I know I promised you to test a futures platform this week. However, there’s a more urgent topic to cover.

You may have heard about Terra, a blockchain that powers UST stablecoin, and the famous lending protocol Anchor that offers a 20% fixed yield on UST.

If you don’t actively follow the crypto space, you probably missed the recent dissent in the community about Anchor’s yield sustainability and the ability of UST to maintain its peg. 

I wouldn’t bring this up in any other circumstance because it all sounds like something that would matter only to people somehow involved in the Terra ecosystem. However, the way Terra’s team keeps it functional has direct implications for the broader market.

Today I’ll explain why Do Kwon, the main persona behind Terra, announced a plan to purchase $3 billion worth of BTC and how to track when the buying happens. 

This should allow you to anticipate price jumps in BTC and make short-term bets. Also, when the buying spree is coming to an end, you will have a clear signal of when it might be a good time to sell some of your holdings to rebuy them lower. Let’s kick it.

Why Anchor and UST Need Money

Anchor is a lending protocol. It’s a pretty unique one because the only types of assets it can receive as collateral are staked. 

This feature should theoretically let Anchor generate enough yield on collateral so that when combined with interest payments, it would be able to output a 20% fixed rate on UST stablecoin.

20% is huge even for the crypto space. Generally, stablecoins yield from five to ten percent APY. Don’t even get me started on “high yield” savings accounts of traditional finance.

Theoretically, betting on staking rewards. However, it only works if the market is up-trending for enough time so that the protocol can get enough reserves to live off during difficult times.

Best risk-adjusted staking rewards. Source: Staking Rewards.

When the market is up-trending, the prices of staked assets and the value of yields they produce are growing. Hence, they will likely produce more than 20% yield. 

In such cases, excess yield is stored in Anchor’s so-called “yield reserve.” If the staking yield and interest payments aren’t enough to ensure the promised 20% APY, the protocol takes lacking funds from the yield reserve.

Anchor had a bit of time during the bull market, but apparently not enough to be able to generate sufficient cushion in the yield reserve. That puts the entire ecosystem in a predicament.

A lot of people are using Anchor purely for yield capturing. They borrow UST only to deposit it back to Anchor for max APY. If the yield isn’t high enough, that may lead to a mass exodus from the platform and from UST. If that happens, there may not be enough liquidity to keep UST pegged to $1. 

Consequently, the team has to keep the yield reserve filled and UST peg insured against de-pegging. Thus, it has no way around constantly throwing money into the system.

$1 Million Bet, $3 Billion Bid

Lately, Twitter got flooded with highlights of Anchor and UST issues. That apparently annoyed Do Kwon, the main person behind Terra, and he took a $1 million bet from a skeptic that argued that LUNA would cost less in a year than it did not so long ago. 

Since then, the size of the bet increased quite a bit, but it’s still peanuts compared to what Do Kwon is determined to spend to ensure Anchor and UST do well.

It makes sense that the team’s major focus is UST stability. Even if Anchor has to reduce its APY, that won’t hurt if the peg of UST is rock solid.

In May, 2021, UST went below $1. It’s a bad thing for a stablecoin. Source: CoinGecko.

Do Kwon recently revealed a plan to have $10 billion worth of BTC in UST reserves. It’s a long-term plan, but $3 billion appears to be readily available to be deployed into BTC. 

As I’m writing this, the chunks of this $3 billion are being transferred to Binance from Terra’s team’s wallet. I’m sure you’ve noticed the impact of this by looking at the increased BTC price.

The chunks so far have been $125 million in size. This suggests that there are a lot more to come. Large bids are always bullish, so by following Terra’s team’s wallet, you can make some strategic buys before the news about another buy spread.

Besides, you will know when the $3 billion bid is almost filled, which should help you make some strategic liquidations ahead of the crowd. But how do you keep track of Terra’s team’s actions? I’m glad you asked.

For this purpose, we’ll use Etherscan. Etherscan might sound boring, but it’s one of the most sophisticated tools I’ve used in my crypto journey. Ironically, not many people use it to its fullest potential.

First, you need to register. Click on the “Sign In” button at the top right of the site and follow the instructions.

 

Once you register and log in, go to the Terra wallet address, and copy the address itself. Then, click on the “Add address to Watch List” as indicated.

 

 

Fill out the form like on the screenshot below. Make sure you tick the box for ERC-20 transactions.

 

 

After clicking on “Continue,” verify that you successfully added the address to your watchlist. 

 

 

If everything is fine, like on the screenshot above, you will get an email each time Terra’s team sends some ERC-20 (most likely stablecoins) somewhere (most likely Binance). Now you can bid along with whales. Good luck.