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Status of DeFi Stablecoins and Mining Profit Opportunities



Stablecoins have seen explosive adoption over the past few years, and their widespread adoption began with transactions and transfers between centralized exchanges. Since then, stablecoins have entered DeFi as the main primitive in the ecosystem. Perhaps most importantly, many crypto-natives turn to holding stablecoins instead of their native currencies when exiting risk. The rise of DeFi has enabled users to put these idle assets into use. Once dormant, non-productive assets leave centralized exchanges and bank accounts to find economic utility in lending, market-making markets, and other types of DeFi protocols. In this article, we will explore: The Current State of Stablecoins Revenue Opportunities Current stablecoins are dominated by a handful of projects, with USDC, USDT and DAI dominating Ethereum’s circulating supply and usage. USDC and USDT use centralized collateral to maintain the peg to the U.S. dollar. Every 1 token issued by these stablecoins will have $1 worth of assets as collateral. DAI is the only major stablecoin project that manages its issuance in a decentralized manner, and it mortgages assets on the chain to generate DAI. All three of these stablecoins can be used in Ethereum DeFi. Among them, more than 60% of the supply of DAI is locked in decentralized lending, exchanges, and other types of DeFi protocols. Despite the high lock-up percentage of DAI, USDC and USDT still dominate Ethereum smart contracts due to their larger liquid supply. Daily stablecoin transfers on Ethereum have exceeded $10 billion per working day for the past 3 months (this value includes smart contract deposits and withdrawals). A subsidiary of New Entertainment Technology Holdings will cooperate with Definer on game and blockchain services: On October 20, Luocheng Mulao Autonomous County Dinglian Technology (International) Co., Ltd., a subsidiary of New Entertainment Technology Holdings, entered into an understanding with Definer Limited Memorandum of Understanding, pursuant to which Dinglian and Definer agree to cooperate and explore potential opportunities in games and blockchain services outside of China. Definer is a company incorporated in the British Virgin Islands, which mainly researches and applies technologies applicable to blockchain services. (Gelonghui APP) [2021/10/21 20:45:04] Stablecoin supply has grown by more than $75 billion, and daily transfers have exceeded $20 billion. There are many demand drivers behind it. Move from volatility and exposure to stable assets without using national currency; move assets across centralized exchanges without taking risk; borrow and leverage collateral; for decentralized lending, exchanges, Derivatives, etc., where using stablecoins removes the risk of volatile tokens, but often results in lower returns due to lower risk; payments, wages, foreign exchange, third world access to non-hyperinflationary currencies, and Other niche consumer use cases; while in the stablecoin market, assets pegged to the dollar dominate, while projects like EURS do a good job of pegging to other currencies like the euro. These stable assets allow users to have the confidence to store their assets in stablecoins without the need to trade into national currencies such as U.S. dollars. There are already a series of stablecoins on the market. Traders should pay attention to the risks of these stablecoins. The following are some common stablecoins: Other centralized stablecoins: HUSD, GUSD, EURS, TUSD; other decentralized stablecoins : sUSD, FRAX, FEI, alUSD, RSV, PAX, UST, mUSD, LUSD, ESD, AMPL Note: The rate of return varies greatly. There are big discrepancies. Cardano founder: DeFi will attract more users in developing countries: On January 16th, Cardano founder Charles Hoskinson predicted that by leveraging the market potential of developing countries, the field of decentralized finance (DeFi) will grow in the next three years. Attract 100 million users. Hoskinson said that DeFi products lack a significant customer base, and due to the cumbersome regulatory environment, the field is unlikely to gain traction in the West. On the contrary, developing countries offer a more flexible regulatory framework, which promotes the innovation of encryption technology. (Cointelegraph) [2021/1/16 16:18:12] In the process of users turning to stablecoins, it is important to understand where the revenue opportunities come from. Nonproductive assets have costs. While idle, stablecoins are often subject to inflation and fees. To offset these effects, investors can choose to put idle assets into service, provide services or take risks in exchange for returns. In DeFi, these returns are currently relatively high relative to traditional investment targets. However, this also comes with some risks, such as: Potential 1:1 anchor loss; Smart contract attack risk (including economic/protocol design attack); Yield volatility: APR will change rapidly after depositing assets; Illiquidity: High volatility of reward tokens, inability to borrow from high utilization pools, inability to withdraw large positions from high utilization pools, high slippage on exiting positions; Gas fees: High gas fees create wear and tear , and limit the behavior of liquidity providers and users; APR and APY are indicators widely used to measure DeFi returns. Unfortunately, these two concepts are often misunderstood by users and vaguely labeled by developers. APR represents the income of a pool, and it does not need to compound your income. If APR is listed in a project's UI, it means your earnings are not automatically compounded. If a pool has a "claim rewards" function, the reward is APR. With daily compounding, 40% APR becomes 49% APY, and 400% APR becomes 5242% APY. This is the power of compound interest, especially prevalent in high interest rate environments like DeFi. Of course, small positions in Ethereum DeFi cannot benefit from this kind of compound interest, because the gas fee for claiming rewards and re-staking every day will exceed the return. The table below shows the possible returns assuming we invest $1 million, earn at 50% APR, and claim daily rewards for compounding. The total lock-up volume of the current DeFi protocol is 23.94 billion US dollars: According to OKLink data, as of 18:00 today, the total lock-up volume of the DeFi protocol on Ethereum is about 23.94 billion US dollars, a month-on-month decrease of 8.09%. Among them, the top three protocols with locked positions are Maker with USD 3.61 billion (+1.77%), WBTC with USD 3.4 billion (-1.2%), and Uniswap V2 with USD 2.78 billion (+5.76%). [2021/1/5 16:29:42] With that in mind, here are 5 different risk and reward strategies around stablecoins. Note that the return on a one-sided liquidity exposure is reduced because this return has limited underlying volatility. Here, each project is assigned a risk rating, which takes into account the credibility of the project, protocol risk, audit and other factors. The risk rating is relative to other parts of DeFi, not independent. In addition, in the field of DeFi, even Being an A+ rating also comes with a lot of risk. Aave and Compound are the largest lending protocols in DeFi. Until recently, Compound was the largest lending protocol in terms of total deposits. Aave has reversed that with its new liquidity incentives, and it now dominates liquidity in lending. These new Aave incentives present an attractive opportunity to increase yields. It is reported that the Aave incentive plan will continue until mid-July, and rewards will be increased in the form of Aave governance tokens (2,200 stkAAVE per day). stkAAVE will be distributed in the pool proportionally according to the borrowing activity. Aave, for example, currently has $5 billion in loans outstanding. The DAI pool has about $1 billion in borrowing, $1 billion/$5 billion = 0.2 or 20%. 2200 stkAave per day means that the DAI pool will be allocated 440 stkAave per day. Currently, this means that for every $1,000 deposited, users can receive 0.0002 Aave/day (11 cents/day at current prices). This reward structure outperforms Compound’s liquidity mining rewards on some stablecoins and underperforms on others, depending on utilization. CoinW will launch YFIM in the DeFi zone at 10:00 on October 29: According to official news, CoinW will launch the YFIM/USDT trading pair in the DeFi zone at 10:00 on October 29. It is reported that YFIM is an independent fork of YFI technology. It is a decentralized mobile application of YFI. The platform aggregates multiple protocols. A proof of equity called YFIM Token, through which users can withdraw the tokens they originally deposited and the corresponding income. [2020/10/26] Although Compound has historically had a more mature market in terms of scale and utilization, Aave, with its superior token economy, incentive mechanism, stable interest rate and support for more tokens Collateral, etc. have a higher market value. Note that while Aave has surpassed Compound in terms of total collateralized assets, Compound still dominates in terms of total borrowing. With interest rates lower and the market size expanding, Compound remains a strong market for larger lenders looking for stronger liquidity guarantees and lower interest rates on borrowing. Instead, Aave tends to offer better returns at high risk and provides incentives in terms of supply and demand in its lending market. They also recently announced a professional version for institutional services. It will be very interesting to see how its liquidity performs when the incentive ends in July. Market cap/TVL is often used as a valuation metric to measure how much liquidity a project is attracting. This metric is similar to the P/E ratio in traditional markets, where the higher the P/E ratio, the higher the token valuation per dollar of liquidity. Aave's valuation is similar in terms of user count and market cap/revenue ratio. The DAI lending marketplace on Aave currently rates lenders at 11%, which means lenders can expect to earn 11% compounded. Interest rates on this pool have been relatively volatile since the launch of Aave’s liquidity incentives in late April. Voice | Weishi Rating: DeFi will take over the financial world: Weishi Rating said: "Have you ever traded DAI, USDC on DyDx? We are starting to see that DeFi applications provide services that cannot be matched by centralized applications. DeFi Will take over the financial world. [2019/11/29] The bottom line in this graph represents the lender's interest rate, while the top line represents the borrower's interest rate. Aave's incentives mean an additional ~3-6% yield is from staking Aave tokens. These pledged Aave tokens can be unstaked within a 10-day cooling period, or can continue to be pledged, with an annualized return of 7%. Users can increase leverage through mortgage loans, revolving loans, or send loans to Go to other protocols to take on additional risks and potential rewards. These details are beyond the scope of the simple strategy that this article focuses on. Strategy rewards: Aave lends DAI (4-15%), Aave liquidity incentives (4%), pledges Aave ( 7%) Risks: Potential smart contract loopholes, DAI unanchored, Aave liquidity risk, Gas fees (for deposits, withdrawals, etc.) exceed small position returns. As the main place for DeFi stablecoin DEX liquidity, Curve exists The liquidity incentive mechanism is no surprise. Curve has the lowest slippage for stablecoin transactions. Before that, it has always controlled the vast majority of stablecoin transactions. Recently, the stablecoin pairs of Uniswap V3 are catching up with Curve. Trading volume, but there are still some gaps between the two. The base APY for providing liquidity to the Curve protocol’s largest fund pool (USDC+USDT+DAI) is 2% (from transaction fees), and the trading volume continues to grow healthily to 50 billion In addition to the 2% fee reward, 8% of the additional reward comes from CRV governance tokens. Users can increase this 8% income to 20% by locking CRV for a certain period of time. The maximum reward for locking CRV for 4 years is to increase by 2.5 times. Note that this 20% is obtained from 2.5*8%, which is also the largest return reward. Strategic return: 3pool basic APR 2%, additional reward 8%-20%, Lock 11% of CRV. Risks: Potential smart contract loopholes, DAI unanchored, gas fees exceed returns. The yvDAI vault is currently the largest vault on Yearn Finance, with assets of more than 700 million US dollars, and its current APY is 15% .These assets will play a role in the DAI strategy created by Yearn developers. Its working principle is to put the user's DAI into various income agreements, and move the user's assets within the scope of the strategy that the developer deems appropriate to maximize the income .Examples of strategies allocated by yvDAI treasury: StrategyLenderYieldOptimiser: optimize DAI lending between dYdX and Cream; SingleSidedCrvDAI: Deposit DAI in the pool with the highest yield in Curve; StrategyIdleDAIYield: Deposit DAI in to mine COMP and IDLE governance tokens. Rewards are sold for DAI and redistributed to the treasury. The Yearn vault has locked more than $4.5 billion, which is a very popular place, and its risk is relatively low compared to most defi projects. A large part of the deposits in the Yearn yvDAI vault comes from Alchemix, and the assets deposited in the vault by the Alchemix protocol currently exceed $400 million.


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