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“If you were waiting for the opportune moment, that was it.”
— Jack Sparrow 
Stables in a Storm
When people say they don’t try to time the market because they're "not a trader,” it always makes me chuckle.
Because if the definition of being a trader was the ability to time markets, there would be no traders.
Or, very, very few, at least.
Traders make money in lots of different ways, of which timing the market is by far the least common.
I know I certainly cannot. Which is why I generally stay fully invested in equities and just hope that I don’t panic out of them in the next sell-off.
That would be easily done at the moment, as there are plenty of good reasons to panic: war, inflation, food shortages. Take your pick.
The problem, however, is that getting out of the frying pan of risky equities puts you straight into the fire of negative-real-yielding cash.
De-risking
The fact that de-risking to money market funds yielding 0% is so uninviting is partly why I’m a buy-and-hold guy in equities.
I’m not much of a HODLer in crypto, though. The calculus there is different.
That’s partly because it’s such a nascent asset class, but also because de-risking to stablecoins is a much more inviting option in a sell-off.
So when crypto started looking wobbly a few weeks ago, it was an easy call for me to sell some altcoin losers (so many to choose from!) and switch into stables.
Mostly I moved the money onto the Fantom network to collect the 15% APY on MIM, 13% on DAI and 10% on USDC that Yearn had on offer.
Those now yield 5%, 3% and 2%, respectively.
This is bad news for my plan to collect some yield while watching the bear market from the sidelines.
But it’s good news for crypto as an asset class: Yields are lower simply because stablecoins have established themselves as a port of safety in a bear market storm.
DeFi traders have been switching into stables in the same way that TradFi investors have been switching into US Treasurys.
Stables are a more appealing hiding spot than Treasurys, however.
For one thing, the yields in stablecoins, while lower, are still better than those in Treasurys.
And, for two thing, the risks seem lower, too.
Stables are not entirely risk-free: You do have to take either some smart contract risk with a DeFi protocol or some counterparty risk with a CeFi exchange.
But do those risks seem bigger than being long Treasurys when inflation is running at 8% and commodity prices are surging?
To my mind, stablecoins represent a better risk-off option than what’s currently on offer in TradFi.
Too Much of a Good Thing?
Yields in stables have fallen, but there is one weirdly generous option still available: Anchor’s APY on UST, the stablecoin at the heart of the Terra ecosystem, remains a whopping 19.5%.
In TradFi, an outlier yield like that would be taken as a major red flag of imminent danger.
Crypto natives seem more trusting, though: Anchor’s UST deposits have nearly doubled since the start of the year.
My TradFi brain can’t help but be skeptical.
Anchor’s elevated yield on UST deposits is supported by some precariously balanced tokenomics, which have recently been shored up by adding bitcoin collateral.
That collateral is held by the Luna Foundation Guard, which has established a reserve fund to defend the UST peg in an unspecified way.
That may, in fact, have de-risked UST to some degree, but it all seems a little antithetical to the spirit of crypto — isn’t everything supposed to be transparently coded into smart contracts?
And the move in LUNA (up 17% just today!) seems disproportionate: If you’re so excited about bitcoin collateral, why not just buy bitcoin?
So, I’m not sure I entirely get it. But the market is clearly not waiting around for me to figure it out: Demand for UST and it’s 19.5% yield has made Terra the second largest blockchain by TVL.
Stable Sentiment
To the extent that Terra’s TVL is a function of UST demand, it may be a bullish indicator for crypto as a whole.
If everyone is, like me, hiding in stablecoins, it’s time to start thinking about upside risks.
Sentiment metrics tend not to be particularly helpful in TradFi, as they are almost always lagging indicators — all you can really do to measure sentiment in equities is ask what people think of the market. If it’s down they say “bearish” and if it’s up they say “bullish.”
In DeFi, though, you don’t have to ask: You can just look on-chain at stablecoins instead.
Stables are one half of most trading pairs in the DeFi exchanges that run on automated market makers (AMMs).
When people use stablecoins to buy crypto, stablecoin TVL as a percent of the whole goes up. And when they sell crypto, it goes down.
So when crypto prices get too far away from the trend of stablecoin supply, they tend to mean revert.
Messari has an excellent chart illustrating this (using just ETH): 
AMMs make stablecoin TVL a contra-indicator in a way that I expect will be more predictive than any sentiment metrics in TradFi.
Outlook Stable
Jim Bianco posits that for crypto to rally, we need higher stablecoin TVL.
As per above, I’d argue we only need higher relative stablecoin TVL.
But, either way, stables are good for crypto markets and the outlook for stables is good and getting better.
Issuers are innovating: Sperax now offers a stablecoin that is effectively a money market fund (but with far better yields than TradFi). And Frax Finance will soon issue a stablecoin pegged to US consumer prices.
Perhaps more importantly, the regulatory framework around stables may start to become clear — hopefully in a crypto-friendly way, as suggested by today’s executive order.
And when Circle finally completes its stock exchange listing (via the SPAC process), stablecoins will have a de facto stamp of approval from the SEC.
So stablecoins yields are less generous lately. And there remain some question marks in the space (UST, regulations).
But they are now firmly established as the risk-off option in crypto and are likely the thing to watch for those hoping to time the market.
I might even give it a try myself.
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