Stable(ish) Yield Update
Iβm on a quest to find the best risk-adjusted yields. This update is part of a series of posts where I test different stable yield opportunities and share results of actual yield accrued over time. I hope this helps anyone who is on their own quest for quality yield on stables.
Disclaimers
πΈ None of this is financial advice. Please do your own research before making any major financial decisions.
πΈ This analysis has many different variables at play: products have different amounts invested, employ different strategies to earn yield, have different risk/volatility profiles, some auto-compound yield. Iβve calculated APR for each position to ensure some ability to compare, but donβt look at this list as a definitive ranking on which product is best to park stable assets; that decision will depend on your goals and risk appetite.
Results
The performance of each product over the time period of January 11 to February 14 is listed below. Exponent is the only position I opened later, so for that product, the time period is from January 29 to February 14. Iβve sorted the list by APR to offer the best comparison given the two different timeframes. Some observations below:
Neutral Trade continues to deliver
I have three hedge fund positions:
@TradeNeutral Delta Neutral,
@gauntlet_xyz hJLP In-Kind, and
@elementaldefi USDC vault. Neutral continues to outperform significantly, and seems to offer additional upside via a points program (token?) and Drift FUEL points since their vaults utilize the Drift platform. Iβm also in a reduced fee VIP Vault via
@project_super_ which sweetens the deal further.
The hard part is deciding if itβs worth staying diversified and holding Gauntlet and Elemental or if itβs better to put the eggs in one basket and enjoy higher yield. Iβve leaned on diversification up to this point to ensure I avoid worst-case scenario issues that can always happen in the crypto space, and that will probably continue (though I may lower exposure to the others in favor of more Neutral).
Exponent is awesome, but timing matters
I covered
@ExponentFinance in the last update, but for those who arenβt aware, itβs a yield trading platform that splits yield-bearing assets into income tokens (which offer fixed yield at a predetermined maturity date) and liquid yield tokens (which represent the yield portion of the yield-bearing asset). People who want fixed yields can lock their yield-bearing assets until maturity. People who want to speculate on yield volatility can trade liquid yield tokens with leverage. People who want exposure to fixed yields and trading fees can supply liquidity at a variable yield rate.
The yield has been phenomenal so far at > 35% APR! But this is not possible to achieve if youβre jumping in now. I was fortunate enough to be among the first depositors into the new USD* yield market which offered >30% APY fixed rate and >45% APY variable rate. You can see from the screenshots below that the variable yield is currently at 9.21% and fixed is at 13.39%, far below what I was able to lock in. I expect the 35% to drop as the current variable rate continues to pull the position down, but itβs still performing amazingly well for a lower risk position.
The major lesson here is to be aggressive when these new markets open up and pounce on lucrative fixed yields if they exist.
Some Perps LPs are more stable than others
Iβve shared six different stable updates, and
@AdrenaProtocol was the top dog in three of them, including my last update two weeks ago. But the market is down since then, and Adrena is the least stable of my Perps LP positions thanks to its 85% exposure to SOL/BTC/BONK. So itβs on the losing end today.
By contrast,
@flashtrade FLP and
@HyperliquidX HLP have proven to be more resilient and have never registered a negative APY in the six check-ins I have done, so you could argue they are more in line with a stable yield option, at least since December. If I held JLP, it would be the top performing option on this list, and I remain confused on why it performed so poorly in December only to roar back to form in Jan/Feb.
The truly stable options are coming down to earth
After a wild stretch in November/December of 15β20% yields at places like
@DeFiCarrot and Lulo, yields have come back down to earth. I canβt be upset with 11β14% APR on my most stable positions, though, and they still represent the two largest portions of my portfolio. Iβm also looking forward to some of the new features that Carrot is building out via Greenhouse, which will enable higher yields via staking, lending, and looping CRT, and a Carrot Debit Card.
Iβm not currently in
@uselulo, but I am intrigued by their new Lulo Protect offering that gives users the option to earn lower yield (around 4.7%) that is backed by an insurance fund or higher yield that is the insurance fund (around 8.8%). One of the biggest problems with on-chain yield is the lack of insurance, so I think this is a cool step forward (though, importantly, itβs not on par with FDIC protection you will get in TradFi since you are still vulnerable to smart contract risks, de-pegging, and wallet drains).
Big Picture
One of the toughest tasks is deciding how to allocate across these different platforms. Itβs not just about maximizing returns. Itβs about maximizing risk-adjusted returns. The chart below offers some insight into how I am thinking about this right now and shows how much I am allocating to each option as well as a color-coding that indicates my opinion on the level of volatility, from lower (green) to higher (red). Some quick thoughts here:
π’ Lower Volatility (Green): I consider Kamino liquidity pools to be the lowest option on the volatility curve. The platform is resilient, 3x audited, and yield derives from incentives. The only risk here is smart contract risk and depegging risk, both of which I consider to be low (and risks that are present on every DeFi platform). Carrot is also low volatility due to 2x audits and 80 % of itβs yield coming from audited lending platforms. Exponent is a newer platform, but is 2x audited and offers fixed yields as long as you hold until maturity.
π‘ Moderate Volatility (Yellow): The hedge fund strategies fit in this bucket because the yield depends on proper implementation of delta neutral hedging strategies, and itβs possible for the positions to have negative ROI. HLP has shown the lowest level of volatility among the Perps LPs and has been pretty much up only since I supplied liquidity in December.
π΄ Higher Volatility (Red): FLP, ALP, and JLP fit into this category, since all three have between 55β85% exposure to some combination of BTC/SOL/ETH/BONK. Platform fees help offset downturns, but thereβs still risk here that these positions will fail to deliver positive ROI if we enter into a bear market downtrend. ALP is the most vulnerable in this scenario given its 85% volatile crypto asset exposure.
This is more art than science, but my thinking is to have at least 50% in lower volatility options, ~30% in moderate volatility options, and ~20% in higher volatility options. If I was more bullish on the market outlook, I would go more heavily into moderate/higher volatility options. If I were more bearish, Iβd remove the higher volatility options.
Conclusion
Thatβs it for this week. I hope this insight is helpful. Let me know if you see things differently!