4,000% to 2,000% APY with Cerberus
4 days ago, I wrote about my experience with Cerberus Finance on how it was yielding a simple APY (annual percentage yield) of 4,000% and the risks I was looking out for.
Today I will be providing an update on how these risks have turned out.
A. 9% tax on each transaction: As always, the 9% tax remains.
- 9% on buying Cerberus tokens,
- 9% (actually 4.5% since it only hits one leg of the pair) on pairing it up,
- 9% on staking it,
- 9% on harvesting it,
- 9% if I want to unstake it
- 9% if I want to unpair it and
- finally 9% on swapping it out to another cryptocurrency which then allows me to transfer to a platform that returns fiat money (thankfully once it is swapped out, there will be no more taxes)
Verdict: No change to the risk but it sure hurts
B. Impermanence loss: Although the mechanism for this is fascinating, I’ve come to realize this is an insignificant loss unless the price moves x3-x4 times after looking at the below calculation.
Verdict: Not a significant risk.
If the price goes up by 5x, I don’t mind taking a 25% hit. Still a good profit and a happy problem. If the token price goes down 5x, I have bigger problems to worry about.
C. Downward Token price risk: In the past few days Cerberus’ token price rose to 5 cents and then dropped to 2 cents. So far it seems to hover around the 1.7 to 2.3 cents range which is close to the price I purchased it at and as of now it is trading at 1.8 cents.
My plan is to hold the harvested tokens until the price hits around 2 to 2.2 cents then sell it. If I need to reinvest, I will be looking at compounding my harvest at 1.8–1.9 cents.
Verdict: Will need to monitor
D. APY reductions: This is the most significant risk so far because the APY, average percentage yield has decreased from 4,000% to 2,000%.
That means where I used to get ~11%, I now get ~5% a day. It’s still a good return however that dream of recovering my investment over 10–14 days has become closer to 20–25 days or a month.
The APY decreases as more liquidity providers join the pool and the same pool of rewards are distributed to more providers. An APY over 1,000% is still a very good rate compared to other defi protocols out there however if this drops to 200% then I will have to reconsider my risk-reward profile in Cerberus.
The good news is that this means that Cerberus Finance is getting more token holders who are providing liquidity and increasing the demand for the token and the price of it.