Tempus Takes #1
Tuesday 22 March 2022
Subdued crypto market trading activities continue to suppress overall DeFi yields.
This can be explained mainly from the two key sources of yields.
The first one is the demand for risk. When market prices pick up, people want to trade with leverage, which in turn pushes up the cost of borrowing, hence the lending rates. This will impact money market players such as Aave and Compound.
The second one is represented by incentives, that is rewards from protocols and platforms to attract investors to use their products. These incentives are paid in the protocol native tokens. During bull markets, their prices can go up by a lot, which in turn greatly increases the value yields.
With the current crypto market showing weakness of moving upwards, we expect the yields to continue to stay stable or slightly lower.
The table below shows the APR based on the last 30 days’ performance:
Current markets have an excess amount of supply in BTC and Ethereum — both yields are near zero. Most yields are coming from new protocols that receive a lot of financial backing.
Yields on Yearn Fantom are generally higher than Yearn Ethereum due to relatively high network risk and less crowding.
Stable coins are doing slightly better, as borrowers prefer to borrow them due to their fiat nature.
The market has priced in the US Fed’s increase of interest rates. Currently the yield correlation between DeFi and TradFi is low, but as the market matures and more institution participants join the DeFi world, we should see a correlation increase, just like how crypto price and stock market’s correlation have increased significantly in recent months.
Disclaimer
The information provided in this article is provided for informational purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation to buy, sell, or otherwise transact in any investment, including any products or services, or an invitation, offer, or solicitation to engage in any investment activity. You alone are responsible for determining whether any investment, investment strategy, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. In addition, nothing in this article shall, or is intended to, constitute financial, legal, accounting, or tax advice. We recommend that you seek independent advice if you are in any doubt.
