Anyone know how to pronounce 900,218,833,755,450.60% APY?
I think about the meme above a lot. It’s funny and while I identify as a Bitcoiner, I do envy the “Degens”. They’re always in the right place at the right time, scoring an airdrop “worth five playstations” or doubling their money in a day by staking their money in pools with infinite APY.
I’ve always felt like I’m a step behind, until now. In this post I tell a brief story of how I became a degen and you can too. After all, almost everything in crypto has a bit of a learning curve.
An intro to Solana
Everyone seemed to be talking about this new blockchain by SBF. My twitter feed was talking about it. Bloomberg has started talking about it.
I knew that it was new competition to Ethereum and Binance Smart Chain, and that it made waves for its speed and low fees. You can see this in the price of the $SOL token, which sat around $3 in January this year and is trading around $40 today. The tweet below shows just how bullish the man responsible for the project had been on the token all along.
Adding to the hype around the blockchain, I began to see more mentions of Solana projects: COPE, STEP, MANGO, etc. It just seemed like Solana was becoming the go-to blockchain for crypto startups.
So with nothing more than some Sushiswap experience (which I got over due to high fees), I decided to immerse myself in the world of Solana.
Getting the right tokens
I was keen to buy some of the tokens listed above, especially COPE and STEP. But where do I buy this or any other Solana project? A google search revealed that one such place is Raydium, a Solana based decentralised exchange. However to use this DEX, one would need to connect a wallet with some $SOL.
After browsing the Raydium DEX I also came across this – staking pools for some of the tokens I had heard about that yielded huge APR. This is it, I’ve finally struck gold. But how do you create and stake tokens?
Slowly but surely I was figuring out how this worked. To spare you going through the same mission, here’s what I learned:
- Buy some $SOL tokens. My go-to for this has been FTX.
- Create a Solana compatible wallet. I’d recommend Sollet for its simplicity.
- Withdraw your $SOL from the exchange to this wallet.
- Go to Raydium.
- Connect your wallet. You’ll notice a small extra window pop up. This is your wallet. Don’t close it and keep it handy for approving transactions just now.
- Click on “Swap” in the nav and swap the $SOL you want to invest for $USDC.
- Once you have USDC, you can swap half into $STEP (or which ever token you want ot stake).
- Now create a LP (liquidity provider) token pair.
- Click on “Liquidity” in the nav and select to pair STEP with USDC. Since the pair is 50/50 you now see why you only converted half that USDC, right?
- Once you have your LP tokens you are ready to stake.
- Click on “Fusion” in the navigation and scroll down to the STEP-USDC pool. Deposit your tokens here. They will start farming almost immediately.
Cool, so now you are farming STEP tokens. Once you have enough, you can harvest these and they will end up in your connected wallet.
Compound your gains
What’s next? You could walk away and let your money work for you – or you could do a little bit of work each month, week, or even day to compound your gains.
There is a big difference between APR and APY, where APY considers compounding your gains. Of course if you are constantly reinvesting your gains (i.e. depositing them back into the pool) your principal amount will grow and you will farm more rewards.
Solana allows you to do this, because the transactions are cheap and fast. Harvesting, swapping, creating liquidity tokens and staking them will take you only two minutes a day and cost next to nothing on fees.
How much can you make?
I bet you’re wondering if this is sustainable? It probably isn’t. I’m sure the whole thing carries a lot of risk too. Perhaps this time next week I’ll be writing about my first time getting rugged. But for now, I’m making it rain. If the interest rate stays stable I have a great incentive to log into Raydium everyday day and stake my rewards.
I head over to the APY calculator and determine the following. If you invested $100 and was earning 600% interest and never compound, you will have $700 at the end. We call this 7x and this is not bad at all.
However, then I realised that APR and APY are not the same thing. In a nutshell, the difference is compounding. If you take the 600% interest from above and compound monthly (i.e. harvest and reinvest at the end of every month) you arrive at a very different APY: 12874.63%. After a year of compounding every month, given the same interest rate, our $100 investment has turned into $12974.63.
In this case, the simple act of compounding has made us an extra $12274.63 richer.
“Compound interest is the eighth wonder of the world,”
Einstein, reportedly
Fun fact: Average fee per transaction on Solana 0.000005 SOL which is around 0,0000013 United States Dollar