Liquid-staking looping: how does it work?

Tweep @0xPompadous  asked me to explain $sAVAX and $sFTMX-loops.

Or: why does s-token supply / token borrow looping work?

I'll use $sAVAX as the example, but this works for any liquid staking token / token loop.

Q: Where do the earnings come from?

The earnings DO NOT come from borrowing $AVAX. If I could not borrow $AVAX, I wouldn't because the $AVAX borrow CHARGES 4% and pays NOTHING.

The only reason to borrow $AVAX is because I convert it to $sAVAX which has an intrinsic (variable) growth rate of ~ 7.2% so it makes sense to borrow, because I make money by leveraging the net δ+ on the borrow verses the $sAVAX supplied intrinsic APR.

Look at: https://staking.benqi.fi/stake 

... $sAVAX has an intrinsic growth of 7.2%. How? Staking rewards are rolled into the price of $sAVAX continuously, so $sAVAX always grows in value vis-à-vis $AVAX.  And that's why looping $sAVAX supply / $AVAX borrow works, as long as $AVAX borrow rate is LESS than 7.2%.

What's the magic?

Here I get to flex my SPREADSHEETSZORXEN-skillz, yo.

The AVAX/sAVAX factor, published by @BenqiFinance. ALWAY decrease, which means my $sAVAX total supply, albeit unchanging, always INCREASES in value, vis-à-vis just plain ol' $AVAX.

The magic is Net $AVAX δ.

That's the reward for this very, very boring strategy. My value always goes up, leveraged by the $AVAX borrow converted to $sAVAX supply, at that!

CIAN has a nice HOWTO write-up on how to loop on @AaveAave and with an up-to-date return for the strategy.

Risks

What are the risks?

1. Borrow rate is variable. If it goes above the expected s-token APR, and you start to lose money, on-going-...ly (?) 🤔

Has this happened? Yes. There was a weekend where @AaveAave borrow rate went up to 17%. I closed out my position then. Fast.

2. The s-token depegs. You get liquidated and are lose your entire investment.

Do s- or x-tokens depeg?

Near's has. Terra's has.

When Terra's bLUNA and LunaX depegged because of the $UST-depeg, I lost everything.

Everything, like: $100k+.

If you can't afford to lose your money in any #cryptocurrency venture, then you can't afford to invest in crypto.

It's that simple.

But I get DMs all the time: "I lost everything, can you spare a dime?"

Those DMs earn their accounts insta-blocc's.

Don't be stupid. Please.

Conclusion

I wanted to end this thread on note different than 'Don't be stupid,' but that is sound investment advice in any market. So take heed if'n you're smaährt.

But I will end with this: is the s-token supply / token borrow loop an investment for me?

Most definitely.

Is the looping strategy for you?

1. Can you monitor this daily to protect yourself against liquidation, that, when it comes, your money's gone, anyway?

2. Is your investment strategy exciting? Looping is borin'

3. You're not gonna make $1M in a day with this today, bunky.

So, if you go into this strategy with the right attitude, then the looping strategy may be for you.

"The right attitude" being: the payoff of this approached is measured in years, not days. And this approach is designed to be borin' not flashy nor exciting.