You invest to profit, I mean everyone in the entire world does the same. Since the evolution of DeFi & the constant innovations it has seen, there has been an addition of a number of more technical ways to earn some extra cents on your investment in an already existing plethora of assets to invest into. Needless to say, DeFi has definitely opened up entire streams of investment for many & this blog dives exactly into those extreme scenarois where Liquidity Providers (LPs) made the most money. Analysing a number of centralised exchanges, LST & LRTs we aim to find when was the right time to park your money on-chain or off-chain & how did the market actually responds during that time.

We’re analyzing data from Binance ETH/USDT and AAVE, the purpose of this research is to study flow of capital on-chain and compare this to high volume areas. We’ll study more protocols in the next part of this blog.

Let us begin our research with the ETH/USDT pool on Binance first. We will be analysing the data from 24th of March to 23rd of April - 30 days. We will be looking at volume data as it correlates with the amount of capital that people are moving on-chain or vice-versa.

What you see from the plot is how volume peaked on 14th of April to a staggering $1 Billion & how it falls to a minima a number of times. For around 10 days in the 30 days we have chosen, the volume was less than $0.3 billion! .

The very first thing you might notice from this plot is just how similar the trend is to that of the Binance Pool. If we look at specific dates of 14th April, the volume did peak here just a day ago and it was still really high, also on most days where there was a minima in the Binance Pool’s volume, a minima did occur here too.

Let us try diversifying a little to get more insights. Let us look at 1inch network’s Fusion. Refer here for dune dashboard we referred to for these 2 plots below.

The variation was again really similar here, the dates too. What can definitely be inferred from here is that there are certain days where there’s capital both on-chain & off-chain while there are some days where both venues are kinda dried.

Let us try comparing Aave V3 with Binance & let us also include Pendle in this comparison. Aave V3 uses a metric called utilisation ratio which is basically the ratio of the outstanding debt owed to the total assets available. This is essentially the decentralised version of what centralised exchange like Binance term as open interest which represents the contracts that are still outstanding/due .

Refer here for the Source.

Let us then take the ethereum market on aave where aWETH is the receipt token.

So, after so much of data bombarded, let’s try decoding it & make some sense of it.

Take 14th April first, the pool size is at a minima, this shows the available supply in the pool that day was at a minima, highlighting that a lot of capital on the day was off-chain on exchanges like Binance. The open interest data for Binance confirms this as it is higher than the utilisation rate of WETH pool on Aave on that day. Whenever there’s an activity on-chain that is somehow able to get a lot of attention for example a protocol launch, a lot of capital moves on-chain. It is more profitable to be on-chain during those times because of market activity & sentiment being generally favourable to the protocol launching which might be promising a potential revolution along with it.

During the end of march, a lot of capital was simply off-chain which is confirmed by the data of OI for binance which is really high compared to the OI for WETH on Aave.

The initial high during the end of march indicates the positive sentiment that was ongoing around LRTs that time having the likes of EtherFi, Renzo & EigenLayer. A large capital was flowing on Pendle at that time thus drifting away from Aave. While there was a sudden crash at the end of April as LPs tried looking outside of the Restaking dogma.

All in short, the data highlights positions when it was more profitable to be on Aave or Binance or maybe Pendle. We looked at extreme scenarios where LPs made most money like on 14th April it was Binance, end of march Binance, Initial april saw a lot of capital on Aave & Pendle while as april ended the flow moved to off-chain as well.