Saving and/or making money with Pharos

Saving money with Pharos

When you allocate part of your capital to stablecoins, your main aim is to protect it from volatility.

However, these days, there are a huge number of stablecoins, and the definition of “stablecoin” is becoming rather relative, considering that some of them can become even more volatile than cryptocurrencies, even though the latter aren’t pegged.

We need to know which stablecoins are most likely to depeg, why, and how that might happen. Good news, Pharos is perfect for this.

Depeg Early Warning System (DEWS)

This is a warning system that flags stablecoins deemed to be risky before a potential depeg occurs.

The history of DeFi is littered with stablecoins of all kinds that have failed due to a wide variety of factors.

It turns out that certain factors are more common than others, and this allows us to draw up a list of criteria to anticipate depegs:

  • Supply Velocity. The stablecoin’s volume must be as high as possible to handle large minting flows or market-crash scenarios. Volumes must be as high as possible to handle large minting flows or a market crash. Low volumes make the peg easy to manipulate
  • Pool Balance Drift. This is the level of selling pressure in DEX pools for the stablecoin, which can be due to market panic or carry trades. The best way to protect from this is to have multiple DEX pools with an appropriate liquidity structure.
  • Liquidity Erosion. The real health bar of a stablecoin depends on its available liquidity at the desired price. If a stablecoin’s available liquidity is at zero, it is considered worthless.
  • Price Confidence. The price of a stablecoin is derived from multiple data sources (CoinGecko, DeFiLlama, DEX Prices…). Concerns arise when there is no longer consensus among these data sources.
  • Cross-Source Divergence. If there is a discrepancy between the data sources mentioned above, it is necessary to assess how significant the discrepancy is.
  • Blacklist Activity. Some centralized stablecoin issuers can freeze assets (USDC, USDT, PAXG, XAUT…). If users fear their funds might be frozen next, they will dump the asset immediately, regardless of the price.
  • Mint/Burn Flow. A stablecoin’s peg can be easily manipulated when the mint/burn flow hits a significant percentage of the total supply.
  • Yield Anomaly. High yields are often a desperate attempt to keep users from leaving.

The risk of a stablecoin losing its peg becomes serious when at least two of these warning signs appear. Naturally, the more warning signs there are, the more alarming the situation becomes.

Cemetery

If we cannot prevent the demise of a stablecoin, we can at least learn from failed stablecoins to avoid repeating their mistakes.

This is what the Cemetery is all about: a memorial to stablecoins that have permanently lost the peg they were supposed to replicate.

Apart from some kind of “value destruction porn”, the cemetery also offers many lessons on how to create and manage a stablecoin.

First of all, the risk of contagion is serious:

  • 2022: Terra (UST) collapsed because of an algorithmic death spiral, causing the loss of tens of billions in one fell swoop, and some months later, the collapse of several companies
  • 2025: Stream Finance (xUSD) collapsed when an external fund manager disclosed a $93M loss, and some months later, other stablecoins depegged as well because they were exposed to xUSD at the time.

Those cataclysms happened because a “too big to fail” stablecoin collapsed, and made other stablecoins collapse with it later on.

So when positioning ourselves on a stablecoin, we need to know whether it is dependent on other stablecoins or not. Speaking of which, Pharos has a dependency map and a contagion simulator for every tracked stablecoin.

The second lesson is that, over the past six months, most stablecoins have failed due to counterparty risks. That reinforced my conviction to use genuinely decentralized stablecoins, which were specifically built to prevent this.

In DeFi, there is a fairly widespread consensus that “decentralization sucks”, but then, this same consensus started using protocols falling to counterparty risks, which sucks even more.

One last lesson from the cemetery: the regulatory risk is the most underrated of all for the stablecoin industry.

This is a risk as it can jeopardise the survival of a centralised stablecoin issuer. For some backstory, the biggest failure by market cap is not Terra (UST), but Binance’s stablecoin (BUSD).

In 2023, there were 3 major stablecoins (USDT, USDC, and BUSD), and BUSD was backed by Paxos. But Paxos had to shut down BUSD because of Binance’s regulatory problems…And probably because Tether and Circle didn’t want another actor to steal their cake.

The point is that a massive stablecoin has been taken out of circulation because the regulators decided so. Now, we can imagine what they can do considering the influence of USDC / USDT in DeFi.

Safety Grades

In addition to all this data, Pharos has developed a rating system to highlight the stablecoins that are best positioned to maintain their peg.

As with DEWS, several criteria relating to a stablecoin are assessed:

  • Peg Stability. The history of the stablecoin is examined, taking into account its age and the tracking of its peg (no deviation = higher rating)
  • Exit Liquidity. In a worst-case scenario, users must be able to exchange their stablecoins for other assets at any time. Centralized stablecoin issuers are queue-based, so their exit liquidity is capped to their capacity.
  • Resilience. This criterion is a mix between the quality of the reserve composition (BTC/ETH > exotic tokens), the custody model (fully onchain > offchain), and the censorship capability (more than 25% of reserves backed by USDC/USDT is a problem).
  • Decentralization. The highest degree of decentralisation is achieved when there are no admin keys and the smart contracts are immutable. It is undermined when a single entity has total control over a stablecoin issuer, or when the underlying chain has centralization concerns.
  • Dependency risk. The influence of other stablecoins on the behaviour of the stablecoin under consideration

Currently, BOLD from Liquity is the stablecoin with the highest safety grade, which is justified in the sense that Liquity is designed to be the most disintermediated stablecoin issuer possible.

It is also possible to make direct comparisons between several different stablecoins using Pharos, looking at their historical market capitalisation, Safety Scores, and other statistics.

Be aware of any change.

So far, we mentioned the Depeg Early signs, real depeg events, and safety grades. With those three features, we can already have a solid methodology to protect our capital from depegs.

However, one problem remains: the stablecoin industry is constantly changing. Some stablecoins that were considered safe just a few days ago may now be best avoided.

It is therefore essential to be notified promptly of any changes, especially when we are exposed to these stablecoins, which are liable to change for better or for worse.

To this end, you can get Pharos data on Telegram in two ways:

  1. @pharoswatch, a public channel with daily recaps about peg deviations, supply shifts, liquidity changes, and emerging trends
  2. @PharosWatchBot, a bot for per-coin alerts or all-stablecoin alert-type follows covering DEWS changes, depegs, worsening depegs, and daily safety-grade moves.

That way, we don’t need to have the website constantly open to know what’s going on, and we’re notified at the slightest change, a feature that’s particularly welcome in an industry where certain signals are hard to spot.

Making Money with Pharos

For all the reasons mentioned above, Pharos is an essential tool for protecting our capital. That said, when you take a closer look at some of Pharos’s features, it is also a particularly useful dashboard for identifying opportunities related to stablecoins.

Risk-adjusted yields

Knowing our risk aversion is crucial, as it is this that will determine the opportunities we can or cannot seize.

Several terms have emerged to convey a sense of risk aversion, such as the “conservative” who seeks maximum security, the “strategist” who seeks the best yields with the least risk, or the “degen” who seeks the best yields, regardless of the risk.

And for all these profiles, Pharos is sure to have opportunities that fit.

Pharos brings together various stablecoins in a single table and ranks them according to their returns, as well as their security.

The horizontal axis represents the safety score of the stablecoins discussed earlier, bearing in mind that a score of at least 60 out of 100 is required for a stablecoin to be considered safe.

The vertical axis shows the annualised yields available for the associated stablecoin, with the dotted line representing the threshold above which returns exceed those of US Treasury bills.

Area for improvement: should non-USD stablecoins gain traction in the future, it would be useful to have a chart for each peg, showing their associated TradFi yield threshold.

What do the zones mean?

  • Danger Zone (degen friendly): This is the high-risk / high-reward opportunity. Perfect for getting high, but beware of a hangover
  • Play it Safe (conservative friendly): Those stablecoins don’t have the most interesting opportunities, but they are the most TradFi-remote ones.
  • Sweet Spot (strategist friendly): yields are stronger than Treasury Bills with acceptable safety

In other words, there are opportunities for everyone.

Arbitrage Opportunities

We talked a lot about negative depegs, but a lot less about positive depegs, and now is the time to talk about it because positive depegs are (often overlooked) opportunities to make money.

It all started with a tweet from Ben, Head of Growth at peer.xyz, who used Pharos to carry out an EURS/EURe arbitrage.

First and foremost, congratulations to him for coming up with this, and it demonstrates that Pharos is particularly well-suited to identifying opportunities of this kind.

In fact, Pharos retrieves the price of a stablecoin from several data sources, and its depeg tracker makes no distinction between negative or positive depegs.

Thanks to the depeg track, it’s easy to use an overpegged stablecoin to generate immediate returns.

But it can also be used to bet on stablecoins that are likely to return to their peg after a decline.

This is what happened when GHO was first launched in 2023: GHO was sold off heavily due to carry trades involving USDe (which was offering very high returns at the time), causing GHO to plummet to $0.97. Some months later, GHO reclaimed its peg, and holders got +3% APR from the price action.

Conclusion

That concludes this overview of the possibilities offered by Pharos.

This site may seem to be awash with statistics, but it is precisely this encyclopaedic aspect that makes it interesting: all DeFi users have a stake in using Pharos to understand how stablecoins work and the opportunities associated with them.

Even though Pharos is a go-to website to get informed about stablecoins, it is recommended to diversify your sources of information, such as other dashboards (e.g. StableWatch) and your own research.