In the last week, Gary Gensler's SEC sent Uniswap Labs a Wells notice; crypto markets saw substantial price declines; liquidations totaled $1.7b over the last several days; and EigenLayer and EigenLayer DA launched on mainnet.
How has the drop in the market affected DeFi yields?
DeFi's Base Rate, Courtesy of Vaults FYI (15 April 2024)
Over the weekend, crypto markets took a significant downturn. Since last week, BTC is down 11.7% and ETH is down 17.1%. The large price drop created billions in liquidations across CeFi and DeFi markets. We haven't seen a market blowout of this magnitude since the Terra/Luna collapse in 2022. Thankfully, major protocols like Aave, Compound, Maker, Morpho, and others had no issues liquidating positions in a timely manner. From what I've seen, the only protocol that accrued bad debt during the drawdown was Extra Finance, a leveraged yield farming protocol on Base and Optimism. Extra incurred 164 ETH of bad debt, but the team made up the difference and created a "rainy day fund" (i.e., an insurance fund) to cover future bad debt should it arise in extreme market conditions.
Centralized and decentralized stablecoins fared well during the downturn. Major stablecoins like USDT, DAI, PYUSD, and USDP held the peg, though USDC did depeg down as far as $0.97 for a short while before it was arbed back to peg. Ethena's USDe saw a depeg down to $0.965 for roughly 30 minutes before it was returned to peg. FDUSD also saw a noticeable depeg down to $0.96 before returning to peg. Many decentralized stablecoins performed well, with slight depeg events across this sector. GHO depegged to $0.97; FRAX depegged to $0.986; crvUSD depegged to $0.988; LUSD depegged to $0.985; DOLA depegged to $0.986; MIM depegged to $0.943; and sUSD depegged to $0.98. All have returned to within 1% or less of their peg.
While no one likes a drawdown, this drop seemed like a healthy leg down. It also highlighted the improvements we've seen across DeFi since no senior or junior protocols blew up. DeFi infrastructure has proven more resilient than in past cycles. The market is less bullish than it was in previous weeks, with funding rates dropping negative for a short while before turning positive again, though just barely. The current annualized funding rates for BTC (6.03%) and ETH (5.17%) are a far cry from the high double digit funding rates we saw just a month ago. There's uncertainty in the air, which means we might be in a crab market for some time before the market breaks one way or another.
For many new DeFi users, this sudden drop may seem alarming. Don't worry, there will be more days and weeks like this to come. And for those worried about the SEC's investigation into Uniswap—that won't likely have an impact on crypto markets any time soon. After years of the SEC going after crypto with an "anything that sticks" approach, the industry largely writes them off until they act in good faith or there’s some actionable information.
After a tumultuous week for crypto markets, I come with good news, dear reader. The yields are still here and they're still great. Since last week, the base rate has increased by 1.5% from the bottom end and decreased by 3% from the top end. Yields actually look slightly higher over the last week, with Yearn and permissionless lending markets dominating the yield landscape this week.
With this overview in mind, let’s take a look at the stablecoin and ETH base rates for the week.
Stablecoin Yields
Stablecoin Base Rate: 18–37%
A big jump in yields since last week, with a 6% increase on the bottom end and a 17% increase on the top end since Issue 6. Permissionless lending markets are primarily where lending yields are highest at the moment, but Notional v3’s fixed rate markets are also edging into view this week, as Notional was just added to Vaults FYI.
The DAI supply rose back over 5B, with borrowing in the Spark Morpho markets driving demand for DAI, though borrowing in the Morpho markets does have a negative impact on Maker's USDC PSM. The DSR is still at 13%, but if funding rates remain low and yield in the Morpho market reduces, the DSR could be lowered. However, the DSR's 13% rate sets a relative minimum across most lending markets and DeFi protocols.
Looking at Aave's outstanding debt as a proxy shows less debt, which is likely due in part to liquidations over the weekend. Since the last issue, Aave's outstanding debt fell from $5.3B to $4.84B. The drop in crypto prices combined with the glut of liquidations is surely the cause here. We'll see if outstanding debt increases between Issue 7 and 8 next week.
Lending Markets
Most major lending markets have seen utilization rates between 70-90%, in contrast to a month ago when utilization rates were hovering around 90% or above across most markets. Interest rates have cooled in the last week, but the market movement over the weekend played a large role in this change, as more borrowers paid off debt and unwound leveraged positions to avoid liquidation.
Even with lower utilization rates, there's still good yield opportunities across lending markets in DeFi. Let's take a closer look at stablecoin yields in DeFi lending markets.
Aave v3
The highest yields in Aave markets were either in lower liquidity v3 markets or in the v2 DAI market. However, yield on Native USDC in the Optimism market is likely higher due to the OP incentives, while DAI borrow rates hover around the DSR rate. Rates in Aave v3 markets are below this week's base rate, but yield opportunities remain for Aave's GHO stablecoin.
GHO Yields
GHO Stewards Karpatkey and TokenLogic have been working to increase the GHO borrow cap over the last few weeks, with the borrow cap increasing from 46M to 48M. The goal is for the cap to increase to 50M in due time now that the borrow rate for GHO has been increased to a fixed 13.88% to remain competitive with Maker and other major lending markets.
Borrowers seem happy to pay this rate given yield opportunities for GHO are some of the best stablecoin yields out there. Let's check on the current GHO yield opportunities.
Current APY: 59.58%
If you want to act as a liquidity provider through Balancer, receive the Aura boost for BAL rewards, and have your rewards auto-compounded, you can deposit into the GHO/UDSC/USDT Beefy vault. This is currently the highest yield opportunity for GHO holders with significant room for more deposits that I'm aware of.
Smart contract coverage available:
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Beefy + Balancer v2 + Aura Bundled Protocol Cover. Protection against smart contract risk across all three protocols bundled into one Cover NFT.
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Beefy + Balancer v2 + Aura Bundled Protocol Cover on L2s. You can purchase the same great protection on L2s through OpenCover.
Current APR: 50.57%
Aave has been voting on the FXN gauges to provide FXN incentives to the GHO/fxUSD pair on Curve, which you can stake through Convex for the added veFXN boost.
Smart contract coverage available:
- fx Protocol + Curve + Convex Bundled Protocol Cover. Protection against smart contract risk across all three protocols bundled into one Cover NFT.
Maverick GHO-UDSC Boosted Pool
Current APR: 41.19%
To further boost GHO liquidity and strengthen the peg, AaveDAO has added incentives to the GHO/USDC boosted pool to attract deposits into the Maverick liquidity pool. While the yields aren't as high as the Beefy pool above, the yield may increase if more volume is routed through this Maverick boosted pool.
Smart contract coverage available:
- Maverick Protocol Cover. Protection against smart contract risk within the Maverick protocol.
Current APY: 39.05%
GHO lenders within the Gearbox v3 Passive Earn market can earn interest from borrowers, GHO incentives, and GEAR incentives. Leverage traders can borrow GHO to margin trade on DEXes. This integration has further increased demand for GHO, while offering GHO holders great yields.
Smart contract coverage available:
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Gearbox v3 Protocol Cover. Protection against smart contract risk within Gearbox v3's Passive Earn market.
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Gearbox v3 Protocol Cover on L2s. You can purchase the same great protection on L2s through OpenCover.
Current APR: 16.21%
You can stake GHO within Aave's Safety Module can earn 26.50% APR on your stkGHO in AAVE rewards, but this comes with the risk that your 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.
However, stkGHO holders can earn GHO rewards through Aave's Merit program, which is currently active for the next month. The Merit program is also due for renewal before the current program ends. stkGHO holders also enjoy a discount when borrowing GHO. Up to you to decide if the benefits outweigh the risks.
Compound v3
Yield for lenders is lower across Compound v3 markets since last week, again largely due in part to market conditions. As the Compound community continues to decrease LTV across v2 markets, more capital should migrate to the Comet (v3) markets. Compound v3 will be deployed on Optimism in the near future, and lending activity on Optimism has been high if the Aave v3 Optimism market is any indication. Keep an eye on that deployment for potential yield opportunities this month.
Gearbox v3
Gearbox v3 lending markets on Ethereum are still earning lenders APYs at or above the base rate. Even with the market volatility over the weekend, rates in most Passive Earn markets are higher than they were last week, with the exception of the USDT market, which is only 3.5% lower than it was a week ago. The 7-day average is largely the same as it was last week with increases in nearly every market but the USDT market.
The Gearbox v3 Arbitrum Passive Earn market also offers USDC.e holders 14.26% vAPY. Gearbox v3 is also on Optimism, but the market is quite early. Keep an eye on the Gearbox v3 L2 markets for future yields with lower gas fees, as well.
Smart contract coverage available:
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Gearbox v3 Protocol Cover. Protection against smart contract risk within Gearbox v3's Passive Earn market.
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Gearbox v3 Protocol Cover on L2s. You can purchase the same great protection on L2s through OpenCover.
Morpho Blue
Yields across the Morpho markets are lower this week, as well, but the Re7 USDT market is still earning lenders an APY near the top end of the base rate. The other Morpho markets are earning yields below the base rate and utilization is lower in those markets, as well, compared to other DeFi lending markets. The yields in the Re7 and Spark DAI Vault are largely driven by Ethena's USDe yields, same as I reported last week.
Fraxlend
FRAX holders can earn rates far and above the base rate right now by supplying FRAX to the CRV market. With a 160% APY for lenders, it's the highest stablecoin yield available in any lending market that I'm aware of. The high rates are likely due to recent market volatility and the sizable loan that Curve founder Michael Egorov has open on Fraxlend which makes up a large portion of that market. Rates across other markets are well within the base rate.
Smart contract coverage available:
- Fraxlend Protocol Cover. Protection against smart contract risk within the Fraxlend protocol.
Llama Lend (Curve)
During the market downturn, LlamaLend's soft liquidation process was able to handle the volatility without issue–an impressive performance for a new lending protocol going through it's first major stress test. There are two markets on LlamaLend offering crvUSD holders yields above or within the base rate: the CRV market (74.55%) and the wstETH market (25.52%).
Stablecoin Yield Strategies
While some lending markets currently offer high yields on stablecoins, the best rates are still in various stablecoin yield strategies across DeFi. Let's see where (and by how much) we can beat the base rate.
f(x) Protocol Strategies
Even with a major drop in the market, f(x) Protocol's Curve LPs are still earning yields above the base rate for most pairs. If you're interested in LPing one of these pairs, you can earn anywhere from 1–13% above the top end of the base rate. If you deposit through Convex Finance, you can get their veFXN boost to maximize your yields.
Smart contract coverage available:
- fx Protocol + Curve + Convex Bundled Protocol Cover. Protection against smart contract risk across all three protocols bundled into one Cover NFT.
Inverse Finance DOLA Strategies
Inverse Finance, a DAO that manages the fixed rate lending protocol and the DOLA stablecoin, has been working to increase the adoption of DOLA and sDOLA, a yield-bearing version of DOLA. While Inverse Finance suffered two hacks in 2022, they've since gone through several audits and have grown the circulating supply of DOLA to over 77m, which puts DOLA above other decentralized stablecoins like GHO and sUSD.
DOLA is a debt-backed stablecoin, over-collateralized in nature and somewhat similar in structure to GHO, but with different issuance mechanics handled through the FiRM market. In an upcoming special issue on decentralized stablecoins, I'll share more insights on DOLA and FiRM in greater detail.
There are two primary ways to earn yield with DOLA:
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Through sDOLA; or
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By LPing DOLA-stablecoin pairs on popular DEXes
sDOLA Yields
By staking DOLA, you can get sDOLA, which generates yield from the FiRM fixed rate market that issues DOLA loans. While yield from MakerDAO's DSR comes from US-treasury yields, the yield for sDOLA holders comes from their own lending market since FiRM issues all DOLA through loans and earns the fixed interest rate paid by lenders.
While smart coverage for Inverse Finance isn't currently available from Nexus Mutual, it will be included in an upcoming review by the Product & Risk team.
DOLA LP Yields
For DOLA holders, LP opportunities on Base and Optimism provide the best yields. Here are a four select pools to review:
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DOLA-USDC sLP Beefy Vault | vAPY: 68.79% | TVL: $30.19M | Aerodrome (Base)
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DOLA-USDbC sLP Beefy Vault | vAPY: 66.1% | TVL: $61.86M | Aerodrome (Base)
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DOLA-FRAX sLP V2 Beefy Vault | APY: 42.9% | TVL: $530k | Velodrome (Optimism)
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USDC-DOLA sLP V2 Beefy Vault | APY: 39.24% | TVL: $3.95M | Velodrome (Optimism)
Smart contract coverage available:
Contango Strategies for Stables
Contango, a perps market built on top of DeFi lending markets, has been offering users easy-to-access looping strategies to earn yield on stablecoins. I've provided an overview of a few strategies. Note: these can go negative, so use caution before making any decisions. This is for more advanced DeFi users.
sexyDAI/DAI on Aave V3 (Gnosis)
DAI/USDT on Compound V2 (Ethereum)
Yearn v3
Yearn v3 vaults on Polygon earned yields within the base rate, though the estimated APR may be lower this week due to lower yields across Aave v3 and Compound v3, the lending markets that power the underlying strategies for these vaults.
Smart contract coverage available:
Beefy Cowcentrated Liquidity (In Beta)
In the last week, Beefy launched their Cowcentrated Liquidity vaults, which are build on top of Uniswap v3. This is Beefy's concentrated liquidity management protocol, which is similar to other protocols in this field (e.g., Arrakis, Gamma, etc.). While it's still in Beta, it's worth doing some research on. These are not correlated pairs, so the potential for impermanent loss is on the higher side, but if these yields hold out, it should offset potential IL.
Use caution here as this is still in Beta, but I'm looking forward to seeing where Beefy takes this product in the coming months.
ETH Yields
ETH Base Rate: 2.78–4.60%
No updates on the ETH base rate, as ETH staking yields remain unchanged. Liquid restaking protocols like Etherfi, Renzo, KelpDAO, and others continue to attract staked ETH capital. For more insights on ETH flows in and out of major LST and LRT protocols, see Hildobby's amazing Ethereum Staking 🥩 Dune dashboard.
Pendle and Gearbox are still top performers, but I highlight more high yield strategies for ETH this week, as well. Let's see where users like you can beat the base rate.
Lending Markets
Most lending markets offer ETH-based yields within the base rate, with the exception of a few permissionless lending markets. The Gauntlet LRT Core market is offering 19.36% for WETH deposits currently, with demand spurred on by ezETH leverage strategies. The Re7 WETH market is offering 13.44% currently, where ezETH, weETH, osETH, and apxETH depositors are looking to borrow WETH and leverage their LRT points and yields.
Otherwise, ETH lending markets remain within the base rate and aren't competitive with other yield strategies across DeFi.
Gearbox v3
The notable exception to ETH lending markets is Gearbox v3, which remains a consistent source of ETH yield. The 7-day average is on par with the yields available currently. While there's a 2% difference between this week and last week, the Gearbox v3 Ethereum lending market continues to offer 25%+ yields to lenders and that's been the case for the last several months.
Smart contract coverage available:
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Gearbox v3 Protocol Cover. Protection against smart contract risk within Gearbox v3's Passive Earn market.
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Gearbox v3 Protocol Cover on L2s. You can purchase the same great protection on L2s through OpenCover.
Liquid Restaking
Pendle is still the leading protocol to earn ETH-based yields. 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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42.53% fixed APY on rsETH (Zircuit) | 71 days left in maturity
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45.05% fixed APY on eETH (Zircuit) | 71 days left in maturity
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41.55% fixed APY on ezETH (Zircuit) | 71 days left in maturity
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37.85% fixed APY on KelpDAO rsETH | 71 days left in maturity
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36.10% fixed APY on Ether.fi eETH | 71 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 Bundled Protocol Cover to protect against the full-stack of risk across EigenLayer, the liquid restaking protocol, and Pendle for the following LRTs:
You can also buy many of these bundles through OpenCover, which is on L2s and doesn't require KYC.
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:
Ether.fi Liquid Vault
Yields in Ether.fi Liquid are down 2% since last week! eETH and weETH holders can deposit in Etherfi's Liquid Vault. This vault runs an automated DeFi strategy across several protocols such as Morpho Blue's weETH / WETH market, Pendle Finance, Sommelier Finance and Uniswap V3. Liquid depositors also earn ETHFI tokens, Ether.fi points and EigenLayer points. Currently, this strategy is earning a 20% net APY plus points.
If you're curious about the risks involved with Ether.fi Liquid, you can read this overview.
Smart contact coverage:
- Etherfi Liquid Bundled Protocol Cover. Protection against smart contract risk across the EigenLayer, Ether.fi, Morpho Blue weETH / WETH market, Pendle Finance, Sommelier Finance, and Uniswap V3 protocols bundled into one Cover NFT.
ETH Yield Strategies
While Pendle offers top tier yields, there are several ETH yield strategies below that provide high yields, as well. From Contango strategies to ETH LPs, let's see where you can outperform the base rate.
Contango ETH Strategies
As I shared in the stablecoin section, Contango's looped strategies on DeFi lending protocols provide high yields, though these are for more advanced users. Right now, the highest yield opportunities are across Pendle, Morpho Blue, and Aave v3 markets.
PTezETH0624 on Silo (Arbitrum)
- Current ROE: 107.55%
apxETH on MorphoBlue (Ethereum)
- Current ROE: 63.89%
- Current ROE: 63.19%
- Current ROE: 46.91%
- Current ROE: 24.74%
wstETH on MorphoBlue (Ethereum)
- Current ROE: 23.30%
pxETH/wETH Pool Aura Finance
You can supply pxETH/wETH liquidity on Balancer and stake your BLP tokens in Aura Finance to get the BAL boost, which will provide you with a 43.10% vAPR. The yield here is primarily in BAL and AURA tokens and that means your rewards are subject to changes in market prices. However, this Aura pool provides vAPR 37.1% above the ETH base rate.
Smart contract coverage:
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Aura Finance Protocol Cover. Protection against smart contract risk within Aura Finance's smart contracts.
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Balancer v2 Protocol Cover. Protection against smart contract risk within Balancer v2's smart contracts.
ETH-bsdETH vLP Beefy Vault
The ETH-bsdETH vLP vault on Beefy has a higher APY this week! The current APY is 33.14%. This vault has underlying exposure to Aerodrome. The vault takes any rewards or trading fees and auto-compounds them back into your LP. All you need to do is deposit and earn yield.
Smart contract coverage available through OpenCover on Base:
Takeaways for this Week's DeFi Yields Report
Sometimes the invisible hand of the market bitch slaps you. It's been one of those weeks. We're back to the SEC pursuing enforcement against a good actor in the space, while actual bad actors go unpunished. Markets have turned short-term bearish due to worries about prolonged conflict between Israel, Palestine, and Iran, with more countries potentially getting (more) involved. Traditional markets also saw a decline this week, though a much more muted drop in contrast to the bloodbath over the weekend in crypto markets. As I've said before, I don't pretend to know which way the market will turn, though it does look worse this week than it did last week.
While the downturn showed DeFi protocols are more resistant to big price shocks, we've still seen protocol forks lose money through hacks or poor risk management controls. Whether it's the Prisma hack in recent weeks or the recent Pac Finance snafu, where the multisig that controls the ability to upgrade parameters accidentally updated the liquidation threshold instead of the loan-to-value parameter, which led to $26m in liquidations for ezETH holders. Be careful when using forks. Don't get forked over during this cycle.
That said, there are still plenty of opportunities to farm with your ETH and stablecoins. Just don't get rekt by a hack in the future when you can protect your crypto assets now.
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.