How the SPOT Token Offers Gains Without Staking
Real yield is a key utility in the world of decentralized finance (DeFi), but it has been notoriously difficult for DeFi applications and protocols to generate sustainable revenues for token holders and users.
While DeFi offers yield-generating opportunities such as yield farming, protocols often create unsustainable tokenomics to generate artificially high yields to attract users.
They then attempt to maintain these artificially high yields on the backend to retain users, or risk losing liquidity to more competitive returns.
This obviously doesn’t work. Just look at Terra Luna and Anchor Protocol.
So, what can offer real yield on a stable asset sustainably and continuously? Ampleforth’s SPOT token!
In this article, I will define real yield and demonstrate several ways in which both everyday people and institutions alike can generate gains off of SPOT.
What is Real Yield?
Real yield is a measure of the return on an investment after accounting for inflation. Inflation leads to a degradation of purchasing power, which also applies to investments. Real yield is calculated by subtracting the rate of inflation from the nominal return of an investment.
So let’s use an example:
Say an investor buys Bitcoin and makes a 5% gain and the inflation rate is 2%. That means that the investor actually only made a 3% gain as inflation has eroded away part of the return.
By holding onto an asset like USDC (or any other stablecoin / fiat currency), the holder is actually locking in a 2% loss. This is the degradation of purchasing power.
Real yield is an important concept as it tells investors the true purchasing power of their investment. If an investment has a high nominal yield but inflation is also high, the real yield may be very low or even negative, meaning that the investment is not actually generating real returns. In such situations, equities may be a better hedge against inflation, as investment greats like Warren Buffet suggest.
With an understanding of how real yield works, now let’s consider the SPOT token. In my last article, I established how SPOT’s collateral system works and why it ensures holders are protecting their purchasing power.
Holding SPOT is like making a gain versus holding other stablecoins and fiat currencies like the USD. SPOT protects purchasing power as its collateral system ensures that the nominal value of the collateral backing SPOT (i.e. AMPL tranches) will appreciate to match inflation.
So, holding SPOT is like staking without actually having to stake the token.
Is Holding the SPOT Token Profitable?
Just holding SPOT alone does not technically generate a yield at all. However, by participating in liquidity pools and providing capital, SPOT holders can earn real yield.
For example, the very first USDC/SPOT pool is currently open in Arrakis Finance and gives participants a ~4.04% yield, paid out via fees collected from users leveraging the pool for liquidity. Current liquidity stands at ~$373k in $USD.
Now, we have to factor in the rate of inflation that SPOT’s collateral set will automatically appreciate by:
Factoring in a 6.4% YoY inflation rate, SPOT holders participating in staking are making a 10.44% yield on their holdings versus fiat currencies and stablecoins that are not staked. Even the most lucrative staking opportunities throughout DeFi will have a hard time competing with SPOT in an inflationary environment.
For the general public, the average traditional savings account is offering Americans a yield of 0.33% on their hard earned money in February 2023. High-yield savings accounts are offering an improved 3% rate on average in 2023.
To put that in perspective, Americans holding their money in either traditional or high-yield savings accounts are yielding -6% and -3.4% of their purchasing power annually versus inflation. In other words, many Americans are losing 6% of their savings per year due to inflation.
Even investors in the stock market are losing out to SPOT token holders. The average annual gain in the stock market is ~10% per year. So, holding stocks outright versus inflation is only yielding the average investor ~3.6%.
By simply holding SPOT as an inflation hedge (no staking), SPOT holders are beating the average stock market investor by nearly double their return.
Key Takeaway
SPOT far outperforms the most widely adopted ways that Americans invest their money, and it is not even close. Instead of losing significant amounts of purchasing power per year versus inflation, Americans (and any other country in the world) can leverage SPOT for real yield opportunities or simply as an inflation hedge.
This even includes institutions, allowing traditional banks and funds to use SPOT as a safer alternative than conducting in-depth risk assessments to find the most likely stocks to net returns versus inflation. A true win-win for everyone.
To learn more about SPOT, visit spot.cash for documentation, staking opportunities, and additional information.
