In the last week, MKR holders voted to increase the Morpho D3M line to 1B; the ACI teased a fee switch within AaveDAO; GHO's minting cap was increased to 47M; Synthetix v3 grew on Base; crypto users minted IRL goats; and ETH increased 6% since last week's issue.
What does it all mean for DeFi yields?
DeFi's Base Rate, Courtesy of Vaults FYI (8 April 2024)
Since Issue 5, ETH is up ~$300 and funding rates have increased to an annualized average of 30% across centralized exchanges, reflecting an improved bullish tone in the market. According to CoinGlass, $116M in shorts have been liquidated in the last 24 hours. Looks like there's more gas in the tank heading into the second week of Q2.
DeFi yields remain largely unchanged since last week. The only noticeable difference is the makeup of the protocols offering the highest yields according to Vaults FYI. Yield optimizers and permissionless lending markets dominate the field this week, with Ethena's Shards campaign creating a catalyst for levered positions on USDe.
Issue 5 largely focused on the MakerDAO <> Ethena <> Morpho <> Aave debate. We've since seen signs of a cease fire, with critics remaining on both sides.
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In MakerDAO's most recent executive vote, MKR holders voted to increase the Spark MetaMorpho Vault D3M debt ceiling (line) from 100M to 1B with an initial move to increase the allocation to 600M in the Morpho markets. MKR holders also approved a direct capital allocation of 50M USDC to Ethena through Taco & Subs LLC, where it will be held through Coinbase Custody and staked within Ethena. Unclear if MakerDAO will earn any Shards via this direct allocation, though.
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AaveDAO members have moved away from completely offboarding DAI and instead are looking to reduce DAI's LTV across Aave markets to 76% according to comments posted after Chaos Labs shared their analysis and recommendations. This comes after a week of heated debate, with the much memed Marc Zeller quote "You never fucking liquidated a position in your life. Your protocol is six months old." directed toward Paul Frambot of Morpho during a Spaces event hosted by Ethena.
For a summary of this in-depth debate, see Issue 5. However, I expect most people are now familiar with the Ethena dustup unless they've been off Twitter for the last week.
If anything, this clash signals a more competitive turn in DeFi as more protocols launch in core market segments and teams vie with one another for yields, revenue, and users. Marc Zeller of the Aave Chan Initiative (ACI) teased an AAVE fee switch proposal, which should appear on Aave's forum this week. Aave's GHO supply cap was increased to 47M with additional increases expected soon. MakerDAO voters increased the SparkLend D3M line from 1.5B to 2.5B.
An interesting development given all the talk of permissionless lending markets last week—the drama around Morpho Blue put permissionless lending in the spotlight, which may have resulted in higher yields across permissionless lending protocols.
Meanwhile, ETH staking flows showed a further decrease in Lido's market share and increases in Ether.fi and Renzo's market share, according to hildobby's Ethereum Staking 🥩 (Lido, Coinbase, Kraken, Binance, RocketPool, Frax...) Dune Dashboard. Ether.fi reached 1M ETH staked through their protocol and rose to the #1 spot on DefiLlama's Yield Aggregator category for their Liquid Vault.
All of the developments in the last week have kept stablecoin rates stable, improved ETH yield opportunities, and provided great yield strategies for both stablecoins and ETH.
With this overview in mind, let’s take a look at the stablecoin and ETH base rates for this week.
Stablecoin Yields
Stablecoin Base Rate: 12–20%
While DeFi yields have held their ground, interest rates across lending protocols have dropped another 3% at both the lower and upper bounds. This also marks the first week Aave v3 hasn't been featured in the top DeFi yields and hasn't dominated the stablecoin rates review from Vaults FYI. Both Aave v3 and Compound v3 appear on the lower end of the yield spectrum, while permissionless lending markets represent the highest lending market yield opportunities.
MakerDAO's DAI supply rose over 5B last week, but it saw a decline back down to 4.88B according to the figures on MakerBurn. This could be attributed to users borrowing DAI, redeeming for USDC, and depositing into Ethena or users derisking their DAI holdings. I can only speculate and highlight the drop in DAI's supply despite high yield opportunities for DAI across DeFi and the DSR's base rate at 13%.
Aave's outstanding debt has grown slightly since last week. However, this could be due to price increases across crypto markets. Demand within Aave seems to be consistent with where it was last week. Overall, it's clear there's demand for leverage, but the markets where leverage is flowing to are different than they’ve been in the past.
Lending Markets
Now that we've covered the major trends in DeFi lending markets and their impact on rates across DeFi, let's take a closer look at stablecoin yields across lending markets.
Aave v3
Rates in Aave markets have fallen about 3% since last week, consistent with the broader change in the base rate. AaveDAO governance has been busy in the last week. In addition to the discussions about changing DAI's LTV, AAVE holders voted to reduce the borrow caps on long-tail assets across Aave markets and increase the GHO borrow rate to 13%. Currently, AAVE holders are voting on the following proposals:
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Stablecoin IR Updates. If approved, this proposal will increase
Slope1rates to 12% and change theuOptimalparameter of DAI, USDC & USDT assets to 92% on Aave V3 Ethereum. -
Generalized LT/LTV Reduction on Aave. If approved, this proposal will decrease the liquidation threshold (LT) and Loan-to-Value (LTV) for stablecoins across Aave markets.
If these proposals are approved by AAVE holders, Aave markets can become more competitive, capture more revenue, derisk, and provide lenders with better yield opportunities.
GHO Yields
While yields are down across Aave markets, yields remain high for various GHO yield strategies. Let's see what's changed since last week.
Convex strategy for f(x) Protocol LP Incentives
Current APR: 79.25%
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. 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:
- fx Protocol + Curve + Convex Bundled Protocol Cover. Protection against smart contract risk across all three protocols bundled into one Cover NFT.
Current APY: 70.15%
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.
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.
Notional Finance Leveraged GHO/USDC/USDT Vault
Current APY: 236%
If you want to earn leveraged yield through Notional Finance, you can earn a triple digit APY by depositing USDC to provide leveraged liquidity in the GHO/USDC/USDT Aura Vault. When you open a leveraged vault, you deposit your initial principal, borrow USDC at a fixed rate from Notional lenders, and earn leverage yield in trading fees plus BAL and AURA incentives. Of note: this strategy only has 379,927 USDC in unused debt capacity, so the opportunity is limited until Notional boosts liquidity within their fixed rate lending markets.
This strategy involves leverage, so be sure to do a little research before aping in. If you haven't used leverage before, I would advise you to take advantage of one of the simpler GHO strategies.
Smart contract coverage available:
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Notional v3 Protocol Cover. Protection against smart contract risk within Notional Finance v3's smart contracts.
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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.
Current APY: 37.59%
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: 26.50%
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 two months. 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
Similar to what we've seen on Aave markets, Compound markets have seen a decrease of 3% in the last week. Compound v2 markets provided the highest yields, with Compound v3's Base Native USDC market providing the highest stablecoin rates for the Comet deployments.
OpenZeppelin is preparing new Compound v3 deployments on Optimism and Scroll in the near future, which could result in increased demand within those markets, especially Scroll where more users are looking to farm a potential L2 token airdrop.
Gearbox v3
Gearbox v3 markets still provide yield well above the base rate, though we've seen a drop in incentives for GHO and a reduction in demand for DAI. In the last week, Gearbox added USDT to their markets, which has seen higher demand than other stables in the Passive Earn markets.
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USDT holders can earn 39.11% vAPR, 19.11% above the base rate
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GHO holders can earn 37.57% vAPY, 17.57% above the base rate
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USDC holders can earn 31.27% vAPY, 11.27% above the base rate
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DAI holders can earn 28.91% vAPY, 8.91% above the base rate
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
As I've covered, Morpho Blue has seen 50% TVL growth since the start of April thanks to the launch of SparkDAO's MetaMorpho Vault and Morpho Blue markets. While you can't deposit in the SparkDAO DAI markets as a lender, you can deposit USDT in Re7's market, which loans out USDT to USDe and sUSDe holders looking to farm Shards and APYs. Currently, Re7's market offers lenders 56.22% APY due to borrow demand.
With the increase in SparkDAO's markets, this yield opportunity may decrease, as there's now an additional 100m of DAI available for USDe and sUSDe holders to borrow at lower rates than in Re7’s markets.
Other Morpho markets offer stablecoin lending rates below the base rate.
Fraxlend
FRAX holders have been able to earn lending rates about the base rate on Fraxlend this week, with the FXS, CVX, and CRV markets providing the highest yields. Now that LlamaLend is live, it will be interesting to see how the CRV market rates are impacted on Fraxlend.
Smart contract coverage available:
- Fraxlend Protocol Cover. Protection against smart contract risk within Fraxlend markets.
Llama Lend (Curve)
While it's still in beta, I'll be following developments in Curve's LlamaLend market going forward. I'd advise all readers to exercise caution here. I want to highlight more developments within decentralized stablecoin markets, which is why I'll be providing updates on LlamaLend on an informational basis until it’s a bit more battle tested.
LlamaLend's TVL sits at $43.5m, up from $16m on April 1st. LlamaLend is deployed on Ethereum and Arbitrum with limited markets, as Curve slowly scales their isolated lending markets in Beta. In the last week, we've seen high lending rates for crvUSD in the CRV market. Currently, this represents a 27.13% vAPY. The other rates are either within or below the base rate.
LlamaLend is the newest entrant in the decentralized stablecoin-lending market crossover, with GHO and the Aave v3 Ethereum market and FRAX and Fraxlend as direct competitors. Notably, LlamaLend is permissionless and allows anyone to create new crypto-collateral markets.
crvUSD Yields
Currently, there are quite a few high yield strategies for crvUSD holders above the base rate. These opportunities are largely present in Curve LP positions.
Current APY: 51.46%
If you're looking for yield on Optimism, this Beefy vault provides an auto-compounding strategy for crvUSD holders who want to pair their crvUSD with USDT and provide liquidity on Curve. The Beefy vault will harvest rewards and trading fees and compound them back into your LP token while you're deposited in the vault.
Current APY: 51.18%
Here's another Beefy-Curve vault on Optimism that provides an auto-compounding strategy for crvUSD holders who want to pair their crvUSD with USDC.e and provide liquidity on Curve. The Beefy vault will harvest rewards and trading fees and compound them back into your LP token while you're deposited in the vault.
Current APY: 49.45%
Here's another Beefy-Curve vault on Optimism that provides an auto-compounding strategy for crvUSD holders who want to pair their crvUSD with Native USDC and provide liquidity on Curve. The Beefy vault will harvest rewards and trading fees and compound them back into your LP token while you're deposited in the vault.
Stablecoin Yield Strategies
In the current environment, stablecoin yield strategies are well above most lending market rates. Let's see where (and by how much) we can beat the base rate.
f(x) Protocol Strategies
Currently, one of the best correlated stablecoin LP opportunities in DeFi is through f(x) Protocol's FXN incentives on fxUSD pairs. Users who LP can earn anywhere from 40–140% vAPY, which is at least 2–7x the base rate for stablecoins. 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.
Yearn Juiced Vaults
Yearn's Juiced Vault yields have trended lower this week but the 7-day average is still 7–9% above the base rate.
Currently, the DAI Juiced Vault is offering a combined yield of 28.41% vAPR, made up of a 4.71% base rate and the 23.70% juiced rate. The USDC Juiced Vault is offering a combined yield of 27.48% vAPR, made up of a 0.70% base rate and the 26.78% juiced rate.
Smart contract coverage available:
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Yearn Juiced Vaults Bundled Protocol Cover. Protection against smart contract risk across the Yearn and Ajna protocols bundled into one Cover NFT.
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Yearn Juiced Vaults Bundled Protocol Cover on L2s. You can purchase the same great protection on L2s through OpenCover.
Yearn v3
Stablecoin rates in Yearn v3 on Polygon are largely above the stablecoin base rate by 7–13% and the DAI and USDT strategies on Polygon has a historical APR above the USDC Juiced Vault. DAI has and is still projected to outperform the USDT and USDC vaults. The underlying strategies for all three of these vaults are primarily allocated to Aave v3 and Compound v3 on Polygon.
Smart contract coverage available through OpenCover (No KYC required through OpenCover):
ETH Yields
ETH Base Rate: 2–5%
No updates on the ETH base rate, as ETH staking yields remain unchanged. As I noted in the market overview, we have seen more ETH flowing out of Lido and into liquid restaking protocols such as Ether.fi and Renzo, both of which have seen an 8% increase in total ETH inflows in the last week. More yield strategies for LRTs are popping up. I have a few ETH strategies that offer attractive yields in addition to my update on Pendle and Gearbox v3.
Let's see where users like you can beat the base rate.
Lending Markets
While WETH rates in major lending protocols like Aave v3 (2% on average) and Compound v3 (2.5% on average) were within the base rate, the only lending protocols that offered yields above the base rate in the last week are Morpho Blue and Ajna’s permissionless markets.
Gauntlet's LRT Core market currently offers WETH holders 16.31% vAPY to lend their assets to ezETH holders who want to leverage up and increase their exposure to Renzo points. The Re7 WETH market offers WETH holders 9.95% vAPY to lend to ezETH, weETH, osETH, and apxETH holders. While Ajna rates were high during the week, they have come back down within the base rate.
Keep an eye on permissionless lending markets over the next week, but be sure to exercise caution.
Gearbox v3
Lending rates for ETH are up a little over 1% this week in Gearbox v3's Passive Earn market. With new maturities for LRTs on Pendle, there's increased demand to farm points. Gearbox v3 has now surpassed $300M TVL with no signs of stopping.
Given interest rates for ETH remain 21% above the base rate and Gearbox v3's TVL has rocketed, you have to wonder how people conducted leverage strategies in past cycles.
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 king of 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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66.81% fixed APY on rsETH (Zircuit) | 79 days left in maturity
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66.81 fixed APY on eETH (Zircuit) | 79 days left in maturity
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62.98% fixed APY on ezETH (Zircuit) | 79 days left in maturity
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45.61% fixed APY on KelpDAO rsETH | 79 days left in maturity
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45.34% fixed APY on Ether.fi eETH | 79 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:
Zircuit-Pendle Bundled Covers coming later this week!
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 up 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 22% 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
Looking for correlated LP opportunities for ETH? Here are some options to outperform the base rate.
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 52.78% 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 a vAPR 47% 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 v3'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 47.44%, with an average APY of 57.42% since inception. 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:
ezETH-ETH vLP Beefy Vault
The ezETH-ETH vLP vault on Beefy currently provides a 29.19% vAPY, with an average APY of 102.64% since inception. 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
With markets picking back up this week and higher ETH-based yield opportunities, we may see an increase in ETH yield strategies next week. Stablecoin lending markets will likely follow the farmers chasing yield on Ethena's USDe and sUSDe. The base rates are roughly the same, but we're seeing more outlier yield opportunities. This is good news for farmers.
While last week's top headline was the MakerDAO <> AaveDAO spat and Ethena's risks, we've partially moved beyond that news this week. The decentralized stablecoin market is growing, more yield opportunities will emerge, and market leaders will need to balance yield, security, and trust with holders to remain competitive. We'll be able to assess changes in Q3 or Q4 on that front.
If you keep your eyes open, you'll find 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. Keep in mind the Prisma hack I highlighted last week and the failures leading up to it.
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.
End Note
In the last week, Worldcoin user Richard Opany shared that he sold his WLD airdrop and used the money to buy a goat, which he shared on X. Soon after, crypto users began sending Opany funds to buy more goats. This memetic campaign, partially funded through the following Zora mint, highlights a small scale example of the positive impact crypto can have in the world.
With Issue 6, we wrap up the Week of the Goat.