What Are The Best Yield Strategies Involving USDH? Whale Watching With SolanaFM
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Lending and Yield Farming have been prevalent methods to earn stable interest in the Solana DeFi ecosystem over the last year, with protocols like Raydium and Solend at the forefront of these verticals. However, the returns generated using these methods are highly dependent on how much capital is supplied. Thus, many investors are turning to protocols like Hubble Protocol, which allow them to borrow and deploy additional capital in the form of the protocol’s decentralized stablecoin, USDH.
However, is this the best market strategy at the moment? What strategies do whales on Solana deploy to maximize their profits with USDH? This is what SolanaFM aims to uncover in this report by digging deep into some of the largest wallets on Hubble Protocol, exploring and evaluating their strategies after taking a USDH loan.
This report will highlight three case studies and conduct an analysis over the span of 7 days (varying for each case study), covering the assets deposited by the whale, the amount of USDH borrowed by the whale and the amount of yield their strategy can theoretically generate. Before we dive in, a quick primer on Hubble Protocol and its key features.
Introduction to Hubble Protocol
Hubble is a decentralized protocol offering interest-free borrowing. With a Total Value Locked (TVL) of $35.8M, Hubble enables investors to borrow their unique stablecoin, USDH, against an array of assets which include SOL, BTC and ETH. By depositing these assets and borrowing USDH, investors gain access to additional liquidity while continuing to hold their principal assets.
Depositing on Hubble
The figure above shows a typical depositing transaction on Hubble — a user deposits 1,000 stSOL as collateral into the Hubble Collateral Vault. With this deposit, the user can then borrow USDH.
Investors can deposit a range of assets as collateral to borrow USDH. Based on the figure above, some assets with the largest deposits include SRM, BTC and mSOL with over $21.6M, $3.0M and $3.0M in deposits respectively.
Additionally, for deposits of specific assets, the protocol facilitates yield generation on deposited collateral. In other words, these specific assets earn yield while deposited.
After the supply of collateral, users can borrow USDH for up to 80% of the Loan-to-Value (LTV).
The figure above shows a typical borrowing transaction on Hubble — after a prior collateral deposit, the user mints 66,000 USDH which can be deployed to generate additional returns.
Largest USDH Pools
The majority of USDH in circulation is predominantly found in Hubble Protocol’s USDH Stability Vault, a pool used to fund liquidations on the platform and reward liquidity suppliers when liquidations take place. Currently, the USDH Stability Vault holds over $3.0M in USDH, taking up 36.1% of USDH’s circulating supply.
Apart from the stability vault, the largest USDH pools include the Saber USDH/USDC Pool and the Solend USDH Pool; these pools hold about $1.2M and $675K worth of USDH tokens respectively, or a total of 22.6% of USDH’s circulating supply.
Market Strategies Involving USDH
Onto the main question — What are whales doing after they borrow USDH from Hubble Protocol?
Our research team managed to retrieve some of the whale wallets with the largest borrows on the protocol and identify movements, each with varying collateral assets and investment strategies, that can be replicated by the average Joe.
The next section will utilize SolanaFM’s explorer to elucidate these case studies.
Note: Though all case studies have taken place at varying time period, we will conduct the analyses over a 7-day period from the time of deposit.
Case Study 1 - Hubble Stablecoin Vault
In the first case study, we observe a whale depositing four assets into the Hubble Collateral Vault in frequent batches — mSOL, BTC, soFTT and SRM. The deposits of 822 mSOL, 8 BTC, 1023 FTT and 3000 SRM amounted to a total of $565,000 at the time of deposit (17 Feb). The figure below shows the first instances of deposits.
In subsequent transactions, the whale mints a total of 369,000 USDH on Hubble Protocol, amounting to a 65% LTV for this account. The figure below shows the first instance where the whale mints 25,000 USDH and pays the 0.5% minting fee worth a total of $125.
Finally, the whale supplies USDH into the Hubble Stablecoin Vault, which at the time of deposit, generated an Annual Percentage Rate (APR) of approximately 15%. The figure below shows the first instance where the whale deposits USDH into the vault.
In this case study, assuming they borrows the rest of the 344,000 USDH in a separate transaction, the whale would have to pay a total of $1845 in minting fees. Assuming they supply all the capital borrowed on Hubble and the APR remained constant throughout, 369,000 USDH would be deposited into the stablecoin vault to earn 15% in yield. Throughout a 7-day period, this would translate to a sizeable 1,061 USDH in yield. In this case, the user would take 12.1 days, or less than 2 weeks, before breaking even and generating profit on this loan.
Though the whale can generate profits within a short window, the risk following a fairly high LTV ratio still pertains. This user may have to exercise caution by returning a portion of the loan if the account’s LTV ratio approaches the 80% threshold.
Case Study 2 - Solend Coin98 Pool
In the next case study, we observe a whale depositing only one asset, stSOL, into the Hubble Collateral Vault in frequent batches. The deposit of 5,033 stSOL amounted to a total of $201,300 at the time of deposit (5 Aug). The figure below shows the first instance of deposits.
In the following transaction, the whale mints a total of 103,000 USDH on Hubble Protocol, amounting to a 51.1% LTV for this account. The figure below shows the first instance where the whale mints 18,000 USDH and pays a total minting fee of $90.
Finally, the whale deposits USDH into the Solend Coin98 Pool, which generates a similar Annual Percentage Rate of 15.0% at the time of deposit. The figure below shows an instance where the whale deposits 66,000 USDH to mint 64,639 cUSDH.
With the same set of assumptions as the previous case, this whale would have to pay a total of $515 in minting fees. If the whale supplied all the borrowed capital and the APR remained constant throughout, 103,000 USDH would be deposited into the stablecoin vault to earn 15.0% in yield. Throughout a 7-day period, this would translate to a total of $296.30 USDH in profit.
However, we observe that minting USDH using stSOL as collateral is incentivized by earning LDO (Lido's governance token), which would earn an additional 20% APR at the time of deposit. In this case, the whale would actually earn an additional $772 with its stSOL collateral, amounting to a total of $1068 of yield generated.
In this case study, holding this position for a week generated more than double the fees paid to take up the USDH loan. On top of that, the account’s LTV ratio is kept at fairly risk-averse levels. On the premise of risk and profitability, this strategy appears to be much more ideal to execute compared to the previous case study.
The Bottom Line
Considering the preceding case studies, this brings us back to our original question: How efficient are the whale strategies upon borrowing capital?
Inherently, the strategies above appear to be effective methods for investors to leverage their long crypto portfolio and earn market-neutral yields in DeFi, and for a first, earn interest on their debt with stSOL as collateral. However, holders of USDH may be exposed to the standard set of lending and stablecoin risks; de-pegging, APR fluctuations and volatile collateral prices, to name a few. Risk is part-and-parcel of any investment strategy — This report is not financial advice, and be sure to DYOR before deploying any investment strategies.
Loan-to-Value (LTV): LTV is the ratio of the total value of borrowed USDH to the total value of collateral deposited.
Annual Percentage Yield (APR): Interest rate tabulated over a year.
Yield-bearing Tokens: Tokens that continue to earn yield while deposited.
Hubble Protocol: https://hubbleprotocol.io/
Hubble Collateral Vault Account: https://solana.fm/address/HZYHFagpyCqXuQjrSCN2jWrMHTVHPf9VWP79UGyvo95L?cluster=mainnet-qn1
Hubble Protocol Stats: https://app.hubbleprotocol.io/stats
Case Study 1.1: https://solana.fm/tx/3HRnXpp7Y2LBNPagD6qUyX8sHbzmAjvMRrenfKz66GaRZiVMGLn9j5NJfBbEkqvux4qTQCjKKGFcAM5fimKyhE8W?cluster=mainnet-qn1&mode=lite
Case Study 1.2: https://solana.fm/tx/7DkhJEkiCYgmme4UXgXZ443PYc7MBoEqxM2APi2CPaMV8B4tDyeojg3Lzdsy6pNGitdvDMNQdJLVEAY7KwCf8d2?cluster=mainnet-qn1&mode=lite
Case Study 1.3: https://solana.fm/tx/5v2mq5z5fDxWJpGcZxHFsLMNwaw1DonFYs9X79Hmz9vbru2Jg3m3yrtJ2QvmCFccDpANCQLaGEBkLEHaY4dViA4o?cluster=mainnet-qn1&mode=lite
Case Study 1.4: https://solana.fm/tx/3XjtGNBeqBLiEwYvVF26AvMnvTXAexVunYcH2ZsSVf8czNqeq6zHuUWbtMvMa5WAtM9iH1jhbgwn8CfBMPYWgB93?cluster=mainnet-qn1&mode=lite
Case 2.1: https://solana.fm/tx/5QD4M889hbeTsFRrJ73t7x9tnRZyEambrauet8cUmURC7mZ2XF8oLmA6Snvmo23qTWKUe3qGyRsqeWv3gFtD6Tkx?cluster=mainnet-qn1&mode=lite
Case 2.2: https://solana.fm/tx/3WNzmjdnz7qzXLVa7C4RHjLbLfL2zanvJrbDi9jRAgcq4gqv8e5YXMQj3TyEPAf6m3hvY9Xyghq8BXB2ncx7kzwD?cluster=mainnet-qn1&mode=lite
Case 2.3: https://solana.fm/tx/3xzVqeipCH4AKPL19NkkvvC7y6N9eLR6DgtuF41Wm75iKSxi3oDeAAraczDJMehZcwM3VJ2z2Sa6ouWptJ2JTTg8?cluster=mainnet-qn1&mode=lite