher APR and attract all the liquidity providers to their protocol. And then you have this whole ecosystem that’s just like… There’s these predators that are going from protocol to protocol, trying to get the highest yield, and then leaving the beginning protocols in shambles.
And so that’s a… Those are growing pains. And I think that the Terra ecosystem is doing well in… I know Anchor and Mirror are redoing their tokenomics to capture value in a better way so it’s not just a farm token. So to answer your question, there’s so many different protocols that are dropping right now. I like to… I’d rather have a very stable underlying token, like Anchor… Right now Anchor is my favorite LP, because it’s not going anywhere. And I believe it’s undervalued. But there’s no way that Anchor is going to go to zero, not when you have $10 billion total value locked. So to me, I might not be in an LP that’s providing like 10,000% APR, but 100% APR for Anchor is just… That’s a gift. And so if I were to do LPs, I would probably be doing it with Anchor or with different protocols that I felt were necessary for the Terra ecosystem. So I really like Anchor. And if I was in LPs right now, or sometimes I just need cash flow. So I’ll take some of my borrowed amount and stick it in a pretty stable LP, like ANC-UST LP and get some money from it, and then put it back after I raise the cash.
So if I can add, LUNAomics, something on top of it, it also depends on the person’s risk appetite. How much you want to go degen into it, from two digits to three digits to four digits APYs, right? And are you going to use your LUNA as collateral? Or are you going to use the UST stable? Or how are you going to do it right? There are multiple combinations.
I just do everything through borrowed capital from Anchor, because I have 100% of my money invested in LUNA. And so any kind of other investment that I do is with the borrowed capital from Anchor after providing my LUNA as collateral. So one of the things that I try to do is, I try to not have more than 5% of that capital in any one idea. Sometimes I’ll go degen and go more into it, but rule of thumb is, you want to keep learning less than 5%-10% in any one idea, just so that if that one idea blows up, you don’t get rekt. So the way that I would look at that is, if my strategy… And I think at some point, maybe I’ll stop stacking LUNA, and just take all the borrowed capital and dump it into LPs all over the place and just generate massive amounts of cash flow to reinvest into other things. If I were to do that, I would separate it into 5%-10% basket. And then if the price of LUNA drops I would liquidate the LPs from the strongest to the weakest, because you never want to take a loss. So the ones that are the strongest, like say, you had three LPs and the strongest, you’ve made a bunch of money on, I would withdraw my LP from that one first. And then I wouldn’t just sell the token, I would take the UST part first, and then use that to pay down the loan to get to a safer LTV. And then if I still need more capital, I would go to the next strongest, liquidate that, or withdraw that LP. But I wouldn’t sell the token, I would just take the UST half, pay down the LTV. I would do that all the way to the weakest. And then at that point, if I have to, then I would go back to the strongest and liquidate the strongest token and take the profit from that token to pay off my LP, or to pay off my LTV, make it safer and then go all the way down until I’m finally taking a loss on the weakest. If I have to. That’s my progression of liquidation to get to a safer LTV.
I think you can wait till Prism launch. That will give you a clear direction where to put the pLUNA and where to put the yLUNA, just for the risk diversification.
Yeah, yeah, there’s so many options that will be available in the future that… Yeah, it’s gonna blow… It’s already blowing minds. And what we’re going to be able to do with LUNA is incredible. Programmable money, composable. It’s nothing that money has ever seen before. And it’s cool that we’re in this early to be a part of it.
I always joke with people when I’m trying to explain. The Anchor token is… I call it a recycle token, or like a recycle stablecoin, because it just keeps circulating around the system between UST borrowers, UST lenders. But it stays consistent, it ranges between $3-$4, for the most part. So it’s boring, but it’s freakin stable.
Yeah. And I think that… The Anchor token would be a really good candidate for a grid bot or something. Because I started doing the bots listening to Cephii and what I’m finding is it doesn’t work really well with LUNA ’cause LUNA just keeps going up. And so even though it’s profitable, and it makes a good amount of money, just the buy and hold LUNA outperforms it by a lot. And so even though I was planning to hold it longer, I’m probably going to close out all my grid bots and just hold it and borrow off against it.
Yeah, I think I have to agree with you. I don’t even… There are diversification, I just purely invest in the apex, which is LUNA, nothing else, not even ANC tokens or KUJI or anything else. Whatever money I have, I just buy LUNA, that’s it.
Yeah, I think for just this next season for me, that’s what I want to do. And I’m probably going to jump off the bandwagon and do different things here and there. But generally, I think I’m going to try to focus my attention on just stacking more LUNA. But I don’t want to get left behind as well. There’s so many things that are coming out. And I can already feel like I’m getting behind on learning all these other things, but I guess it comes down to utility and what’s the… At the end of the day, what is my goal? At the end of the day, it’s not just to learn about stuff and to… It’s to increase my capital base, so that I can have a solid treasure chest to deploy into all of these other things as DeFi grows. So I think that growing the treasure chest or the war chest to deploy once there’s many more options is a long term good strategy right now. Instead of getting distracted by all the different things that are happening, what’s the one thing that’s going to bring the greatest return on investment, so that in another year or two years, you have this massive amount of capital that you can direct in any way that you want? And I think that that’s where Cephii’s at. Cephii is probably in the hundreds… I am assuming that he has over $100 million, and if he has over $100 million, he can throw money at whatever he wants to throw money at, because he’s just in a different place.
Yeah, don’t duplicate Cephii. Otherwise, you’re gonna be… He’s out of the world.
Yeah, yeah. He probably has an unlimited amount of capital. So yeah. I look at what he does and that’s life goals right there.
Adam Beachnau 52:06
I got a question for you on Anchor borrowing in that, given you kind of use it a lot, what would be the max interest you’d be willing to pay to continue to do it? And the reason I asked is because one of the things I think about is sort of long term risks of Anchor. And right now, it’s sort of like… A few months ago, you’re actually getting paid to borrow, now it’s sort of bordering at… You actually have to pay interest. And eventually, Anchor can’t just keep paying out ANC tokens, right. So either the Earn percentage is going to have to come down, or borrowers are going to have to pay more. And I think a lot about that relationship, so I’m curious, as a borrower, would you be willing to pay? Or do you think that Earn will just eventually come down?
Yeah, that’s a great question. Because I’ve been pretty… I mean, that’s my wheelhouse of comfort is when I was doing stock trading and option trading, I would use borrowed money to do it. And so I’ve always been comfortable using debt to, and put that debt to work to make more money. And so with a home equity line of credit, I was comfortable with a 6% loan, if I could make 100% in a year. So I always look at what I think I can make with that money, and I match it against how much that money costs. So if Anchor… Borrowing it at a positive interest rate, that’s a no brainer, right? I mean, why not borrow money if they’re going to pay you to borrow money? And now that it’s inching up into… It goes back and forth between getting paid 1%, and then having to pay 1%, but I look at the baseline of what you can make as the 20% stable yield. So, I would never want to pay 20%. I mean, you actually are paying 20%, but you’re getting rewarded 20%. So you’re already paying 20%. As that reward comes down, if I can be pretty confident that I can take that money and invest it in something that is going to outperform that, I would feel very comfortable borrowing even if it gets to maybe 25% that I’m paying. It really depends. Right now, it seems like everything across the board in crypto is gaining 200+% a year. So because we’re in this growth phase of cryptocurrency… Even on KuCoin, I’ll take 30% out in margin and deploy it into KDA, and RNDR and all of these other tokens that have just huge upside potential, I’m willing to pay that 30% in margin interest to get exposure into all of these different coins. But there is going to come a time, just like the dot com boom, when the dot com companies all crashed, and people lost everything, that time is coming to cryptocurrency, and you have to have your ear to the ground of when that is. And when that comes, it’s not a good time to be leveraged. And so knowing when that time is, and keeping a watch on your exposure in leverage is super important. Does that…
Adam Beachnau 55:45
Yeah, no, absolutely. I think about that the same way, right. I echo your thoughts on the overall, dot com. And I think just keeping a pulse to the broader macro economy and what’s happening, particularly with interest rates, and what that means for the stock market, for the crypto market. Because to your point, you just want to be able to manage your risk and move in and out of things as appropriate.
Yeah, definitely. And I think that one reason why people are more willing to use borrowed money… And I think that institutions… And one of the things that’s fueling cryptocurrency is a lot of institutions, I think are using borrowed money. If you look at MicroStrategy, and what Michael Saylor is doing in taking out bonds and taking all this borrowed money and putting it into crypto, the underlying assumption is that the US government is in such massive debt, that there’s no way that they can higher interest rates already. And if they do, it will be very, very slow and very minor. So the risk when you’re borrowing money, as long as you can make more in DeFi than the potential raise in rates of the Fed, you’re in a pretty safe place. So yeah, I think that we’re in a pretty safe place as far as the macroeconomics of what’s happenning in the US.
Adam Beachnau 57:26
Yeah, and people talk about rate moves in the half a percent range, which would take us from… When you think about it in mortgage terms, from 3%-4%, but if you’re still getting 15%-20% just on stablecoin returns, I mean, the government could go all the way up to 10%. Now, the problem is their expense, one of their biggest expense line items is interest payments, right? So they’re basically hurting themselves. And that’s one of the big reasons I think they can’t raise rates too much is it would just keep fueling our debt. And I think there’s there’s guys on the Bitcoin side, like Greg Foss, and folks who talk about that, just this debt spiral. But it is, I think, it’s something I like to keep a pulse on of the broader macro economy, knowing that so much money is going to continue to move into crypto and DeFi, but to keep up also what’s going on.
Yeah, as long as you are getting lower interest rate anywhere, I would just borrow money, throw it in LUNA, and then pay it off. That’s it. That’s the plan.
Adam Beachnau 58:41
That’s what I’ve been doing. [chuckle]
And I say… They had like 20%, 24%, which is higher than Anchor, so I’m really not gonna use them. But if anything comes in like 0 APR for six months, go and take it. [chuckle]
Hey, LUNAomics, mahalo. And to your point earlier about the pairing of other Terra protocols, using… My general knowledge of every farm token is that it eventually goes to zero. So when I think about a lot of those LP pairs, if they’re using LUNA as one of the pairs, and then they’re using whatever their protocol token is to be considered a farm token as… To sort of buffer the rewards, it doesn’t seem like it’s really worth it if what they’re trading, what they’re rewarding you in is just going to go down over time. There’s always seems like a ton of excitement when a new protocol comes out, but then everybody just kind of dumps it and blames it on the lack of the protocol’s success, but it’s almost like everybody is… Would you agree that you’re comparing whatever that protocol is to whatever Anchor is. So of course, if it’s not… It’s like Anchor’s pulling everything along, in a way, and every protocol is trying to build off it and increase LUNA’s composability. But it just inevitably… It always sounds ideal, but it never really works. And then everybody gets mad that that protocol’s token dumps.
I kind of follow your thought process. I’m not sure I totally agree with all these tokens going to zero. Could you expound? I mean, I’m trying to…
Well, not zero completely, but just as an example, somebody showed me a picture yesterday of crypto.com offering, basically, 1% or 2% to stake LUNA, and then also offering 2% in CRO rewards, right. And I basically… I laughed, but then it actually kind of made me mad, I was like, “The balls on these frickin people,” right, to not only steal 8% of the best yielding token in the world, but also to give me… To try to snow me over even more to offer me 2% in this exchange token that over time I know is never going to do anything.
So why is their offers 4% interest on LUNA, which is basically, you will get LUNA in reward, nothing else. So I think it is equally… Like CRO rewards. Maybe you can get those debit cards and stuff with CRO itself. But I don’t see much…
Sorry, ser. Adam. I see a bunch of people requesting, I don’t know how to let these people that are requesting speak.
Adam Beachnau 1:01:53
Yeah, I got removed as a co-host. So if either you or Jaser wants to add me back, I’m happy to help approve
Yeah, you’re gonna have to add him. I don’t have permissions to add him.
Okay. Shucks, it says that you can only…
You’re more than welcome to remove me if you want, if you can only add one co-host.
Could you let those people who are requesting speak? There’s a bunch of people that are requesting.
Yeah, I can bring them on, I can bring them on to the stage.
Okay, awesome. Cool.
By the way, Cephii is here.
Oh, cool. [chuckle] The man. I think one thing that I’d like to talk about with the LPs and different tokens that are offered, I think you’re kind of alluding to that, that you have these inflationary tokens that are giving rewards, but that could eventually go to zero. That’s just the risk that you have to take, and then look at the tokenomics of how that token actually captures value, because if it captures value in a good way, then it won’t go to zero. But one thing that… And I could be wrong in this, and if anyone wants to correct me here, but when something that I never had experienced in, previous to Psi was matching LUNA with another token. So before it was always like, everything matched with UST because you want to provide liquidity. And UST is kind of like the standard. And the reason why when you offer liquidity with a stablecoin like UST, the strength of the coin fluctuates. The strength of each coin, which one is stronger, it fluctuates, depending on what is happening to the underlying token that’s not the stablecoin.
So for instance, like with Anchor, and UST when Anchor is going up in price, Anchor is the stronger token and so more people are going to want to buy Anchor, it’s going to push the price of Anchor up against UST, and what happens in the liquidity pool is everybody begins to buy Anchor. And so the price of Anchor goes up, but then as the liquidity provider, LPs, the ratio between what you’re holding in Anchor and what you’re holding in UST, as the value of Anchor goes up and people start taking Anchor from the pool, your amount of Anchor actually goes down. But it doesn’t matter that much because as you’re getting less Anchor, the price of Anchor is going up, so overall you’re going up. And then the flip side is when Anchor goes down against UST, UST is actually the stronger in the pair. So people want UST, and they’re going to be giving Anchor to the liquidity pool, and they’re going to be withdrawing UST. So you’re going to have less UST in your LP token, and you’re going to have more of Anchor represented in your LP. So it’s actually a good thing because when the price of Anchor goes down, you’re actually averaging in, you’re actually buying more Anchor as the price of Anchor goes down. So, in any kind of pair, it’s very beneficial in the middle part of the curve. When you start getting to the outer parts of the curve, when it drops by more than 50%, or just skyrockets more than 50%, then you’re losing too much tokens on the top end or gaining way too much tokens on the bottom end. But in between, it’s a very good cash generating strategy. So, as long as it’s staying in this range, this range of 25% up, 25% down, it’s perfect for generating cash. And so Anchor, I love Anchor because it stays within that price range, and just goes up and down, but doesn’t go up a whole lot, doesn’t go down a whole lot, and you’re just generating cash. That’s what I was used to. Anchor, Mirror, anything that was coming out.
The first time that I paired LUNA… And LUNA, I would pair with UST and throw it in TerraSwap and get LP rewards. But when Psi came out, and I paired my LUNA with Psi, and Psi dropped, that was the first time that I looked at something that you had two tokens, and both tokens were volatile. Because every other time it’s UST, a stable, paired with a volatile token. But when you pair LUNA with anything else… So when you pair Luna with UST, UST actually become stronger against LUNA, when the price of LUNA is dropping. When the price of LUNA is dropping, people are going to sell their LUNA, and they’re going to want UST. And so the price of LUNA is dropping, but you’re actually getting more LUNA, which is great, right? Because you want more LUNA when the price drops. The problem when you pair LUNA with another token, it can be any token, but just take Psi, for instance, because that’s the one I got rekt on. So you take Luna and you take Psi, you pair it, when the price drop, Psi is going to drop just as much as LUNA. And so when you have Psi and LUNA paired, LUNA is going to be the stronger token, everybody’s gonna want LUNA. And so what’s going to happen is people are going to withdraw LUNA from the pool, you’re going to lose the amount of LUNA you have in that pool. And so when the price is dropping, people are going to want LUNA more, and you’re going to lose your LUNA. When the price of the market is increasing out of both of those tokens, LUNA is still stronger and people are gonna want LUNA, so you’re going to lose your LUNA.
So whenever you’re a liquidity provider, and you’re providing two tokens, what you are doing is you are providing the opportunity for somebody else to buy one against the other. And I cannot think of any situation where somebody would want Psi more than LUNA, in an up market, or a down market, which makes me to conclude that either up or down, I’m going to lose LUNA. And I cannot think of any other situation or any other token that’s more desirable than LUNA. If I’m providing liquidity, and pairing my LUNA with anything else. The only thing that I’ll pair and provide liquidity for now is with the LUNA derivative, so if I’m doing like LUNA and LunaX, or bLUNA and LUNA, I’m fine providing liquidity for that because the demand between those two will go back and forth. I’ll also provide UST with LUNA because the demand will go back and forth. When LUNA is going down, people are going to want UST. But I cannot think of any other token that does that, where the demands will be for another token more than LUNA. And so for that reason I’m very wary of providing liquidity and offering my LUNA to a liquidity pool that is matched with anything else besides a LUNA derivative and UST.
So pretty much to sum that up, when you go into an LP position, you are selling whenever somebody else is buying, so whatever the asset that you want most is at risk to be sold to the market.
Not really you’re not selling anything, you’re providing an equal amount of both, and you’re letting the market decide what it wants.
Exactly. So you’re at risk to… If LUNA goes to $1000, and you’re in the UST-LUNA pool, you will be constantly selling LUNA to people and getting more UST at the average price of its rise. So I just want to be clear to make sure people are doing the risk/reward there, because obviously, you’re earning trading fees as well. So where are you LP is also important. So in terms of which DEX, whether it be Loop, that is incentivizing trading and LPing with rewards, or TerraSwap, which has no token, or Astroport, which is about to launch, you have to go where the volume is, so that the fees that you generate, and the cash that you’re talking about, does make up for the fact that you’re selling into the market when buying pressure is high, and you’re buying from the market when selling pressure is high. So that’s, again, you’re going to be very careful. One of the only LPs that I really ape into is the bLUNA-LUNA pair, because I know they’re like assets. And I’m generating a yield off of trading between those two assets, which I know volume is high, thanks to Anchor. So LP strategies are, I guess you could say, cash positive, as long as the assets themselves are like pairs, and they’re traded with some sort of correlation to one another.
Right, right. Yeah.
Hey, LUNAomics. This has been awesome. Thank you so much for sharing. I consider you probably the premier degen Jedi, so when you said you were doing this space, I got super excited. [chuckle]
Well, you’re the wealth preservation Jedi. There’s kind of an echo, somebody is…
Yeah, is it me? I’ve been juggling between two phones. Is it me? Because if so, I’ll just jump on stanby. I got another phone. I got a different carrier phone on standby.
Hey, LUNAomics, can I just ask one more question, then I’ll step down. And I think you guys should make Cephii a speaker. If your main thesis is always using Anchor Borrow to buy LUNA on the dips, and you wait for whatever it is 30%, 40%, 50% crash to buy more, how are you studying? Just walk me through your thought process on where your LTV is at after that moment that you realize, “Okay, it’s time to buy.” If your LTV is at 50 and yet you’ve got $100 still socked away in Anchor Earn, do you deploy that first? I mean, I would assume, probably deploying that first, to buy more LUNA, swap it to bLUNA, add it back to the bLUNA pool, and then borrowing more UST. Do you have levels at which you think different thoughts? At 48%, 50%, 52%?
Yeah, I think when I have a low LTV ratio, I’m looking to… Because you never want to leave money on the table. Like for me, I don’t want to leave money on the table. I could be wrong and Cephii, you can correct me if I’m wrong here, but I kind of feel like Cephii has like a infinite amount of capital. And so he has all this capital that’s sitting on the side, that’s ready to deploy whenever something drops. And that’s a super healthy place to be in to be able to do that. For me, I don’t have capital that’s just sitting on the sidelines that’s ready to be deployed. And if I did do the dynamic dollar cost averaging, I did the calculations on what that would look like for me. And so because I have 100% invested in LUNA, and then provided as bLUNA as collateral, the only real investing power that I have is the borrowing capacity off of bLUNA. So if I were to do dynamic dollar cost averaging the way Cephii talks about, which is like, 20% is your first entry point at 1x, and then at 30% down you go 2x, and then 4x, and then 8x, and you have your massive amount that you put in when it’s down 50%, or 70%.
If the only capital that you have to invest is borrowed money off of bLUNA, the way that would work is you have to start with that 50% retracement. So you would calculate… Let’s just make it 50% to be easy, but you would take the current level of the top of the market, you drop it 50%, and you would look at what your borrowing capability is at that 50% level, right. And you don’t want to go more than, say 45% loan to value. So that’s the amount that you’re working with. And then you got to work backwards, that your biggest position is on the bottom, and then divide it up into those squares. So what it comes out to is that you invest very, very little at the top, and then very, very little… I mean, your maximum amount at the bottom. And you actually have to wait for those 70% pullback, or 60%, or 50%, or whatever it is that you want to deploy your capital. The problem with that for me in my situation is that I have to wait for a 50% pullback to use that capital. And anytime that it’s not down at those levels, I have all of this capital that I can’t use, because I’m waiting for that 50% drop. So that dynamic dollar cost averaging doesn’t work for my situation. One day, hopefully, I’ll get to that place where I can do that. But for my situation, it makes more sense… And the way that I did such great… Had such great results this past year is I just always leveraged into LUNA every single time that I had. And if you go back and you look at the track history of LUNA this past year, there were only a couple of times, two times to be specific, that LUNA dropped more than 55%. So that means that you’d have all this capital just dormant and not working for you during those times, if you’re just going to do dynamic dollar cost averaging.
So for me, what I did the whole year, and this, I believe will work next year too, because I’m believing next year is going to be an up market, is you always kind of live at that 45%. For me, and it’s because I can adjust very quickly, but for me, it’s living in that 45% loan to value level. And every single time that LUNA goes up, then your loan to value is going to just drop down to like 30. And then you can borrow more, you can borrow up to 45% again, and then take that extra income and put it into liquid LUNA. So liquid LUNA is sitting in your wallet. And what you do with the liquid LUNA, if the price drops is you liquidate it and you pay down your loan. But as LUNA goes up in price, your borrowed amount versus the value that’s in your LUNA is going to change. So say you borrowed $100,000, and LUNA goes up in price, and you had $100,000 of LUNA in your wallet, but LUNA goes up in price, now it’s worth $200,000. Then what I would do is I would take the extra amount of LUNA, so I would take half of the LUNA because my borrowed amount is 100, and then what it’s worth is 200. So I know I could pay back my loan if I wanted to. I’ll take everything excess above that loan, so I would take $100,000, and I would turn it to bLUNA and then provide it. So that way I’m constantly adding to the amount of my collateral, and I can… So now I have an added collateral, which reduces my loan to value even more. And then I can borrow up to a certain amount. So I’m not sure if that makes sense because we’re talking numbers and you know, whatever, but…
I think it does and this actually ties into my question, so like LUNA’s dropping now. I have limit orders, and on KuCoin actually, I’ve gotten some fills but I wanted to ask you really a two part question, since it’s really… Especially with the new strategy where it’s all about acquiring LUNA. Are you linearly DCA-ing into these dips? Are you looking at technical levels and targeting them saying, “Hey, if LUNA drops to X, I want to buy a lot of LUNA here? Is it just a linear thing that is just constantly determined by LTV? So that’s the question on the way in, or using the loan. And then the other question I have is, I call it collateral staging. So I asked you the other day on a tweet, and I was surprised that you just keep everything on Anchor, and you just earn the UST almost like you’re staking bLUNA on Anchor. And I was surprised you weren’t… I do staging with mostly the LUNA-bLUNA pool. And even though there’s like a risk of pulling it out, half of your bLUNA out and at press price, you actually get a good swap on the LUNA. So I just wanted to hear your thoughts, your Jedi thoughts as far as, okay, LUNA is dropping now, we’re down to like $92, $93. What’s your strategy as far as how much to manipulate your leverage to get in more now versus maybe waiting till $90? Or $80 something if that even happens? So what’s that look like? And then when things kind of bounce back up, what do you do with your staging? Because you’re living at 45 LTV, but I assume that you have your version of collateral staging. And what does that look like for you? And what why do you make the choices you make? I don’t know if that… That was a lot or one, but I think it’s all connected.
Yeah, no, I understand. So what I’m doing now is a little bit different than what I did the previous year. So I’m looking at… After I did that spreadsheet, by far, hands down, the best return is to use LUNA to buy more LUNA. I can’t see a situation that works better than that. If you have the underlying assumption that LUNA is going to 10x. So with that underlying assumption, I put different loans and values down there so you can see if LUNA goes from $100, $200, $300, $400, and you’re living at 25% loan to value, how much LUNA are you going to get by the end of the year? And I have that spreadsheet down there. So there’s 25%.
Yeah, it’s beautiful, I looked through it, it’s awesome. I’m more worried about the little micro moves, just using your numbers.
Yeah. So when I looked at that, I realized I didn’t have to go to 45%. I could live at the 25%. And every single time that… Use 25% of my loan to value to buy LUNA. And if I did that, then I could get between 2x-3x LUNA by the end of the year. So with that, I got rid of everything, and I just bought 25% Luna. So right now I’m at 25% loan to value, just LUNA, right. But then I have all of this other borrowing capacity that is just sitting dormant, and I don’t want to do that. So what I did was I borrowed UST, and I was thinking, “Okay, I’m just going to put the difference between 25% loan to value and 45% loan to value. I’m gonna take that and just throw it in Earn, so at least it’s earning me 20% yield.” So I took that UST out. And then I thought, “Well, it doesn’t really make sense for me to stick it in into Earn, when I could just pair it with the LUNA that I have liquid and provide it to TerraSwap for 40% yield.” So that’s what I’m currently doing. I have 25% in LUNA, I maxed out everything to about 40% loan to value and I’m taking that UST and I’m throwing it into TerraSwap, the liquidity pool and earning 38% ROI on it, or APR on it. So then the question becomes, what’s my risk in the liquidity pool? So on my pinned tweet, if you scroll down to the bottom, there’s a impairment loss calculator where you can put in the current price of both tokens and then the future price on the bottom field. And you can see how much you would… How much is that risk with those different movements.
And so right now… So what I would do if things start moving down, if I get to 50%, or over 50% loan to value, I’m going to withdraw the liquidity from TerraSwap. And I’m going to pay down my loan just with the UST portion, and I’m going to leave them separate until LUNA starts going back up again. If it keeps going down, I’m going to keep moving my UST down to pay down my loan to under 45% loan to value. And if it goes lower than that, then I’m going to start liquidating my liquid LUNA to pay down my loan until it’s in a safe place. And I’m going to, I’m going to keep doing that. And hopefully, I’ll never get to a place of liquidation. And if I do get to a place of liquidation, then I’m just going to eat it. And if you take the total trend of how much LUNA goes up and down, even if you do get liquidated, if LUNA does 10x, you’ll be still way up ahead than you were before. Because I did get liquidated in May, 30%. And I still finished off the year with 6x more LUNA than I started with. So liquidation isn’t the end of the world, but I mean, if you can avoid it, it’s much more pleasant.
Adam Beachnau 1:25:57
And remind us again, what’s the ratio you keep of liquid LUNA to bLUNA, that you’re using collateral to borrow on.
So I have everything in bLUNA. All of my… Everything is in bLUNA, and then I borrow off of it. 25% loan to value right now, this is my current strategy 25% loan to value in liquid LUNA. And I don’t re-provide that unless the market goes up. So if the market goes up, if goes up…
Adam Beachnau 1:26:29
I see. Okay, so when you say liquid LUNA, you just mean the additional purchase of LUNA bought off bLUNA collateral at 25%. Okay, got it, got it.
Yeah, so and then when LUNA goes up in price, then I’ll take the additional amount of capital that the LUNA represents. And I’ll move that into bLUNA, because I’m not… At that point you’re not looping it, because it’s not… You’re not taking borrowed money and re-providing it into bLUNA. When LUNA goes up in price, and the value that you have in your wallet is greater than your borrowed amount, you can take that surplus converted into bLUNA and re-provide it without that much risk.
Yeah. So that’s way different than if you like, say 45% loan to value, buy all LUNA, convert that whole thing to bLUNA, provide that. And then buy more LUNA, convert that to bLUNA and loop that. And you can do that. But that’s really risky in a crash. Because the spread widens and you’ll get rekt.
I’ll ask this one last thing, and then I’ll jump down off stage. And hopefully you guys can make Cephii a speaker as well. As far as… Right now when things are dipping, because you said you want to continue eating or buying more LUNA, tell me about that. Is it just systematic? Linear? Is it just, I’m just seeing all the way up? Is it dependent on LTV? Is it dependent on LUNA price action, you’re buying dips? What’s your thought process on that?
So when it’s dipping, I can’t buy, right, because I’m just preserving capital at that point. So that’s the trade off. With Cephii, it’s much more safe, because when it’s dipping… He’s saving all of his capital, and then when it dips, he buys in increments, increasing increments, the lower it goes. So that’s a much safer way to invest in LUNA. What I’m doing is I’m actually buying on the way up and then mitigating my risk on the way down. So it’s exactly that, when LUNA goes up in price, and my loan to value decreases, then I stay at that 25%. So right now my LUNA is at 25% loan to value. When LUNA goes up in price from here, say we break $100 and we go to $120, my LUNA loan to value ratio is going to go down to maybe 10% or something. Then I’m going to borrow and get back up to 25%, and then borrow more UST to match with that LUNA to provide it on TerraSwap. When it goes down in price, I never want my LTV to be more than 50. So I’ll take my liquidity back, and then take my UST to pay down my loan to get it back to 45%. And then I’m just waiting for it to go back up. So I’m not buying on the way down, typically, I’m just mitigating my risk on the way down. It’s a riskier way to stack LUNA, but there is way more reward as well. I mean…
And just to be clear, this was the strategy back in May, that got a lot of people burned. So just want to highlight the risk of that.
Yeah, yeah. Like I said, I did lose about 30% of my LUNA in May.
Yeah, I guess capital preservation is the most important thing in terms of compounding your wealth. So figuring out ways to constantly be able to cover your liquidations.
And that’s way more important than leveraging up a position, especially, we’ve seen an impressive bull market. And I agree, I don’t think it will stop. But when it does, having 20%-30% of your capital on the sidelines to scoop up at prices. And I think that’s kind of where holding some UST in Anchor Earn, sitting on the sidelines waiting for discounts to happen. Investing really is the only business where things go on sale, and people run out of the store. So in those dramatic drops, like we’ve seen in May, and through this bull market as well, being able to pick up LUNA at a discount is probably the biggest EV play you can do.
Yeah, I totally agree. I think that that’s the safest way to build a stack is to have… So typically, the safest thing for me to do is to have 25% of my LUNA and then take out to 45% in UST and just park it in Anchor Earn. And then that would be available in a drop. But when I can match it with my LUNA, that’s sitting in my wallet doing nothing, and put it on TerraSwap, it’s just kind of an irresistible bug flying into blue light, like I have to do it. And I’m pretty confident in my ability to see when the market is tanking and then take the precautions to keep myself from getting hurt. So in May, the only reason why I got liquidated was because I looped it three times. And unless we have a 78%, or more than a 78% correction, I’m pretty confident I’m not going to get liquidated because of what I’m doing to mitigate risk right now. Yeah, but yeah, to what you’re saying, I totally agree. I think having cash on the side to deploy when the market crashes is like the safest way to accumulate.
Adam Beachnau 1:33:04
And you may have talked about this before, and it sounds like you were trading options but in the middle of the night, are you just receiving a notification on your phone or getting a phone call from some service? How do you manage sleeping with protecting your LTV?
Yeah, so I was talking about that with the guys earlier on and I’ve kind of lived that way for the past two decades, I’m okay getting woken up. But with LUNA and managing LTV, it’s so simple. I probably got a phone call once this whole past year. Whereas, when I would trade options in the futures market, and the futures are 24/5, I would get calls all the time because I would be doing strangles, naked puts on future options, and managing undefined risk. And probably two times a night, or one time a night at least, I would wake up and have to manage positions. So to me managing a 45% LTV is a walk in the park. It’s very easy and stress free. I’m stress free at 45% LTV. Unless there’s crazy wicks that are happening from oracles that are… Like what we saw a couple… Then I get kind of nervous and have to bring everything down to like 35%.
Hey LUNAomics, got a question regarding the collateral. You mentioned it slightly before but at what point do you convert the LUNA into the bLUNA and post it as collateral. So if you’re at 25% LTV, market moves up to say $120 per coin, you have this liquid LUNA sitting there, what percentage of that do you take and convert it to bLUNA and then…
it’s not a percentage, I look at the amount of how much I owe. Because the dollar amount of how much you owe is… I don’t look at the LTV when I make that decision, I look at the total amount of debt. And I compare the total amount of debt that I’m holding to the total amount that I have in my wallet. So if I use that debt to buy LUNA, say, I borrowed $100,000, and I purchased $100,000 of LUNA that’s sitting in my wallet. If LUNA goes up 100%, so that that $100,000 in my wallet is now $200,000, then I take the extra amount, and I convert that LUNA to bLUNA and then I provide it. So I just take the surplus amount, convert it to bLUNA and re-provide it to increase my loan to value. And then I… That’s the way I manage it.
Okay, gotcha. And then final thing regarding your 2022 spreadsheet, you’re assuming that 10x on there. But if we were to be more realistic and assume maybe with all pullbacks and such, that it doesn’t do a 10x, maybe we go more conservative, is it maybe a better strategy just to worry about stacking LUNA? So your spreadsheet shows a 2.5x in the LUNA amount from the start of the year to the end. So now my stack goes from 1000 to 2000 by the end of the year, let’s say. Is it better to just worry about stacking strictly the coin versus the price?
Yeah, so that’s exactly what I’m trying to do. I’m not I’m not focusing on price, I’m focusing on stacking LUNA. That was the underlying assumption when I put that spreadsheet together. Because if the assumption is that LUNA is going to 10x, I really don’t want to worry about the value of my portfolio, I just want to worry about how do I get more LUNA at higher prices? Because the higher the price of LUNA, it just becomes harder to use W-2 money to stack it. So then my thought is, “Okay, how do you stack it when LUNA is $300?” And the best way to do it for the average person that doesn’t have access to millions and millions of dollars is to use the increased borrowing capacity of an increase collateral to borrow off of to buy more.
Hey guys, can I make a comment?
Earlier you were talking about the UST-LUNA pool. And that’s actually a fairly reasonable low risk situation, especially when it’s incentivized. It’s not that different from a 50:50 rebalancer type of bots situation. But the benefit is you additionally get the input of the transactional rewards, whether it’s incentivized or by transactional rewards on TerraSwap. So it’s probably better than 50:50 rebalancer bot. But at any given moment, you have the ability to convert your LUNA to bonded LUNA to provide, or you have the UST available to… If you close that position, you could pay off your loan with it. So that position is actually fairly flexible, and not that different from the risk/reward of a rebalancer bot, probably better, actually, than a rebalancer, for a 50:50 rebalancer, at least. So that could be a pretty cool way to get some LUNA exposure while not having to worry too much about your LTV comparatively.
Awesome. Thanks, Cephii. [chuckle] I didn’t know it was you before you spoke, but… I actually listened to your voice so much that I can recognize it anywhere. [chuckle] It’s actually a bad thing… It’s a bad thing to go to sleep listening to Cephii’s Spaces because it’s like getting into your subconscious.
Hey, guys, I was gonna shoot a question. Thank you for the Space man. It’s been pretty amazing, pretty informative, too. I think this is a question that I think is on everybody’s mind, also people’s mind but I think nobody’s asked you. The question of getting more LUNA, stacking more LUNA. I’ve been looking at Kujira, and I know you can get LUNA for 15% low every time there’s liquidation. How does using Kujira, how can you implement that with your strategies for getting more LUNA? Because at the end of the day, we want to get more LUNA, right. So how can we implement, include using Kujira that gives LUNA a 15% liquidation? How can we include include that with the strategies? And it does it make sense to include it? How would you think that would work? What’s the general consensus of plugging it in with the strategies?
I think Sumo would probably be a really good person to talk to about liquidating. [chuckle] I actually have, I don’t know, I have a small amount of money in Kujira, just in case we have a dip. But it’s nothing of significance, and I was actually thinking about pulling it out. Just because if you do put money at the 1%-2% level, you’re going to get filled way more frequently. But I don’t know if it’s worth it to wait for the fills as opposed to just taking that money and buying LUNA, putting it up as collateral and then deploying the capital to increase your position size. It’s something that I didn’t put out on a spreadsheet to figure out. But I would assume the place where you can make the most with Kujira is during the huge crashes. But then, during the huge crashes, I think, with the strategy that I’m using, I’m more focused on surviving that crash and just being safe, so that I can continue stacking LUNA when it bounces back up. So yeah, my strategy doesn’t… I don’t have a place for Kujira in my strategy, and maybe there is a way to incorporate that. I just haven’t thought that through.
Yeah, maybe I was… Yeah, ’cause I was thinking about it. Yeah, you’re super right, it’s easier to get filled, at 1%, 2%, 3% than 15%, except when we have a super crash. But you know, the super crash do come. And for me, I think there’s an opportunity. And I think there’s an opportunity to actually get LUNA 15% off, which is a big deal. So, but yeah, if maybe you can, I don’t know, when you have some time, not financial advice or anything, but maybe you can look at it and see how it can be implemented into the strategy, and then you see how it can go. Then one other question.
Could I just say one thing about that? So, when you when you park money in Kujira, and you’re waiting for a 15% dip, you’re actually putting money… You’re making your money sit dormant until that 15% is filled, until your 15% bid is filled, right? And how many times does LUNA go up 15%? I mean, we’ve seen from the beginning of December, that we’ve gone up 100% from the beginning of December at $50 to $100, right? So it’s many, many multiples of 15%. And if you had money sitting Kujira waiting for a 15% pullback, that would have been money that you totally lost out on. So I don’t know if that’s an efficient way to use capital, to just be waiting for a 15% pullback when LUNA is going up 15% all the time. So say, just take like $100,000, for instance. And if you parked $100,000 in Kujira, waiting for a 15% pullback at the beginning of December, you wouldn’t have… That money would just be sitting there doing nothing. Whereas if you had bought LUNA, increased your capital from $100,000 to $200,000 this month.
Yeah, that’s true. Alright, man, thank you, man. I appreciate you. I just had that question pop into my head, and I was just want to see how it can be included. Thank you. I appreciate that.
Hey, what’s up? Thank you so much for doing this. I’m really interested. I’m pretty new to the LUNA space, relatively, and so I’m just trying to learn as much as possible. Obviously, you’re super into borrowing and you seem to be doing it in a pretty safe way. But when you look at the DeFi market in general, I think the numbers are just really inflated due to how much borrowing is going on. And I just wanted to hear your perspective on like the situation because, I mean, some people would borrow against their mom if they can, you know what I mean? There’s some pretty crazy people out there doing pretty crazy stuff. And you’re also talking about borrowing against your car and other different assets in the real world. So I was just wondering, a bit of a macro perspective, and then more focused on the DeFi world what your thoughts are on that?
Yeah. So if you go on Kujira, there’s a little thing where you can click on analytics. And I think you have to stake like 300 Kujira to have access to that, but it has really valuable information. And it shows that the majority of people that are using Anchor, the loan to value is around 30%-35%. What that’s showing is that people are not at the 45%, there’s still… It’s still pretty conservative, which means that we got to the 100%, or the $100 price point, without people maxing their borrowing. There’s still gunpowder in the LUNAtic community that is borrowing against Anchor. So my question is, how did we get to the $100 mark? And there’s just been an insane amount of burning of LUNA, which I think contributes to that. But I also think that there’s people outside of the Terra ecosystem that are buying into LUNA, because to be at an average of 35% loan to value as a community, and the price just continuing to increase all the way to $100, it tells me that there’s money, whether institutional or retail that doesn’t know about Anchor, that’s buying LUNA, which is really positive. It’s producing a price floor for LUNA, that if we do go up and we consolidate at a higher price. And LUNAtic’s a little bit more comfortable, because we’ve just gone straight up 100%. We’ve taken all year long to get to $50, and then in one month, we’ve gotten from $50 to $100.
I don’t think a lot of people appreciate that price move. That has been a crazy price move. So I think LUNAtics are smart not to leverage at this price point. But if we consolidate here for a while, and people get more comfortable, there’s a lot of gunpowder in the LUNAtic community to push this to a higher price. So that’s credit within the space. Credit outside the space, if you have the foundation of budgeting, so you’re making more than you spend, and you have margin, and then you invest that margin into something, so say, LUNA, and then you borrow off of it. And you risk-manage well, then there’s no reason why you would not want to scale that with more free money. So the Fed is printing out money like crazy devaluing the dollar. I look at taking advantage of low credit, and taking a 0% loan and putting it into 100% yield as a very responsible thing to do. The irresponsible… Okay, I gotta go. I’ll jump back to the Space later, but I have some stuff I gotta do. My wife is calling me. So sorry for cutting this short.
Adam Beachnau 1:48:24
So what other topics are people interested in? Although we may have a slight problem here because LUNAomics is the only host so we can’t add any additional speakers. [chuckle] So we may have to end this Spaces early.
Yeah, I think we’re gonna get rugged soon if he leaves.
Adam Beachnau 1:48:47
Yep. Okay. Well, good chatting, everybody. Let’s try to do this again. This is fun.
Yeah. Thanks, Adam. Thanks for coordinating this. And yeah, I look forward to speaking to all of you again. Have a good day.
Yeah, I appreciate everything everyone in this Space has mentioned, and I think we all learned a lot of valuable information. Appreciate everything. And I hope everyone in here took away a little piece from this.
Thanks for checking out another episode of The Ether. That was LUNAomics 2022 LUNA Investment Strategy Discussion Space. For terraspaces.org, I’m Finn. Thanks for listening.