Alpha Leak: Staking SOL on Parrot
There’s an extremely profitable strategy that’s available right now:
Stake SOL on Parrot to receive prtSOL
Deposit prtSOL in Parrot’s vault to mint pSOL
Exchange pSOL for SOL on Mercurial
Repeat
Depending on the exchange rate, in theory you can obtain up to 21x leverage on the block rewards you receive with no risk of liquidation. In practice, you can get more than 100% APY on your SOL. Let that sink in. And that doesn't even take the PRT rewards for staking SOL on Parrot and minting pSOL with prtSOL into account! This is WAY better than any other yield opportunity for SOL.
This works despite the SOL-pSOL pool being unbalanced, although of course there are limits. How unbalanced can the pool be while still remaining a profitable strategy? Time for some math.
Let's be extremely conservative and say the risk free rate you can earn on your SOL is 30% (although in practice you'd have to use lending protocols to achieve this, so it's not risk free). Staking rewards are about 6.5%. The 105% collateral ratio means the amount of pSOL we can borrow is 100/105=95.24% of the SOL we stake. We can find the exchange rate X (how much SOL you get for 1 pSOL) such that the returns from performing one cycle is equal to the risk free rate:
0.3=0.065+0.9524*0.3*X
X=0.8225
In other words, you could be getting as little as 0.83 SOL per 1 pSOL on Mercurial and it's still profitable! You're only better off avoiding this strategy when the exchange rate is worse than 82.25% (and remember, this is a conservative estimate).
Currently, the exchange rate is greater than 99%. So what are you waiting for, anon?
Things to Consider
This assumes the exchange rate when you enter stays the same when you exit. If the exchange rate changes, you could see some impermanent loss (or gain!). But assuming you don’t get too close to the 82.25% threshold and you stay staked long enough, the rewards will easily make up for any impermanent loss.
The savvy among us will also consider how this position will be unwound. Since unwinding involves unstaking SOL, which takes about 3 days for each iteration, the whole process could potentially take months! Thankfully, I hear that pSOL is coming to lending protocols soon. This means you can temporarily borrow all your pSOL debt on Parrot, pay it off, unstake all your SOL at once, and convert SOL to pSOL to pay off your pSOL debt on the lending protocol. So given that you have enough capital to deposit into lending protocols, you can cut down the unwinding process to just three days!
Happy yield farming!
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This content should not be construed as financial advice. Always do your own research before investing in crypto assets and using DeFi protocols.
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