Our Network: Issue #33

Coverage on Aave, Balancer, Compound, Lending Rates, and Set Protocol.

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This is issue #33 of Our Network, the on-chain analytics newsletter that reaches almost 3500 crypto investors every week.

This week our contributors cover Aave, Balancer, Compound, Lending Rates, and Set Protocol.

① Lending Rates

Contributor: Lucas Campbell, Growth at DeFi Rate

  • Despite the Dai Savings Rate still sitting at 0%, Dai interest rates across the board have improved significantly since their initial decline following Black Thursday in March.

    Many DeFi favorites are now offering attractive yields as 30 day averages for Compound, dYdX, and Aave lending rates sit between 4% and 7% APY. One of the biggest drivers behind protocols lifting off the 0% rate environment was Compound’s introduction of yield farming, as the mechanism boosted interest rates on the back of protocol users earning bonus COMP for liquidity provisions. This in turn forced other lending protocols to get competitive with rates. Compound is the only protocol on the board with a yield farming mechanism live but Aave will soon be joining the party with its upcoming Aavenomics token & governance upgrade. In terms of actual rates, Bitfinex offers the highest yield with its 30 day average sitting at 81%. However, given its centralized nature and questionable background, I wouldn’t hold too much weight here.

    On the flip side, borrowing Dai from Maker is cheaper than ever. Anyone can use popular collateral like ETH, USDC, and WBTC to borrow Dai from the Maker protocol for 0% interest. Free lunch!

  • Similar to Dai, USDC interest rates have recovered a fair amount as many DeFi protocols and crypto banks are now offering relatively attractive yields on USDC deposits. Nuo currently takes the cake as the lending protocol offers 11.41% APY on USDC deposits while popular US crypto bank BlockFi offers 8.6% APY. In terms of borrowing, Fulcrum, Compound, and dYdX all offer similar rates of 1.27%, 1.74%, and 1.88% APY, respectively. With that, Compound offers a bonus 7.99% APY in COMP for anyone who borrows USDC, effectively paying users to borrow capital from the protocol.

  • While stablecoins tend to take the spotlight in the lending sector, it’s always interesting to see if there’s any attractive opportunities to earn a passive income on your idle ETH. The two places currently offering the highest yields on ETH are Bitfinex and BlockFi - both centralized crypto banks - with rates of 4.67% and 4.5% APY, respectively. In terms of DeFi protocols, Compound, Aave, and dYdX all offer minimal rates of 0.22%, 0.51%, and 0.23%, respectively. Compound also offers a bonus 0.55% APY in COMP tokens for anyone who provides ETH liquidity to the protocol. Looking forward, it will be interesting to see how ETH rates develop with the introduction of ETH2 Phase 0 in the coming months!

② Aave

Contributor: Isa Kivlighan, Head of Marketing at Aave

  • Protocol Growth: The chart below shows the size of Aave’s money markets (Aave Market and Uniswap Market) in ETH from deposits and withdrawals. The value in the protocol has grown constantly since inception at the beginning of the year with this tendency continuing through the summer. The month of July has seen the total money market value double driven by a new Aave power user: yEarn. This is bound to continue as yEarn creates new vaults with aTokens and new arbitrage protocols emerge. (Source)

  • Unique Lenders/Borrowers: Since May, Aave has welcomed many new participants in its ecosystem, peaking at over 6,000 lenders and nearly 2,000 borrowers in July. This illustrates the unique lenders and borrowers per month (plus August so far). (Source)

  • Flash Loan Volume: Aave’s Flash Loan volume exploded in July reaching over $140 million dollars, mostly coming from DAI. This is a consequence of a market correction where Aave’s Flash Loans were used to swap collaterals on Compound and Maker via DeFi Saver’s tool. Flash Loans are uncollateralized loans that incur a 0.09% fee which is distributed to depositors or used to burn LEND. More about Flash Loans and DAI. (Source)

③ Balancer

Contributor: George Lambeth, Head of Strategy at Balancer Labs

  • Since Balancer's mainnet launch on March 31st over $500,000,000 in cumulative volume has occurred. This volume has already generated over $6,000,000 in fees for liquidity providers. In early June Balancer was averaging less than $1,000,000 in daily volume with less than 100 unique traders. Now Balancer is averaging $10,000,000+ in daily volume with more than 1,000 unique traders. (Source)

  • On July 25th Balancer had over $35,000,000 in volume due to the launch of $YFI. This occurred without $YFI being displayed on the Balancer exchange interface or being whitelisted for $BAL rewards. Despite this, hundreds of millions of dollars and over 1/3rd of the DAI supply was locked up in YFI's Balancer pool. This truly highlights the power of permissionless innovation. (Source)

  • More teams are experimenting with liquidity mining programs on top of Balancer. These programs allow liquidity providers to receive $BAL rewards as well as additional protocol tokens. mStable launched the first program of this kind and now has $40,000,000+ in mUSD liquidity on Balancer. Uma has also recently launched a liquidity mining program that has brought in $15,000,000 of liquidity. Furthermore, protocols such as Aave and bZx implementing Balancer as part of their core infrastructure. 

  • Finally, Balancer's carbon voting system has launched and Over 300,000 BAL voted in the first three proposals which represents 34.5% of liquidity mining rewards from the first six weeks. The most recent wrap factor for soft-pegged pairs vote had a turnout of 350,000 BAL (25% of liquidity mining rewards from the first week weeks). (Source

④ Set Protocol

Contributor: Anthony Sassano, Product Marketing at Set Protocol

  • Value locked in the Set Protocol vault is once again at all time highs (~$23.5mil) with almost all of the capital currently positioned in ETH, WBTC or LINK. This means that, collectively, all of the Sets are bullish on the market. You can see from the chart that this has been the case since early July with some of the capital briefly turning bearish in mid-July only to quickly rebalance back.

  • The 20 Day MA Crossover Set (ETH20SMACO) was the first Trend Trading Set launched on the TokenSets platform way back in July of 2019. Since then, this Set has returned +76% against ETH which means that if you had put 10 ETH into this Set at launch, you would have 17.6 ETH today. The best part is that all of the trades were done automatically by an on-chain system - no human had any say in how this Set traded.

  • Lifetime rebalance volume for Set Protocol is now at almost $150 million. All of these rebalances have settled completely on-chain and had participation from a wide range of entities including professional market makers and amateur traders. The larger rebalances - $7mil+ at a time - typically settle at around 0.25% to 0.5% slippage.

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Our Network: Issue #33 (Part 2)

Coverage on Aave, Balancer, Compound, Lending Rates, and Set Protocol.

Continued from Part 1.

  • Gas prices have been high on Ethereum over the last few months and this has adversely effected Set Protocol as minting a Set is usually a costly transaction. In saying that, the distribution of Set holders by dollar value is still incredibly healthy with the vast majority of addresses holding anywhere from <$100 to $10,000 worth of Sets.

⑤ Compound

Contributor: Nick Martitsch, Business Development at Compound

  • Assets supplied to the Compound protocol have risen nearly 14x since the launch of the COMP governance token, with supplied assets increasing from $124mm on June 14th to $1.84B at the time of publication. DAI is currently the largest market on the protocol, with $1.1B of supply volume. DAI now represents 62% of all assets in Compound, and marks the first time that any single asset has risen above the billion-dollar mark. ETH makes up 23% of the supply liquidity at $421mm and USDC is next with 9% and $172mm. (Source)

  • This graph shows a breakdown of which markets have earned the most COMP over time. Early on in the COMP distribution cycle, USDT was the largest market on Compound, as its wide availability and 0% reserve factor made it a popular choice for liquidity miners. After a community vote on June 25th, the reserve factor for USDT was raised to 20% to account for liquidation default risk.

    After the USDT reserve factor increase, BAT became the most popular market due to its aggressive interest rate model, and the COMP that would be distributed as a result of the high borrowing APY. A COMP distribution patch was passed through the governance system on July 2nd, which removed the borrowing interest rate from the COMP distribution model and replaced it with the USD value of borrowing demand. This patch led to DAI becoming the largest market in the protocol, due to its lower level of borrow APY at higher utilization rates. (Source)

  • Ownership of Compound has been fully handed over to users of the system (COMP holders). Community members, stakeholders, and developers are all encouraged to play an active role in governance by voting on proposals, delegating their voting power, or creating their own proposals. To date, 18 protocol upgrades have been proposed in the governance system, with 15 passing 2 failing, and 1 cancelled. Below is a summary of the changes that were voted on by the community. (Source)

    • Proposal 1 added support for USDT

    • Proposals 2, 12, 18 updated the DAI interest rate model

    • Proposals 3, 4, 5, 6, 15 deprecated SAI

    • Proposals 7, 10, 11 dealt with COMP distribution

    • Proposals 8, 9 increased the reserve factor for USDT, BAT, ZRX, and REP

    • Proposals 13, 14, 16 sought to increase the WTBC collateral Factor

    • Proposal 17 deprecated REP ahead of Augur V2

  • The table below shows the average economic activity for users of the Compound protocol. By taking the weighted average supply APY (3.18%) and multiplying it by the average supply amount ($55,411), we get an average interest revenue of $1,763 per user. This same basic formula can be applied to the borrowing side of the protocol, where the weighted average borrow APY is 3.0% and the average borrow amount is $31,462, which gives us an average interest expense of $1,887 per user.

    The COMP portion of the economic calculation is based on a market price of $137 on Coinbase at the time of publication. This data can be a good reference point for applications, wallets, exchanges, or custodians who choose to integrate Compound and take a cut of the economics as revenue. For example, a 10% profit margin would lead to $791 of extra revenue per integrated user, per year. (Source)

About the editor: Spencer Noon is Head of Investments at DTC Capital.

Our Network: Issue #32

Coverage on yEarn, MakerDAO, and Terra.

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This is issue #32 of Our Network, the on-chain analytics newsletter that reaches more than 3000 crypto investors every week.

Top DeFi Twitter Accounts

Before we jump into this week’s coverage, announcing the winners of our recent Twitter poll:

This week our contributors cover DeFi projects: yEarn, Terra, and MakerDAO.

① yEarn

Contributor: Alex Svanevik, co-founder of Nansen and D5

  • YFI might be the single best example of how useful on-chain data can be for analyzing tokens. With no pre-sale, the token distribution has been 100% organic, delighting farmers worldwide. Literally the whole history of YFI is captured on-chain from farm to fork. For those new to it, YFI is the governance token for DeFi yield aggregator yearn.finance, which aims to maximize yields for depositors across multiple DeFi protocols. Holders of YFI decide the future of yearn.finance via on-chain voting. Let's take a look at three aspects of YFI using on-chain data: farming, liquidity, and hodlers.

  • Among the top farmers, three addresses were able to claim >1,000 tokens each from the pools that distributed YFI. At the time of writing, this translates to ~$24M in YFI tokens for these three alone. Interestingly, there's no clear pattern in which pools the top 15 farmers focused on. Among the top 15 farmers, only four stuck to a single pool, while most were farming from at least two pools.

  • So where did these farmed coins end up? Looking at gross YFI volume sent from farmers, we see 5 top destinations:

    1. Balancer (mostly liquidity provisioning, some selling)

    2. Ygov.finance (Fee Rewards; staking)

    3. 1inch.exchange (mostly selling)

    4. Ygov.finance (Governance V2; staking)

    5. Uniswap (liquidity provisioning and/or selling)

  • We can drill down on liquidity by looking at tokens sitting on exchanges. Balancer was a key part of the YFI distribution (via pools 2 and 3), which explains the bump over the first ~9 days. But centralized exchanges have become more prevalent since then, with Poloniex and FTX leading the way. And Uniswap has overtaken Balancer for the deepest liquidity pools among decentralized exchanges. The relative scarcity of YFI on exchanges is likely the main driver of price action - especially since the YFI pools stopped distributing tokens.

  • So what about the wallets hodling YFI? The YFI pools have been effective in getting YFI into the hands of thousands of wallets. But since the YFI distribution stopped, the increase in addresses has slowed down. Instead, larger investors picking up YFI are now likely a key driver of price action. Smaller retail traders getting involved before the whales is an interesting DeFi trend which stands in stark contrast to the ICO boom of 2017.

Image 2020-07-31 at 11.44.27 AM
  • Whales are definitely getting their fair share of the action though, with some hiding in plain sight. The #1 YFI whale is currently staking their 1,858 tokens in the Fee Rewards contract (so you won't easily spot them on Etherscan's balance rankings). It's fair to assume some whales are spreading their tokens across multiple wallets.

  • Finally, a new contract for staking YFI was recently launched, and as you can see, some top YFI holders have already moved their tokens into this contract:

② Terra

Contributor: Christopher Heymann, Partner at 1kx

  • After looking at merchant adoption data in the last edition, it is worth taking an updated look into the core metrics of the Terra protocol. The peg of KRT to Korean Won has been getting a bit under pressure over the past few months. Notably since around March this year, the variations have increased and KRT is trading more than 80% of the time below the peg. Although these variations are still very small in comparison to other algorithmic stablecoins, they seem to highlight a small outflow of KRT out of the system. Improving on- and off-ramp and exchange infrastructure, as well as lowering market-making barriers will be counteracting measures to observe over the coming months.

  • The total user growth of Terra has remained strong and almost 500,000 new users were onboarded over the last 3 months alone through the CHAI app. It is expected that CHAI onboards user number 2,000,000 sometime in September. Other wallet apps for different currencies are also expected to launch over the coming months and there will hopefully be some data to share about cross-currency usage the next time Terra is featured in this newsletter.

  • Volume growth for KRT has remained strong and Terra is on the way to pass 1 trillion KRT (~$836 million) in cumulative volume over the next 6 months. It is worth highlighting again that this is organic volume from real-world purchases made with cryptocurrency technology today. Coinbase Commerce in comparison, which facilitates E-Commerce payments via BTC, ETH, or other cryptocurrency assets, has only processed cumulatively $200 million worth in transactions in the two years since its existence (source).

  • Staking rewards in Terra are denominated in KRT and can, therefore, yield compounding returns when those KRT are used to purchase more LUNA which is used for staking. The percentage staking yield vs LUNA in Terra is consequently inversely proportional to the price of LUNA - the higher the LUNA price becomes, the lower the APY gets even if the absolute tax returns for the protocol are growing. The protocol automatically responds with increases in tax rates to these situations to return the APY into higher territory. The following graph illustrates this relationship.

③ MakerDAO

Contributor: Primož Kordež, Founder of BlockAnalitica

  • YFI & YFII yield farming is influencing the DAI peg — which we can see from the 7 different numbered moves on the below chart (descriptions below):

    1. Pool1 (yCRV) started at 7/17 11:50 UTC. Farming capital starts to shift into yCRV. Some of the Compound DAI farmers and other DAI holders deposit DAI into yCRV, increasing DAI weight in the pool and pushing the price down.

    2. Pool2 (DAI-YFI 98/2) starts at 7/18 9:35 UTC. Some farmers from Pool1, and new farmers withdraw and/or buy DAI from yCRV in order to start farming Pool2, decreasing DAI weight in the pool and pushing price up.

    3. Pool3 (yCRV-YFI 98/2) starts at 7/19 15:38 UTC. Price of DAI decreases sharply after the pool is open, as some farmers enter the yCRV with DAI, increasing the weight and decreasing the price.

    4. At this point, Pool2 (DAI-YFI) had the highest yield and new farmers started joining it. DAI was either withdrawn or bought from yCRV, pushing the price to $1.04.

    5. Pool2 (DAI-YFI) ended on 7/26 15:38 UTC. Farmers are now exiting the DAI pool, some of them switched to Pool3 (yCRV-YFI) for the final hours of the farm, increasing DAI weight in yCRV and decreasing the price heavily.

      At this point, YFI farm is concluded and farmers are moving their capital to other farms, the largest for DAI capital being Compound. This dynamic again drains the DAI from yCRV, pushing the price up. 

    6. As YFI farming pools concluded, a fork of the project called YFII emerged, mimicking YFI liquidity mining pool architecture, but with an altered issuance schedule after week1 of farming is complete. Pool2 for YFII (DAI-YFII 98/2) started on 7/27 16:00 UTC which is once again draining DAI from Curve and other liquidity based markets, causing upwards pressure on the price. 

    7. The new DAI YFII pool week 1 rewards conclude on 8/3/2020 16:00 UTC, and the Week 2 farming will continue with halved rewards, effectively halving APY. As the APY heavily depends on the price of YFII, it is hard to estimate how many farmers will exit DAI YFII after Week 1 rewards conclude, but DAI might experience downwards pressure as a result.

  • As shown, liquidity mining is causing large capital flows between DeFi protocols. YFI and now partially YFII, have had a strong impact on the flows of DAI between Maker, Compound, Curve, Balancer and other protocols. These flows are reflected in the Curve liquidity pools, which is currently the main market in the DAI ecosystem and also determines the price.

    The chart below shows how increased DAI weight in the Y Curve pool coincides with the reduced DAI price premium observed on 26th of July when the DAI-YFI pool ended. Importantly, Coinbase and other markets are mostly following the Curve DAI price (Y and sUSDv2 pools), as arbitrageurs exploit price indifferences between CEX and Curve (note, the recent market sell candles on Coinbase DAI/USD were most likely arbitrage trades with Curve).

Image 2020-07-31 at 11.06.59 AM
  • The table below shows yield farming activities of the largest Maker vault owners and how they utilize their borrowed DAI. The snapshot was taken at 7/30 13:15 UTC and represents more than 50% of DAI issued. The last four columns represent supply and borrow balance on Compound, account liquidity (if negative, liquidation can be triggered) and projected annual income (net interest accrued and COMP rewards based on current price).

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Our Network: Issue #32 (Part 2)

Coverage on yEarn, MakerDAO, and Terra.

Continued from Part 1.

  • The majority of largest vaults are directly or indirectly involved in yield farming activities, mostly at Compound. The USDC-A vault owners have the most leveraged positions, which is evident in low account liquidity. Maker recently changed the liquidation ratio for USDC-A from 120% to 110% in order to potentially reduce DAI premium (either by helping market makers to be more aggressive at shorting DAI or by flooding markets with DAI to reduce farming yields).

    In practice, the change primarily increased farming yields for these individuals, as the vast majority of DAI issued by USDC vaults recently ended up in Compound. It is yet to be seen how much more DAI is needed to reduce the DAI premium or farming yields, but the number could be very high, particularly due to DAI weight dynamics in liquidity pools such as Curve explained earlier.

  • Liquidation risks at Maker clearly increased with rising DAI debt exposure. If another Black Thursday even occurs in which ETH drops 50% ($160) and BTC 40% ($6,600), 165m debt would be liquidated or about 50% of DAI supply. This compares to 20% of DAI supply liquidated on Black Thursday and shows that recently increased debt exposure carries lower collateralization of vaults and implies much higher liquidation risks. It is questionable if the system could handle such high degree of liquidations and potentially Circuit Breaker would need to be triggered.

    On the other hand, a lot of larger Vaults have their DAI parked in Compound and YFII farms which means that they should be able to unwind their positions quickly before liquidations happen due to 1 hour OSM delay.

Image 2020-07-31 at 10.45.18 AM
  • Finally, DAI supply increased by 244m from 115m to 359m in just 45 days, which coincides with Compound starting the yield farming craze. During this period, the ETH debt ceiling was increased 5 times, from 140m to 340m.

    Total increases in DAI debt in last 45 days: 

    • ETH Vaults: +154m DAI

    • USDC Vaults: +57m DAI

    • WBTC Vaults: +30m DAI

    • BAT Vaults: +2m DAI

About the editor: Spencer Noon is Head of Investments at DTC Capital.

Our Network: Issue #31

Coverage on DeFi.

Click here to join the Our Network community on Telegram.

This is issue #31 of Our Network, the on-chain analytics newsletter that reaches more than 3000 crypto investors every week.

Editor’s Note

As much as I enjoy getting into the finer details of project health, sometimes it’s worth taking a step back and examining ecosystem health. Although it’s not a silver bullet, one of my favorite high-level metrics for the overall health of the DeFi ecosystem is Total Value Locked (TVL), popularized by the website DeFi Pulse.

TVL is calculated by taking the crypto asset balances of all DeFi-related smart contracts and multiplying them by their respective prices in USD.

At the time of writing, there is currently ~$3.5 billion worth of crypto assets locked in DeFi smart contracts. What’s astonishing is that we reached $3 billion only 3 days ago!

For investors like me, it’s impossible to overlook this type of growth. I am increasingly partnering with early-stage DeFi companies to build the future of finance.

This week our contributors cover DeFi projects: Instadapp, Opyn, Nexus Mutual, PoolTogether, and Keep Network & TBTC.

① Instadapp

Contributor: Thrilok Kumar, Smart Contract Developer at Instadapp

② Opyn

Contributor: Zubin Koticha, CEO of Opyn

③ Nexus Mutual

Contributor: Richard Chen, Partner at 1confirmation

④ PoolTogether

Contributor: Leighton Cusack, CEO of PoolTogether

  • PoolTogether is a protocol for no loss prize savings on Ethereum. A key KPI is the total amount of prizes distributed. This week the protocol passed…

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