To Our DeFi Community,
The liquidity wars have begun. With virtually every DeFi protocol now launching or exploring yield farming incentives, we’re beginning to see a fight for liquidity on Ethereum.
And it’s just beginning. While Compound and Balancer have been prime examples of successful launches for yield farming- where their native governance tokens soared in value alongside hundreds of millions in new liquidity – there are dozens of other protocols jumping into the queue to launch their own yield farming incentive programs.
Just within the past week, we’ve seen Curve start incentivizing the sBTC pool with multi-asset rewards, mStable launch their MTA yield farming, Ampleforth releasing Geyser, and more. In the coming months, we have UMA set to launch a similar program for incentivizing a range of actions within its synthetic asset protocol, Kyber releasing its highly anticipated Katalyst upgrade where KNC holders will be able to vote on governance proposals and earn ETH, Nexus Mutual launching pooled staking for its insurance-alternative protocol. The list goes on.
We haven’t even touched on two of the more prominent DeFi protocols, Aave and Uniswap, which are surely working on their own yield farming initiatives. While they may be quiet now, it’s inevitable. Every DeFi protocol will be forced to implement these programs if they want to survive. Some may even release new innovative mechanisms that build on the narrative. At the end of the day, the incentive to provide capital to protocols boasting these attractive yields is too good. The case for providing liquidity to Uniswap (and potentially incur an impermanent loss) when you can do the exact same thing with Balancer and earn a return for upwards of 100% in the protocol’s native governance token is quickly taking form. This has become apparent as Balancer recently surpassed Uniswap in total value locked in less than a month of launching BAL yield farming.
Now with dozens of DeFi protocols all fighting for liquidity, we’re left with two options: Either the value of ETH and the tokenized assets on the network skyrocket in value, effectively providing the DeFi ecosystem with significantly higher economic bandwidth and more liquidity to go around, or we see an influx of new capital into DeFi. My guess is that both will happen.
Since June 15th, the amount of ETH locked in DeFi has skyrocketed from 2.5M to 3.09M. That’s over 500,000 ETH flooding into DeFi protocols in less than 2 weeks. If this trend continues, normal supply and demand dynamics will eventually take over.
Moreover, yield farming and DeFi at large are still under the radar for most big players. Even for those that are deep in the crypto space like Morgan Creek Digital’s Jason Williams, who’s just starting to go down the DeFi rabbit hole or investment tycoon and Bitcoin OG’s Chamath, who may have had the soundbite of the year, it’s apparent that we’re still extremely early to the party.
But the long-term game here is that many DeFi protocols will eventually become symbiotic, allowing its LPs to benefit from multiple yield farming opportunities across DeFi protocols. This was outlined in detail in a recent piece by Dan Elitzer on Bankless called “Aquaponic Yield Farming” (it’s a must-read!) and reaffirmed with the launch of Curve’s multi-asset rewards for its BTC pool. But there will still be battles. Head-to-head protocols will have no choice but to fight to win over liquidity. Uniswap will compete with Balancer, Compound will compete with Aave, etc. Eventually, the DeFi protocols that successfully build symbiotic relationships will win-out. The yields will be too good for others to fight the battle alone.
If one thing is for sure, the yield farming saga is just getting started. So farmers, get your pitchforks ready because the DeFi protocols are going to war. And they’re gonna fight to give us the best goddamn yield there is.
Till next week!
-Lucas
Interest Rates
DAI
An executive vote on MakerDAO is live for raising the Base Rate (the base stability fee for across all supported assets) to 0.25%. If passed, this would effectively raise all existing stability fees by 0.25% with the DSR spread sitting at 0.25%. With that, the Dai Savings Rate would continue to sit at 0% APY, however, it’s a positive signal for the future of Maker!
- Highest Yield: Aave at 5.01%
- Cheapest Loan: Maker at 0% with ETH collateral or Compound at 1.36% APY
- MakerDAO
USDC
The generalized options protocol has closed a $2.16M seed round led by Dragonfly Capital, DTC Capital, and others.
The automated asset management protocol and liquidity protocol distributed its native governance token to Liquidity Miners.
Ampleforth – a rising algorithmic stablecoin protocol – launched AMPL liquidity incentives on Uniswap
Kyber Network has released a community-driven delegation pool ahead of its Katalyst upgrade for KyberDAO delegation. Nice work DeFi Dude!
MetaStable – the stablecoin aggregator – released details for yield farming the MTA governance token via mUSD liquidity incentives
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Analyst at Bankless – one of the leading resources for open finance. Lucas is an active contributor to the DeFi ecosystem with appearances in other notable DeFi outlets including The Defiant and Our Network. He has years of experience working with dozens blockchain and token startups where he focused on token economics, marketing, and growth.