[Serenity] Weekly Stablecoin Alpha - 10 Aug 2023: Some Changes
This week's article might be a bit longer than usual, as we made some changes to the content structure. In particular, we have combined our Medium publication with Substack now. We have worked on the Medium weekly review of stablecoin yields for three years and now we have improved it to be more relevant. We aim to provide a comprehensive overview of the stablecoin industry, as well as hunting for alphas like other degens. This article explains the Medium overview table's structure and methodology, which we will not repeat in future editions, but you can always refer back to this article in the future.
Featured High Yield Pools
Selection criteria: TVL over 50k
24% and $11m TVL
Full story on our Twitter. This is the Michael Egorvo pool created during the crisis of his potential CRV liquidation. crvUSD is the Curve stablecoin, and FraxlendV1 is the FRAX lending receipts from lending FRAX into the Fraxlend's CRV vault.
Sushi axlUSDC USDbC on Basechain
63% and $0.3m TVL
Basechain is very hot now but also full of risk. Sushi is at least more reliable. This pool is basically the Axelar bridged USDC and official bridged USDC - the yield would be lasting as TVL on Basechain grows.
Convex cEUR/agEUR/EUROC, 31% and $0.5m TVL, Carry over from last week, see last week's report for details.
Wombex Hay, 22% and $0.2m TVL. The BSC native stablecoin mostly collateralised by BNB derivatives. The pool is a Wombat pool that contains Hay, Frax, cUSD by coin98, and very little Overnight USD+, USDT+ and USDC.
Pika USDC, 28% and $5m TVL. Pike's counterparty vault. The yield includes an 6% trading fee and the rest are esPIKE rewards, which only unlocks over a year.
Other Pools from Defillama Yield
Retro Cash/USDC, 45% and $0.8m TVL. Cash is a Polygon rebase stablecoin by Retro Finance. This is a dynamically managed pool by Gamma and you can claim rewards via Merkl.
Stablecoin Yield Overview
Updated this Monday but will subsequently update every Thursday.
Risk Free Rate
The simple average of Compound V1 and Aave V2 USDC lending rate.
Mainstream Rate
Convex 3CRV, Convex FRAX-USDC (FRAXBP), DAI DSR, and Convex crvUSD-USDC, rates are TVL-weighted average
Coupled with Risk Free USDC lending pools, Mainstream pools have the least risk in DeFi and allow users to invest more than $10m without material impact on the yield.
Benchmark
Pools with more than $5m TVL and reasonably safe.
Benchmark is our core research focus. First, this allows users to invest a portfolio of $1m, allocated in several pools, and achieve the Benchmark yield with risks reasonably diversified.
Second and more importantly, users can compare the risk exposures of a protocol/pool/portfolio with the Benchmark pools, to assess if the yield is reasonable. We use this methodology in our protocol analysis published as Premium Papers in our Substack. We believe that the DeFi sector is a near efficient market and risk and returns are correlated.
For each pool, we make arbitrary adjustments to its yield, based on our subject risk assessment. See below Risk Adjustment.
Exotic Strategies
Pools with more than $1m TVL, or it's new, or it has a complex design, or its design feature includes risk of principal loss.
Similarly, this allows a user to diversify a portfolio of a few hundred thousand dollars into several pools and achieve higher yield, whilst taking higher risks. In our Premium Papers, we also provide discussions about these pools, although we might not be able to give a long-term yield projection.
For each pool, we make arbitrary adjustments to its yield, based on our subject risk assessment. See below Risk Adjustment.
Delta Neutral
Pools that have about half stablecoin and half non-stablecoin. We hedge the non-stablecoin portion and compute the net yield, after factoring into account the hedging cost (gain), impermanent loss, capital used.
For example, Uniswap V2 ETH-USDC pool is typical in this category. Similarly, GMX's GLP fits in as well, although the risk is higher.
We see this section is a supplement to the above passive strategies under Benchmark and Exotic sections, as they need to be monitored and manually maintained.
Funding Rates
Binance coin-margined futures for large caps.
A typical strategy here is buy coin X, deposit into Binance coin-margined futures and short the same amount to harvest the funding rates (the Compounded APY here).
[Added on 24 Nov 2023] We made an update in the Funding Rate section, by adding GMX V2. GMX V2 supports the perps of a few major tokens, including BTC, ETH, LINK and UNI. Similarly to Binance coin-marginated futures, one can deposit X amount of token as collaterals and short 1x time to achieve delta neutral and receives funding rate when it's positive (for shorting).
Risk Adjustment
The assessment of risk is subject and anyone can modify these parameters based on his own opinions.
Other Notes
For more degen and smaller protocol/pools, we will selectively highlight them in the Featured High Yield Pools section above.
We will not discuss week to week changes, but we will review major events over the week.
If you are interested in understanding or verifying any information or calculation here, please contact us directly by @serenityfund in Twitter and describe your questions. We try to make the Q&A process public, so that more users could benefit from it.
In-Depth Thread or Article Summary
Yes, Paypal has entered the stablecoin market. Apparently Paypal has been planning for some time and it went live this week. There is too much speculation and we suggest waiting to see what's going to happen.
MakerDAO raised its saving rate on DAI to 8% and spurred the growth DAI in a few days.
Frax Finance is proposing under its V3 to incorporate entities to purchase T-bills to back up FRAX.
USDT depegged up to 0.2% over last weekend and concerns about its reserve were again raised.
Disclaimer
The information provided on this document and the referenced sources do not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the content as such. The author of the document makes no representation or warranty as to the accuracy and or timelines of the information contained herein. A qualified professional should be consulted before making any financial decisions.