Elephant Money Part 4: The Lowest Risk Stampede Strategy
Investors always need to weigh the risk of an investment with respect to rewards. Risk management is especially important if an investment involves locking up your capital for a long time. Most people would prefer to own completely liquid investments that are easy to trade like stocks and normal crypto tokens.
Elephant Money Stampede Bonds are not very liquid. The capital you bond into the platform is non-withdrawable and paid back in TRUNK stablecoin at 205% APR. Bonding and locking your capital into Stampede is high risk, but the returns are stable and high reward.
However, there is an overlooked way to play Stampede with no capital lockup.
In this article, I am going to show you the safest way to play Stampede Bonds, and have zero capital locked at any time!
I cover most of the protocol mechanics the previous parts of this series. If you have any questions on the mechanics, start here first.
The key to playing Stampede with lower risk is to use the TRUNK staking pool. We can mint and stake TRUNK to receive a portion of the platform’s reward pool. The pool has a base payout of 30% APR, and is up to a mind-blowing 83% at time of writing. This reward pool’s payout is a function of TRUNK minting activity.
While 83% APR is extremely attractive, there is no “free lunch” in DeFi. Holding TRUNK comes with risks even though it is a stablecoin. It is a high-risk stablecoin due to a few factors:
- TRUNK is an “algorithmic stablecoin”. It is not backed 1:1 by U.S. Dollars or Treasury Bills like Binance and Gemini’s stablecoin products (BUSD and GUSD respectively). Rather, TRUNK is 75% backed by BUSD and 25% backed by ELEPHANT. Algo stables can have more risk of depegging like Terra’s UST. Elephant functions closer to Frax Finance’s FRAX running at a fixed 75% collateral ratio than BUSD which is 100% backed.
- TRUNK has not yet returned to peg after the recent exploit. At time of writing, TRUNK is trading around $0.85. If you buy TRUNK now and it eventually returns to peg, you are making a profitable arbitrage trade. It may take some weeks or months for the peg to stabilize.
- Low liquidity stabilizing the peg. Currently the TRUNK/BUSD Pancakeswap Liquidity Pool only has about $15M liquidity. While this amount may seem like a lot of money, there is not enough liquidity to enable low-slippage “whale trades.” If $100k is traded, the resulting slippage is 1.54%, which is a lot compared to other stablecoins:
While the liquidity pool should grow and deepen over time, the small amount of liquidity can result in severe depegging as we saw during last month’s exploit.
In comparison to TRUNK, Curve.Fi’s 3pool stableswap linking DAI/USDC/USDT can absorb a $100k trade with 0.001% slippage. This is the power of $3.2B in deep liquidity:
We can reduce our exposure to the above three risks by shortening the time we have to hold TRUNK. If we bond our capital into Stampede, we are committing our capital to be exposed to TRUNK for 4–6 months depending on how fast we can recoup our principal.
Here is what we are going to do to reduce our capital risk and take full advantage of the Stampede system:
- Mint TRUNK
- Stake TRUNK into the TRUNK staking contract for ~30% to 90% variable APR
- Deposit and Bond all staking rewards into the Stampede Perpetual Bonds contract
- Start rolling your Stampede Bond claims once a week
- Withdraw your principal from the TRUNK staking contract to remove all risk.
Compared to the strategy I am personally using, this new strategy allows for your capital to remain completely liquid and reap the benefits of using the Stampede Perpetual Bonds system.
By using this sequence, you are really only risking your capital during the time it is deposited into the staking contract. You are free to trade out of the position at any time. The only funds going into Stampede are rewards from staking.
The returns of the above strategy are a bit hard to measure. We need to change our frame of reference. Instead of “claiming TRUNK,” we are now constructing a “right to claim TRUNK”. Once your funds are in Stampede, it is really up to you how to play it. You can check out this article I wrote for more insights on the Stampede game theory.
Let’s see how this strategy looks when simulated. We will invest $1000 BUSD and assume TRUNK staking pays out 65% APR. And for the sake of simplicity, we will only roll Stampede, and not claim:
The blue line represents how much daily income you can earn from staking your TRUNK at 65% APR. The line is flat because we are not compounding.
The red line is much more interesting. We are depositing our TRUNK staking rewards into Stampede, and rolling every day (or every week; the result is practically the same). This line represents how much TRUNK is available in the “Rewards” box every day:
What we are doing with this strategy is building our “right to claim TRUNK” in Stampede, but with zero capital deposited into Stampede! Remember, the only money we are depositing into Stampede is free TRUNK we are earning from staking.
Now for the most important part. Remember, this strategy is how to play Stampede but also be able to remove our capital from risk at any time. Let’s see what the graph looks like when we withdraw our capital from TRUNK staking:
The yellow line represents the TRUNK available to withdraw each day. However, in this case, we withdraw our TRUNK at day 124 when the Stampede Daily income equals the Staking daily income.
After day 124 on the yellow line, we are completely risk free. The capital can be safely stored in our wallet, and we can still keep rolling Stampede Bonds to build up our potential claims. On day 400 on the chart, we could have a risk-free income of $8 per day if we rolled Stampede the entire time. If we were to claim as much TRUNK as possible at that point, we would be able to claim a $8 a day for 365 days, which is a risk-free $2,920!
The main reason that I like Elephant Money is that you can tailor your own investment strategy.
You don’t have to go “all-in” on Stampede to reap some rewards. Staking TRUNK for only a month can generate money that can be thrown into Stampede, with the only risk being holding TRUNK token itself and no capital lockup.
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