Things you need to consider before investing with stablecoins

  1. APR / APY – I know, it’s the only thing most of you look at. Take a look at Farms scanner to compare yields.
  2. TVL – Total Value Locked is important here from two aspects: a) If it’s low it might mean the APR is going to decline soon when other investors will follow you. b) If it’s low for a long time it might mean something about the safety of this protocol (popularity), however not necessarily.
  3. Safety – take a look at Farms risk review and/or the project documentation for audit reference. Follow also the Risks post for guidelines.
  4. Supply stablecoins – there might be low liquidity or risks involved with those stablecoins on this specific network, check clause #3 in here.
  5. Reward tokens – if it isn’t a familiar token, look at its liquidity and price history.
  6. Fees – some pools will enforce deposit or withdrawal fees, and maybe even other fees (‘performance fees’, etc.). For me it looks like a scam or worst – like the way your government is used to grab it’s hand into your pocket in it’s un way. In addition to which, there are transaction fees – we don’t discuss ETH mainnet on this website as long as the transaction fees are unacceptable (I personally treat high APR on ETH mainnet as a phishing attempt) – it’s out of the question, however also other side-chains might have high fees spikes.
  7. Rewards method – some offer auto-compounding method. Advantages – it saves you the trouble of grabbing the rewards periodically, it reduces the native farm token price exposure in the long run, it saves you the fees of all the operations described before, and it increases the APY by compounding the rewards into the deposited funds pool. It also saves risks since you don’t need to connect your wallet to perform operations frequently. On the other ישמג some people prefer control over the rewards harvesting from their own reasons.
  8. Liquidation – some projects as Impermax and Tarot will display huge APR… well it’s true, however it involves liquidation risk, and usually not enough token to borrow and/or APR of borrow will sometime spike and eat your funds and/or the rewards token price will crash and again will cause you losses since it will lose relatively to borrow APR which is in terms of deposited stablecoins. Short answer – don’t do it, even if you think you know what you’re doing. There are some alternatives, like leveraging Anchor’s yields, without messing with variable rate leverage of borrow/landing. When those alternatives will be available outside of ETH mainnet, I’m gonna jump on it too (stick on my portfolio, those are verified/verifying things.)

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