[Weekly] Market Return on StableCoin-based Strategies（5 June 2023): Predicting $GLP Yield

We provide a weekly update of the platforms we track, based on the strategies discussed in Serenity Fund’s Overview of Stablecoin Investments 2022 and the periodical updates.

Note: this is NOT a portfolio. This is an average yield calculation of each risk category, to be used as a benchmark for assessing the risk-return of an investment or a portfolio. Yields derived from mining reward tokens are based on the prices of tokens on 5 June. Yields that are cumulative, e.g. Uniswap and Binance funding rates, and are actual yields over last week, compounded weekly to derive the APY.)

Quick analysis on 5 June:

Risk Free Rate: 2.63% (last week, 2.55%)

• Risk free rate inched up marginally and liquidity remained unchanged for both Aave and Compound.

Mainstream Rate (Curve1.5x/Convex): 3.8% (last week, 3.5%)

• The mainstream yield increased, due to surge in Compound pool’s yield, as the pool’s liquidity on Convex dropped from $10m to $7m.

Benchmark Rate (Other Stablecoin Platforms): 8.1% (last week, 7.5%）

• Belle’s USDT pool topped this category, as its TVL dropped and pushed reward yields higher.
• Conic’s DAI pool and Pendle’s Stargate USDT pool followed closely.
• This week’s yield improved was largely due to the shrinking TVL of pools, pushing reward APY higher cross board. This is probably due to more funds flowing into EVMs like Arbitrum. The general investment sentiment was still weak.

Exotic Strategies (non-Ethereum or quasi stablecoin strategies):5% to 17% (last week, 4% to 16%）

• Ipor’s Dai pool came back to top this week, as IPOR price rebounded last week.
• The yields on EVM chain continued to decline, as trading volumes are shrinking and few innovative protocols are launched.

Delta Neutral Liquidity Providing (Uniswap V2 and GMX):

• The yields for Uniswap V2 half-ETH, half-stablecoin pairs are single-digit. We have been tracking these pairs for more than 2 years. It seems that in a bearish market, the raw yield (before adjusting for potential impermanent loss and hedging costs) are usually high single digits, e.g. 7% to 9%. These are collectively (ETH-USDC, ETH-USDT, ETH-DAI) $132m liquidity here. This range of yields serve as the bottom line for such investments, i.e. risk free yield for ETH-Stablecoin.
• GLP’s estimated yield declined again to 6.7% APR this week (earnings before adjustment for impermant loss, hedging cost and traders’ PnL, 5 days estimate of the current week). Taking into account the risk free yield range above, GLP should have a risk premium of trader’s PnL exposure (it’s volatile, empirically positive, theoretically zero-sum) and being on Arbitrum instead of Ethereum (to a lesser extent). So we expect the long-term yield of GLP to be 1% to 2% on top of the risk free yield range above, e.g. 8% to 11%.

Funding Rate (Binance Coin-Margined):

• Funding rates were all positive, and are either over or close to 10%, meaning that if you purchase the token, use it as collateral and short the same amount in Binance, the net yield is a delta neutral 10%. A systematically higher funding rate probably suggests that there’s no innovation going on and funds are back to trading.

Business Update:

• We have made a SubStack for premium content, mostly our strategy papers for more complex investments. This is a paid service at $49 per month (free for research clients). You can subscribe to the Free version to get a summary of each strategy paper. However, to support our work, we hope you could subscribe to it for the full article — $49 for four to five papers a month on stablecoin and DeFi strategies. For this, we offer a 70% discount for our Twitter and Medium audience: https://serenityresearch.substack.com/1a082767.

The above summary is a snapshot of what the market looks like over the last week and as of Monday. It is not meant to be a ranking table nor to be exhaustive. There are various other defi protocols and products that can offer different risk and return exposures. Follow our Twitter below to have more timely and detailed information on the DeFi market.

(Serenity Team, 5 June 2023, Twitter: https://twitter.com/SerenityFund )