With America’s Interest Rate printer whirring out of control, we’re starting to see the argument that DeFi yield has less natural appeal, an argument with which we’d broadly concur.
Money follows incentives. Given a 5% interest rate in risky bank accounts or a 5% interest rate in risky DeFi protocols, then at minimum a user in TradFi might feel less urgency to bridge to DeFi. Some users may still have reasons they prefer DeFi (fungibility, composability), but we think at least one major use case for DeFi is reduced in present circumstances.
One funny day we may see somebody will build (or perhaps somebody already has built) platforms to help DeFi services tap into TradFi yield. Maybe a service that tokenizes treasury bonds, or reinvests stablecoins into boomer bank accounts.
$CRV yield, which is based on token emissions, is agnostic to whether it’s above or below the rate offered by Uncle Sam. In other words, we’re not going to see 3pool’s 0.78% creep upwards to match this rate under its own devices.
You can still find high yielding dollarpools on Curve, even in the bear market. Curve has 14 dollarcoin pools currently yielding above 5% (boosted). In case you’re pursuing yield in excess of 5%, here’s our brief commentary on extra risk factors we’re aware of regarding these pools, and some resources to start further research (nothing financial advice of course).
Note that several of these pools are paired with the FraxBP, each of which carries any risks inherent with Frax’s ecosystem (see here and here) and USDC (blacklist risk).
apeUSD-FraxBP: 25.16%
At the top of the charts is the Ape dollar, from a protocol promising to build DeFi for the metaverse. We don’t have much familiarity with apeUSD, but the highest yielding dollarcoin pool on Curve will naturally be suspicious — as one might presume other traders have already given it a once over. One natural question we have is why the pool is pegged on Curve but whatever CoinGecko is using as price source has it at $0.93 on the dollar.
Here’s a thread on ApeFi for those who want to research further.
PUSd: 21.22%
PUSd/FraxBP: 9.72%
Among the highest yielding pools, we’d consider the PUSd pool. This yield has been steadily good due to the clever tokenomics the big-brained team has been implementing. Unfamiliar users should mostly be aware of two major facts:
PUSd is backed by lending NFTs, which is not every investor’s cup of tea
Depositing into the pool is lopsided — users take a haircut when depositing 3pool assets and getting a bonus on withdraw.
The reasons for this imbalance are described in our article from June:
DOLA/FraxBP: 15.60%
DOLA: 9.71%
Whenever the Crypto Risk Team covers a subject, you know they will be thoughtful and thorough. They described reasons for bearishness in August:
See also our coverage:
USDD: 15.01%
USDD/FraxBP: 13.32%
The Justin Sun USDD has long been viewed with skepticism since they emerged from the Terra collapse offering even higher yield. The coin recovered from a depeg event but has largely stayed near $1 for the remainder of its existence.
We’re slightly skeptical, as we are of all double digit yield. We’ve not seen any thorough dissection of the tokenomics though, nor have we conducted our own. Curious investors should perform their due diligence on both the USDD coin and its connections with the wider TRON ecosystem.
USDN: 12.99%
The recent Crypto Risks report on Neutrino’s USDN recommended shutting down this pool and migrating to a Curve v2 pool. With this proposal creeping through governance, know that even if the pool has no issues your time swimming in it may be short-lived.
MIM: 12.20%
Earlier this year, users in the MIM pool braced themselves for fallout from the troubles facing its sibling project in Wonderland. The fact it has survived and stayed near the $1 peg throughout the troubles gives us some confidence, and we’d consider this among the better options among the double digit yielding pools.
Everybody should be aware of the 90% imbalance in the Curve pool though, an imbalance which has persisted for most of the year.
MAI/FraxBP: 10.38%
Closing out the double digit yield is Mai. We discussed Mai in more depth in a previous article. We don’t have very strong reservations about this pool, but we can note that it is still early and you may want to give any newer offering time to let hackers pick at if rist.
You may also want to see where the volume and yield ends up flowing if the 3pool and LUSD governance proposals pass for Mai’s other pools to get liquidity, and to read these discussions as the pools draw such scrutiny.
LUSD/FraxBP: 7.52%
We’ve mostly had good things to say about Liquity’s LUSD pool, which has proven resilient and a strong decentralized offering which has survived multiple downturns. Like some of the other lending based pools, it has a tendency to depeg upwards in times of crisis, as users flee to close out their positions.
Interestingly, the Liquity pools are mostly imbalanced in the other direction — too little LUSD. Probably the biggest thing to keep an eye on is simply the low TVL this pool carries relative to the classic LUSD pool, which has just a 1.94% yield. A migration of liquidity could easily see the yields both fall below the 5% threshold.
alUSD/FraxBP: 6.51%
We consistently have good things to say about the $alUSD stablecoin, and have maintained this stance for quite some time. The thing to note here is that, like LUSD above, the money may also move from the lower yielding alUSD/3CRV pool to this newer alUSD/FraxBP. However this case could result in less pronounced of a drop from than LUSD, as both alUSD pools are hovering close to that magic 5% number.
HUSD: 6.19%
HUSD, a stablecoin offered via stcoins.com, has been onboarding users directly from bank accounts with little incident. The biggest thing to note is that this pool has just $143K in TVL, so even shrimp-sized deposits could imbalance the pool.
DUSD: 5.18%
Just north of the 5% cutoff is DefiDollar’s $DUSD. The team spent the first half of the year with its contract paused.
The pool also has a mere $146K sitting in it, which increases risks of depeg or dilution, and could be a sign traders are simply staying away.
As always, none of this has been financial advice! If you know of additional risk factors, or reasons our risk factors should be discounted, please drop them in the comments!