dear bankless nation,
There is a new “meta” on Crypto Twitter. It’s called “real yield”.
Ironically, there’s nothing new about this, because that’s how real-world business works.
But in Web3 the standard was a bit different. Blockchains allow projects to issue their own tokens at virtually no cost. As a result, the typical playbook involves the distribution of these tokens via liquidity mining.
They subsidize earnings with tokens for users!
It’s a nice and good business strategy when the markets are booming and the numbers are rising.
But when the number goes down, it starts to spiral out of control. People sell the tokens, yields drop, liquidity leaves the system and token holders are left with empty pockets. It’s not sustainable.
Instead, protocols need to build real businesses that generate real fees, and therefore real revenues.
Thankfully, that’s starting to happen.
DeFi is not dead. There is real, organic income out there.
Ben highlights where this Alpha is today.
– Bankless team
Back in June, we asked whether DeFi yields were dead or not?
At first glance, this may be the case. As the value of token issuance and risk appetite have fallen, DeFi yields have continued to fall. The wild bull market days of triple-digit returns are over as stablecoin deposit rates in Aave and Compound on Ethereum come in at a lower rate than T-Bills.
But if you know where to look, there are still plenty of options.
With liquidity mining incentives falling out of fashion due to a shrinking crypto market, yield farmers are now turning to generating income from more sustainable sources that produce real trading fees or earn interest on market-proven protocols – resulting in the new meta of “ real returns”.
While these opportunities require farmers to take on a higher level of risk commensurate with their higher returns, they still present a way for DeFi users to generate income by deploying some capital during this bear market.
Let’s break down some of the best opportunities that fit this mold for ETH, BTC, and stablecoins.
- Network(s): Arbitrary, avalanche
- Financial assets: ETH, wBTC, USDC, DAI, USDT, FRAX
- Risk: Middle
- 🌾 Yield: 22-29%
GMX is a decentralized permanent exchange. The protocol uses a unique model where users can act as a counterparty for traders on the DEX by providing liquidity to a basket of assets. This pool is known as the GLP.
Consisting primarily of majors such as ETH and wBTC, as well as stablecoins, GLP is intended to provide index-like exposure to LPs.
To open positions on GMX, traders borrow money from GLP, with a borrowing fee replacing the traditional funding rate. This, along with fees incurred by traders opening positions, liquidations and swaps, is paid out in ETH or AVAX to GLP holders and GMX players with a 70/30 split.
Currently, $348.8 million in assets are in GLP for deployments of the Arbiturm and Avalanche protocols.
strategy overview
In order to generate returns on GMX, users can provide GLP with liquidity.
The pool is currently expected to return 29.4% APR in ETH on Arbitrum and 22.54% in AVAX on Avalanche.
On Avalanche, GLP holders can further increase their returns via esGMX Rewards, which are GMX tokens that vest over the course of a year and can be used to earn increased rewards via so-called multiplier points.
risk factors
GLP liquidity providers take two main types of protocol-specific risks.
The first is inventory risk, as LPs are exposed to the price fluctuations of the assets in the pool. The second risk is the retailer’s P&L risk. As mentioned above, GLP acts as a counterparty for traders on GMX. This means should traders make a significant profit, particularly if they do so through short selling, some of the GLP could be used up, causing LPs to suffer a significant discount.
- Network(s): Ethereum, Arbitrum, Optimism, Polygon, Gnosis Chain
- Financial assets: ETH, USDC, USDT, DAI
- Risk: Middle
- Yield: 6-8%
Hop is a cross-chain liquidity network.
Hop allows users to transfer assets between Ethereum and L2 like Arbitrum and Optimism in minutes, bypassing the 7 withdrawal delay for optimistic rollups.
The protocol does this via an AMM, where it uses an intermediary token (hToken) to facilitate exchanges between canonical assets, which are assets natively issued by an L1 or L2.
Each hToken represents a claim to a real-world asset deposited in Hop by liquidity providers who, like a typical AMM, earn a transaction fee for each transfer processed by the network. To date, the protocol has facilitated a bridging volume of USD 2.7 billion.
strategy overview
There are several different pools where users can provide ETH, USDC, DAI, USDT, or MATIC liquidity to HOP.
As of this writing, the top-yielding pools are the ETH pool on Optimism (8.5% APR) and the USDC pool on Arbitrum (6.8% APR).
HOP is also discussing launching a liquidity mining program that would further boost LP returns – keep an eye on their governance forums for updates.
risks
HOP liquidity providers take several risks. The first is price risk as users are exposed to the price volatility of the underlying asset for which they are providing liquidity.
The second risk is network risk, as LPs on HOP are exposed to the security of all underlying L1s and L2s to which they are connected. Should any of these networks come under attack or encounter a critical issue, LP funds would be at risk.
- Network(s): Ethereum, Solana
- Financial assets: ETH, USDC
- Risk: Medium high
- Yield: 5-7%
Maple is an undercollateralized lending platform. Maple enables institutions such as market makers or VCs to raise unsecured loans via isolated loan pools. These pools are administered by an entity known as the pool delegate, who assesses a borrower’s credit risk.
Depending on the pool, all users or whitelisted addresses can borrow either USDC or ETH to earn borrowing interest and MPL rewards. To date, Maple has originated $1.6 billion in loans.
strategy overview
While some pools are allowed on the platform, there are several Maple pools that currently accept public deposits.
These include the Maven 11-managed USDC and wETH pools, which currently yield 7.7% APY and 5.3% APY, respectively, and the Orthogonal Trading USDC pool, where depositors earn 7.9% APY.
Of the three, the Maven 11 USDC pool might be the most attractive on a risk-adjusted basis, as it has the highest coverage ratio (the value of assets used as a backbone for a pool relative to outstanding debt) at 8.6%. .
risks
Maple lenders face liquidity risk as depositors in the three pools above are subject to 90-day lockups during which they cannot withdraw their funds. Additionally, users take credit risk as it is possible that a pool’s counterparty may not be able to repay their loans.
Because borrowers do not have their books fully on-chain, lenders must trust pool delegates to properly assess credit risk.
- Network(s): ether
- Financial assets: USDC
- Risk: High
- Yield: 17-25% APY
Goldfinch is a credit protocol.
While Maple focuses on giving crypto-native institutions access to on-chain capital, Goldfinch aims to do the same for real-world companies, as those companies can use the protocol to access credit to fund their operations finance.
Goldfinch raises the liquidity to originate loans through a tranched system where participants can provide liquidity to either the senior pool or individual junior pools. The main difference between the two is that senior pool deposits are spread across all pools on the platform, while junior pools represent loans made to individual borrowers.
The junior pools are subordinate to the senior pool, meaning senior depositors are repaid before junior if a borrower defaults. Goldfinch currently has $99.2 million in active loans across the 12 active pools on its platform.
strategy overview
There is currently only one junior pool, the Africa Innovation Pool, which accepts deposits.
The pool, which allows users to lend to Cairus, an emerging market lending company, currently pays an APR of 25.3% with a yield composition of 17.0% USDC lending rates and 8.3% GFI commissions.
The senior pool is also open to deposits, which together return 14.6% APY from USDC lending rates and GFI premiums.
risks
Goldfinch lenders should be aware of several important risks such as: B. Credit risk, as borrowers who default on their loans can put lender capital, particularly junior pool depositors, at risk. Additionally, the junior pool lenders incur some liquidity risk as while they receive a token, FIDU, which represents a claim on their underlying USDC and can be redeemed through the senior pool, it is possible that the Lenders cannot exit their position if liquidity is insufficient for redemptions.
bonus opportunities
Let’s highlight a few more ways in which DeFi users can earn a non-emissions-based yield.
- Fictitious Funding (4-7% APY): On Notional, users can issue fixed rate loans of ETH, wBTC, USDC, and DAI to earn lending rates, with interest rates ranging from 4% to 7% APY.
- Sherlock (5-28% APR): Users can earn up to 28.7% on USDC by providing cover, i.e. acting as a backstop for logs audited through the Sherlock network.
Yield farming is alive
As we can see, there are numerous opportunities for risk-tolerant DeFi users to earn income at above-market rates through protocols such as GMX, Hop, Maple, and Stieglitz. Since the bulk of their revenue does not come from token issuance, it is also likely that these protocols will be able to sustain their higher returns for the foreseeable future.
action steps
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.