Speculation that the SEC is looking to classify ETH as a security; a tale of two Genslers; MakerDAO moves the DSR to 13%; and sideways action on ETH’s price. There's still a flurry of onchain and offchain activity around crypto and DeFi. Let's see how it's impacted DeFi yields since last week.
DeFi's Base Rate, Courtesy of Vaults FYI (25 March 2024)
While one would think an inquiry from the SEC regarding ETH would cause a price shock in the market, no one seems to mind at this point. Instead, CT degens filled our feeds with memes about Gary and Bob Gensler. This news fell flat, while prices remain largely unchanged in the last week for majors.
Interest rates on lending market yields are largely in the 15–20% range, and the base rate in DeFi is still above 20% this week with Yearn dominating the yield field. Yearn's Juiced Vaults, built on Ajna's permissionless lending protocol, and their v3 vaults on Polygon are pushing rates on stables above 30%. Ethena's sUSDe and Aave's stkGHO have been providing their staked token holders with APYs above 30%. Stablecoins, as it turns out, are revenue goldmines for these platforms and protocols. Don't believe me? Read up on Marc Zeller's take about the revenue GHO is bringing to AaveDAO.
Utilisation rates across lending markets are lower, interest rates are beginning to trend downward, and we're seeing adjustments to Stability Fees and the DSR on the MakerDAO forum, as well as adjustments to Aave's IR Curve, per Chaos Labs' recommendation. In time, this may lead to a lower stablecoin base rate. Compared to the base rate published in Issue 3, we've only seen a 2% drop, which appears to match the recommendation to adjust the DSR.
If you're looking for a comprehensive overview of stablecoin markets, I highly recommend MonetSupply's recent post on the MakerDAO forum on behalf of Block Analitica Labs: Market Conditions and Competition Analysis - 21 March 2024. For ETH yields, LRTs and Pendle continue to drive yields far above the base rate. Pendle and Gearbox are the two protocols benefiting the most from the LRT craze and points economy. Though, Aerodrome provides some notable ETH-based yields for correlated pairs, as well.
Let’s take a look at the stablecoin and ETH base rates this week.
Stablecoin Yields
Stablecoin Base Rate: 17–29%
While lending market utilisation and interest rates are trending lower than they were last week, we're still seeing stablecoin base rates in the same range, with a 1% drop on the lower bound and a 4% increase on the upper bound. This is largely driven by demand for crvUSD, FRAX, LUSD, and USDC across markets.
The adjustments by MakerDAO and Aave signal that we're starting to see a market response to the increases in interest rates at high utilisation rates. Leverage appears to be lower across the majority of lending markets, while incentives for newer stablecoins are pushing up yields far above base stablecoin rates.
Since last week, we've also seen a slight decrease in Aave's outstanding debt, according to data from The Block. As I shared above, this is likely due to increased borrowing costs and a slight cooling off within the market. As more adjustments are made to lending market parameters, I expect to see activity across lending protocols balance toward an natural equilibrium with spikes when high yield opportunities emerge or extreme bullishness overtakes the market. With funding rates lower this week, it's likely traders aren't as confident on ETH's momentum as they were in previous weeks.
Lending Markets
All of those interest rate changes have had their intended effect, with rates falling lower this week across lending markets. Interest rates may be lower on a whole, but there are still attractive yield opportunities across DeFi lending markets.
Aave v3
Since last week's update, we've seen rates fall between 13–17% across Aave markets. Lower utilisation rates are the main culprit here, with more lenders paying back a portion of their loans. While yields for lenders are lower this week, there are two standout developments within the AaveDAO to highlight this week.
The ACI’s Merit Program
The ACI Merit program experiment is coming to a close with an impressive impact for a short-term incentives program. The Merit program rewarded Aave users in the Ethereum market who borrowed WETH or GHO with WETH and GHO incentives. Stacy Muur provided a brief overview of the impact Merit has had on Aave's TVL and revenues on Twitter, where she noted:
If the ACI proposes that the Merit program becomes a permanent fixture within Aave, you can expect this incentive program to expand to other markets beyond the Aave v3 Ethereum market.
GHO Initiatives
GHO has been a remarkable revenue source for AaveDAO's treasury, with a projected $3.1M in annualised revenue on only $40M of GHO borrowed. The GHO interest rates have been adjusted to reflect the broader interest rate environment across DeFi markets, yet demand is still strong due to the many incentive programs geared toward GHO liquidity and GHO holders.
People who stake GHO within Aave's Safety Module can earn 31.04% APR on their stkGHO in AAVE rewards, but this comes with a risk that the stkGHO could be slashed in the future if bad debt builds up in the Aave markets and AAVE holders vote to slash stkAAVE and stkGHO, with stkGHO eligible for up to 99% slashing.
There are also initiatives on Balancer, f(x) Protocol, Gearbox, and others for GHO holders, some of which we'll cover in other sections of this issue. While GHO yields are limited to Ethereum mainnet for now, you can expect GHO yield opportunities to emerge on your favourite L2s where Aave v3 is deployed. The Aave Labs team has posted a TEMP CHECK proposal to create a cross-chain rollout plan for GHO. Ronnie's bringing stablecoin yields to an L2 near you in the not-too-distant future, it seems.
Compound v3
While Gauntlet has proposed further changes to work toward deprecating Compound v2, interest rates on V3 have dropped by ~4-5% since last week. Unclear if this is due to the general cool down within lending markets or if it’s a lingering effect from the bug introduced in Proposal 226, which is to be remedied with Proposal 231.
I haven't seen much chatter on Twitter about Compound Proposal 231. In Proposal 231, Gauntlet has proposed a fix to a bug introduced by Proposal 226, where:
"...an error occurred in Bridge wrapped actions to Arbitrum in the call to setBorrowPerYearInterestRateSlopeLow. This led to an unintended high borrowing APR for the Arbitrum USDC market. The below proposal will be published on-chain as soon as possible. We are exploring options to reimburse impacted borrowers for the temporary high interest rate and will keep the community updated."
This has led to a high borrow rate in the Compound v3 Arbitrum Native USDC market. We'll see how the market reacts once Proposal 231 is executed with the proper fix.
Gearbox v3
The Gearbox team has been moving full-steam ahead with integrations, which have boosted yields in their Passive Earn lending market since the last issue.
USDC lenders can earn 43% vAPY, while GHO lenders can earn 156% vAPY and DAI lenders can earn 77% vAPY on their deposits. these markets provide an incredible opportunity for people looking to earn on stablecoins. Gearbox has pushed past the $200M TVL milestone: since the beginning of March, Gearbox's TVL has grown by ~128%!
This demand is largely driven by the USDe leveraged strategies, where leverage traders are farming Ethena Shards (i.e., points) and sUSDe yields.
If you're interested in lending stablecoins in Gearbox v3's Passive Earn markets, you can buy Protocol Cover from Nexus Mutual on mainnet or through OpenCover on Base, Arbitrum, or Optimism to protect yourself against the biggest risks in DeFi including smart contract hacks/exploits and severe oracle failure.
Fraxlend
If you're a FRAX holder, there are still high yield lending opportunities in the Fraxlend markets. People with WETH collateral deposited have been willing to pay 28%+ APY to borrow FRAX in the last week.
At the time of writing, interest rates for lenders on Fraxlend vary from 12–30% vAPY. If you're planning on lending out your FRAX or depositing collateral to borrow against, you can buy Fraxlend Protocol Cover from Nexus Mutual to protect your deposits against smart contract risk, severe oracle failure, and severe liquidation failures.
Notional v3
On Monday (25 March), the fixed-rate lending protocol Notional Finance v3 launched on Ethereum. Notional v3 has been live on Arbitrum for some time, but their launch on Ethereum provides lower interest rates for borrowers and higher rates for lenders due to NOTE incentives. Currently, there are several markets where lenders can earn high APYs on their stablecoins.
If you're a borrower, Notional v3 has some of the lowest rates in DeFi, which you can lock in at a fixed rate for a set maturity. I imagine these rates will be arbitraged by savvy traders within the next week or so.
The greatest stablecoin opportunity on Notional v3's Arbitrum market exists within their Leveraged Vaults. You can earn high rates on USDC, USDT, DAI, and FRAX currently. Notional v3 Protocol Cover is available on Nexus Mutual, as well, so you can leverage up to earn yield and protect your deposits against smart contract risk.
Stablecoin Yield Strategies
The greatest stablecoin yield opportunities exist in yield aggregators and Yearn has been providing consistently high double-digit yields on stablecoins for weeks. Some recent initiatives have also created yields far above the stablecoin base rate, as well.
Yearn Juiced Vaults
Yearn's Juiced Vaults—a vault strategy built on top of Ajna, a permissionless lending market—have been a yield juggernaut over the last month. The Juiced DAI Vault has been the highest performing over the last 30 days, with a 30-day APY of 42.64% and a 7-day APY of 50.29%.
At the time of writing, the Juiced DAI Vault on Ethereum offers a total APY of 52.79%.
If you're looking to earn a high yield on a network with lower transaction fees, the Juiced USDC Vault on Polygon might better suit your needs. The Juiced USDC Vault currently offers 31.8% APY, with a 30-day average APY of 31.94%.
If you plan on depositing in one of the Yearn Juiced Vaults, you can also protect yourself against smart contract risk across both the Yearn and Ajna smart contracts with Yearn Juiced Vaults Bundled Protocol Cover from Nexus Mutual.
f(x) Protocol Strategies
In the last week, f(x) Protocol has launched a liquidity mining campaign that creates attractive incentives for stablecoins paired with fxUSD on Curve. If you're not familiar with f(x) Protocol, it's a DeFi protocol on Ethereum that offers a decentralised stablecoin enabled by an amplified ETH.
If you deposit ETH LST or LRT collateral into f(x), you can mint fxUSD (an LST-backed stablecoin), rUSD (an LRT-backed stablecoin), or fETH (an LST-backed token that provides holders with leveraged exposure on the underlying LST).
Right now, people who provide liquidity for stablecoin pairs such as GHO+fxUSD, crvUSD+fxUSD, PYUSD+fxUSD, FRAX+fxUSD, and others can earn double- and triple-digit yields in FXN rewards.
If you provide liquidity for these pairs through Convex, you can earn:
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107.74% vAPY on GHO+fxUSD Curve LPs
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107.37% vAPY on crvUSD+fxUSD Curve LPs
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93.74% vAPY on PYUSD+fxUSD Curve LPs
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81.94% vAPY on FRAX+fxUSD Curve LPs
For those who decide to provide liquidity for one of the fxUSD stablecoin pairs on Convex, you can buy Protocol Cover for f(x) Protocol, Curve, and/or Convex to protect your deposits against smart contract hacks/exploits, oracle failure, and governance attacks. There may be a Bundled Protocol Cover listing coming in the future for this yield strategy, as well 👀
If you're interested in learning more about f(x) Protocol, their current yield opportunities, and Nexus Mutual's Protocol Cover, tune into the conversation I'll be having with A-Team DeFi on Wednesday (27 March) at 18:00 UTC.
ETH Yields
ETH Base Rate: 2.6–5%
No updates on the ETH base rate, as ETH staking yields remain unchanged. The only change that I foresee impacting ETH staking yields would be the proposed Endgame Staking Economics: A Case for Targeting on the ETH Research forum. It's a good read, with plenty of food for thought. It provides a new perspective on ETH staking.
For now, liquid restaking tokens (LSTs) continue to dominate the yield landscape. We're still seeing yield opportunities above the base rate in Liquid Restaking, Yield Aggregators, and LP protocols.
Let's see where users like you can beat the base rate.
Lending Markets
With two notable exceptions, yield on WETH and ETH in lending markets is either below or on par with the ETH base rate. The MetaMorpho Re7 WETH market provided outsized interest rates over the last week, and the WETH market on Seamless has a high 7-day APY due to the esSEAM incentives.
WETH lending rates elsewhere are below the base rate, though the Aave v3 Ethereum WETH market saw an increase to 1.74% vAPY due to the impact of the Merit program. Compound v3 markets on Base and Ethereum provided rates between 2.95–4.5% vAPY in the last 7-days, as well. There may be some arbitrage happening between some WETH markets on Base, where WETH is then being deposited in Seamless Protocol to earn the higher rate, although that yield is primarily in esSEAM incentives that unlock over time.
Unless you're running a complex leverage strategy, you're likely going to look elsewhere for ETH yields other than DeFi lending markets.
Gearbox v3
The demand for leverage on Gearbox v3 is never-ending, with leverage traders looking to farm LRT yields and points. Due to this insatiable demand, ETH lenders have been earning north of 20% APY for the last month. Currently, the vAPY for ETH deposits in the Passive Earn market is nearly 35%!
If you're interested in lending your ETH in the Gearbox v3 Passive Earn market, you can buy Protocol Cover from Nexus Mutual on mainnet to protect yourself against the biggest risks in DeFi including smart contract hacks/exploits and severe oracle failure.
Notional v3
On Notional v3's Arbitrum market, you can open a leveraged vault and earn double-digits on your ETH or LSTs ranging anywhere from 10–79% APY. The yield is made up of an organic APY, NOTE incentives, and ARB incentives. To my knowledge, this is the highest APY ETH-based opportunity on Arbitrum outside of Pendle.
Notional v3 Protocol Cover is available on Nexus Mutual, as well, so you can leverage up to earn yield and protect your deposits against smart contract risk.
Liquid Restaking
This category continues to be dominated by Pendle, which saw another 18% increase in their TVL in the last week. From Pendle's Fixed Yield to their Liquidity Pools, DeFi users have a variety of choices when it comes to earning yield on their LRTs.
Pendle Ethereum Opportunities
If you're looking to deposit an LRT and sell your yield and points, you can earn:
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54.42% fixed APY on Zircuit ezETH | 92 days left in maturity
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51.52% fixed APY on Bedrock uniETH | 92 days left in maturity
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37.12% fixed APY on KelpDAO rsETH | 92 days left in maturity
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36.62% fixed APY on Ether.fi eETH | 92 days left in maturity
If you want to provide liquidity to earn yield and points, you can earn:
If you're depositing into Pendle to earn on your LRTs, you can buy Pendle Protocol Cover from Nexus Mutual to protect your deposits. Nexus Mutual even offers EigenLayer +Etherfi + Pendle Bundled Protocol Cover to protect against the full-stack for risk, as well. Keep an eye out for more Pendle-related Bundled Protocol Cover listings in the future.
Pendle Arbitrum Opportunities
If you're looking to deposit an LRT and sell your yield and points, you can earn:
If you want to provide liquidity to earn yield and points, you can earn:
Beefy ETH-bsdETH vLP Vault
While there are several LRT LPs on Beefy worth a look, none have an APY anywhere near this pool's eye-catching 76.70% vAPY. The Based ETH LP is made up of Reserve Protocol's Based ETH (bsdETH), a basket of cbETH and wstETH, and WETH deposited on Aerodrome through this Beefy Vault.
While this comes with more risk due to the low supply of bsdETH, it's a higher risk/high yield LP opportunity to earn on your ETH. Of course, you can buy Protocol Cover for Aerodrome and Beefy to protect against smart contract risks, but Reserve Protocol is not currently listed on Nexus Mutual at this time.
Takeaways for this Week's DeFi Yields Report
Over the last week, ETH's price has bounced between $3,100 and $3,700. For now, we're in a sideways market until some catalyst comes along to push the price in another direction. With the SEC's renewed interest to potentially classify ETH as a security and their passionate efforts to have their bureaucratic dicks knocked in the dirt by the US appellate courts, the predictions about an ETH ETF in May seem more rose-coloured than not at this point.
Again, these headwinds don't change my view of ETH, as I'm personally still bullish on ETH. I've said it before and I'll say it again—I'm not a trader; I'm a farmer.
If you're a farmer, there are still plenty of opportunities to earn on stablecoins and ETH.
As crypto yields hover in the mid-to-high double digits, and the market continues this sideways trend, it's highly likely we'll see some large exploits in DeFi. IntoTheBlock published "Decoding DeFi Risks: Exploring the Data Behind $50B+ in DeFi Losses" in early February on The Defiant, where they highlight the different technical and economic risks DeFi users are exposed to.
Don't dismiss these risks. I'm a firm believer in Nexus Mutual's Protocol Cover, which protects against the major risks in DeFi: smart contract hacks/exploits; oracle manipulation/failure; liquidation failure; and governance takeovers. Protecting your productive crypto only costs a portion of your yield. Don't let a hack wipe you out in this bull run.
You can buy Protocol Cover from OpenCover on L2s or Nexus Mutual on Ethereum mainnet. The majority of the protocols I highlighted in this report are available on both OpenCover and Nexus Mutual.
Yield is everywhere around us. You just need to reach out and grab it without losing your balance and dropping your bag. I'll be back next week with an updated look at the state of DeFi yields.
Until next time, stay safe out there.