An overview of what is happening in the crypto markets, summarised daily by Crypto Finance AG Senior Trader Patrick Heusser in the market commentary.
Market commentary
Good Morning!
The Ethereum ETH vault has arrived!
yearn.finance has launched the ETH (yETH) vault, which is currently yielding roughly 80% APY. I am not sure how much has been deployed so far but some people claim we have already reached $10 mio TVL.
The strategy behind the 80% APY is to pledge the ETH that you put into the vault to get DAI and then leverage those DAIs and deploy them through the various platforms, e.g. Curve, Aave, Uniswap, etc. to arb price differences. The beauty of the vault concept is that it takes care of your liquidation risk and will continuously scan the ecosystem for higher yielding trades.
https://t.co/Tm4Su0BzFk updated;
- yETH vault added
- yWETH vault added
- SNX assets updated
- Footer with links addedDisclaimers;
- 0.5% withdraw fee
- These are debt based vaults and carry extremely high risk
- Do not risk your funds pic.twitter.com/7hvU9Ab8u0— yearn (@yearnfi) September 2, 2020
The Risk
Obviously, this comes with a huge amount of risk, which we covered in a previous market commentary (please find the four main components below as a recap):
- Technological risk (smart contracts)
- Economical risk (strategies do not work anymore, GAS fees go through the roof)
- Centralisation risk (governance tokens are not properly and widely distributed)
- Regulatory risk (regulatory enforcement to shut down a project or add taxes, etc.)
Let's go back to the 80% APY that is displayed on yearn.finance for the ETH vault. That rate displays the current yield including the daily compounding effect. For most DeFi users this rate is useless to look at. Instead, you should look at the APR, which includes all the charges and fees.
Obviously, every DeFi page only shows the APY to fire up the greed of traders and (for sure) has helped to lure in a lot of money.
The problem involved in displaying a proper APR rate is that you would need some sort of a calculator that takes the amount you would like to put into the vault into account. And then it should add all the GAS fees, which are currently around $500 for a smart contract transaction (not a simple transfer). Then make an assumption about how the fees will change over time because you need to add them again when you unwind your investment. As you can see, with current GAS fees, you need to deploy a good amount of capital and keep it in that investment for a bit to make a positive return.
For the amount of risk you take, the APR for most strategies is not enough to compensate you.
But with the possibility of hedging certain governance tokens, e.g. CRV, COMP, or even SUSHI, you at least have the chance to get rid of some amount of risk.
