Gearbox V2 Protocol Update: April
After the bank failures and the depegs of March, April unexpectedly was largely about… memecoins? Regardless of what CT does next, we are back with our monthly protocol update. The protocol update comes just after V2.1, just before introduction of Curve V2 pools and then the launch of Gearbox Leverage Trading UI. Oh, and of course, V3 then later on in Q3. Excited? Same…
In the meanwhile, lets not forget that V2 was the force that pushed Gearbox past the initial $100M TVL. And this update helps users identify the best ways to earn leveraged yields, not lose money, find ways to increase capital efficiency and update them on the developments towards the protocol side, all on the current V2. So read to learn exactly about all of that.
Each month, we release updates to monitor the progress of the Gearbox protocol and keep the DAO and the broader DeFi community informed about all the developments taking place at Gearbox. You can read them, the DAO updates and more articles on our medium.
Protocol Performance 🧮
We’re kicking off this update with a comprehensive snapshot of Gearbox’s performance, covering a number of areas: including lending, borrowing, liquidations, and key metrics related to Credit Account (CA) utilization. We’ll zero in on three primary areas: metrics related to our liquidity pools, insights into credit account usage, and data on our integrations. Please note that the numbers provided in this report are accurate as of the time of writing.
TVL & Lending Pools 🏊♂️
1. TVL: The TVL currently stands at approximately $70.14m, marking a significant downtrend from the previous month, ~(9M). This dip can be partially attributed to falling ETH prices, but also includes user withdrawals on the passive lending side.
The hard truth is that APYs look less attractive given the macro environment with higher interest rates, which has impacted TVL, particularly on the lending side. With launch of v3 (soon™), we should have the mechanisms in place to boost APYs on the lending side to allow them to attract more depositors despite the higher interest rate environment we find ourselves in.
2. Lending pools: The total supply in our lending pools is distributed as follows: ~$12.7m in DAI, ~$3.5m in FRAX, ~$18.9m in USDC, ~$2.8m in WBTC, and ~$21.6m in ETH. The wstETH amount is negligible at this time.
3. Credit Account Borrowing: Borrowing from credit accounts now totals as follows: ~$11m borrowed in DAI, ~$3m borrowed in FRAX, ~$16.5m borrowed in USDC, ~$270k borrowed in WBTC, and ~$17m borrowed in ETH. Once again, borrowing in wstETH is negligible.
4. Utilization Ratios: Our overall utilization ratios remain reasonably healthy — at the time of the writing of this report, DAI and : DAI at 86.9%, FRAX at 84.3%, USDC at 86.7%, WBTC at 9.7%, and ETH at 79%.
5. APYs: Our total APYs remain competitive for passive lenders: DAI at 16.96%, FRAX at 1.93%, USDC at 5.93%, WETH at 2.53%, and WBTC at 0.64%. The organic APYs (without token incentives) are as follows: DAI at 16.3%, FRAX at 1.26%, USDC at 5.33%, WETH at 2.53%, and WBTC at 0.03%.
The devs have recently revamped the UI for seeing analytics on pools and CAs. Users can now access much deeper data and metrics directly on the dApp UI. From looking at current, 7D, 30D APY to being able to individually go through the CAs. It’s all now doable on https://charts.gearbox.fi/
Despite the decline in TVL this month, our consistently high utilization ratios and competitive APYs demonstrate Gearbox’s success in delivering useful DeFi to our users on the borrowing side. As we look ahead to V3 and the new mechanisms that will go live with it, we’re confident we can translate this to increased attractiveness to the depositors on the passive side as well.
Credit Accounts🥷
Let’s explore the latest credit account statistics, offering insights into how Gearbox users engage with the protocol.
The below analysis is done at an overall level, for further analysis of CAs, a useful approach is to access the data studio page directly and extract insights at a unique CA level behavior to uncover potential alpha. You can find the data studio page here. Make sure you go to Version option > Select Leverage Ninja(V2) for the most relevant data. You can also use the updated version of Gearbox Analytics, which can be found here.
1. Leverage Ninja Stats: At present, there are 103 Credit Accounts (CAs) open, held by 87 unique borrowers. This indicates a slight decrease from last month’s 113 CAs and 96 unique borrowers. This modest decline reflects the natural ebb and flow of activity within the Gearbox ecosystem.
2. CA Size Stats: Currently, the average size of a CA stands at $571k. This is composed of an average borrow size of $463k and an average collateral deposited at $101k. These figures, while slightly smaller than last month’s, continue to illustrate the robust participation within Gearbox’s user base.
3. Leverage Stats: The average leverage across the system is approximately 5.57x. A closer look at leverage by asset reveals that DAI borrowers are taking the most risk with a 6.25x leverage, followed by FRAX borrowers at 5.54x, and USDC and WETH borrowers both at 5.48x. WBTC borrowers are the most conservative with a leverage of 3.77x.
4. Health Factor Stats: The weighted average health factor for CAs currently stands at 1.105. This demonstrates a relatively healthy overall system. When broken down by individual assets, the health factors are as follows: USDC at 1.109, WETH at 1.112, WBTC at 1.143, FRAX at 1.093, and DAI at 1.067. Remember, a health factor below 1 could potentially trigger liquidations.
5. Liquidations: We’re pleased to report that no additional liquidations have occurred since our last update. This indicates that our users continue to manage their leveraged positions effectively.
CA Strategies/Usage Breakdown
For you proper degenerate nerds out there, this next bit might prove interesting to you. We’ll delve into the most prevalent strategies that CA users are employing and offer some highlights and insights of the most profitable and least profitable CAs we’ve discovered.
Convex/Curve
Convex continues to be the highest TVL protocol in Gearbox CAs, with a number of popular strategies used by our Credit Account users.
Here’s a breakdown of the strategies used by CAs:
1. Convex sUSD-3Crv Pool: This remains the most popular strategy in Convex, with about $21.7m in assets. Given you can earn upto 25.84% APY on it, it’s understandable why.
2. Convex gUSD-3Crv Pool: This pool has about $9m in assets and is the second most popular Convex strategy and the third most popular overall. The gUSD pool has continued to slowly inch back upwards in TVL. through the gUSD pool, you can earn upto 23.31% APY.
3. Convex stETHCrv Pool: Holding approximately $3.2m in assets, this strategy continues to see declines in popularity as vanilla stETH continues to outperform it. You can earn 15.9% APY through this
4. Convex FRAX-3Crv Pool: Currently holds approximately $2m in assets and offers 4.8%. While Convex LUSD-3Crv Pool: The LUSD-3crv Convex pool currently has $1.2m in assets, same as last month.
Lido Staked ETH (and associated strategies)
Lido Staked ETH remains the second most popular strategy in Gearbox, with $18.2m of assets in this strategy. Which is very close to the 18.4% APY that it yields. At this point staked ETH yields are kind of the “base rate” of DeFi, and the easiest/most accessible way to access those yields is via Lido stETH. It also helps that staking withdrawals are enabled now on mainnet as well as in Lido, so any risk of a major depeg is perceived as extremely minimal at this point.
There is also the aforementioned Convex stETHCrv pool which has $3.2m of assets in it. Gearbox also has the Yearn stETHCrv strategy available, but it often dips into negative APY territory when taking into account the cost of borrow and consequently doesn’t currently have assets in it.
Yearn
Approximately $2m of assets are in the Yearn DAI vault via Gearbox. The yvDAI vault seems to be doing relatively well in terms of APY currently, especially if you factor in the perception that Yearn vaults might be more secure than other stablecoin strategies. The remaining assets in Yearn strategies, such as the yvWETH vault and the Yearn stETHcrv vault, are negligible.
NOTE: As a reminder, all of the data above required to verify the numbers mentioned above are available either through https://charts.gearbox.fi/accounts or our dune.
Do Gearbox Credit Account users make money?
TLDR? Leverage on stETH made for 9 out of the 10 performing CAs
In the broader finance world, strategies that are in “popular” often do not yield the highest returns. By examining some of our top-performing Credit Accounts (CAs), we can see if this applies to Gearbox CAs as well. Hopefully by investigating what works (and what doesn’t), we can glean some insights and learn some new things.
It’s important to remember that when assessing the profit margins of CAs, we err on the side of caution, and therefore we consider the potential worst-case outcomes. Our primary concern is to guarantee that an account can always be liquidated at its approximated value, even under less than ideal market circumstances. Consequently, the profitability figures we present here are often on the conservative side (and, on the flip side, any losses on CAs might seem more significant than they truly are).
For a deeper understanding, we recommend referring to the corresponding section in our documentation.
Much like last month, there is not that much variability in the top 10 CAs at the moment. The long and the short of it is that stETH continues to basically dominate as both one of the most popular as well as the most profitable strategies. In the top ten most profitable Credit Accounts that are currently open, 9/10 of them are simply using stETH as a strategy. That speaks to the strength of staked ETH as a yield strategy in DeFi right now and how it’s become a sort of base rate that all other strategies are compared to.
The one exception to the rule is the CA that currently holds the #1 spot. This user has used their CA in a variety of ways — initially to farm in the FRAX3crv pool. More recently they have used their CA to trade in and out of ETH and WBTC positions. Much like the previous legendary WBTC trader, this CA user has figured out that trading on Gearbox can be very fruitful if you know what you’re doing.
Worst performing CAs
TLDR? Don’t switch to quick but err, maybe switch from GUSD
As there have been no liquidations since our previous update, we now have the opportunity to delve into the performance of CAs that are close to the edge, rather than focusing on the reasons behind previous liquidations.
At present, even the least successful CAs are not faring too poorly — none of the ten worst-performing CAs have experienced a drop greater than 8%. However, it’s important to note that this might be due to survivorship bias — it’s possible that those with worse performance may have closed their accounts or been liquidated.
With that out of the way, let’s take a quick look at some of the worst performing CAs and see what mistakes they might have made that we can learn from.
The #1 least profitable CA makes the same mistake that we caution against every month. They switch between strategies too frequently, eating slippage each time they switch. If you do this frequently enough, no amount of high APYs will make up for it, especially if your credit account is relatively large.
The same mistake is made by some of the other worst performing CAs — jumping from strategy to strategy without taking into account the (high) cost of slippage. This applies particularly to CAs on the larger side. The larger your CA, the more it costs for you to switch strategies — this is a natural consequence of the way liquidity depth works.
Also, it’s with noting that 6 out of 10 of the accounts that are in the top 10 worst performing CAs have funds in the gusd3crv pool. Perhaps this pool has occasionally had APY spikes that made it seem attractive, but over time it hasn’t proven to be high yielding? It’s additionally worth noting that other than the #1 worst performing CA, none of the rest of them are losing more than 4%, so “worst performing” in this context means something a bit different than it might compared to the rest of crypto/DeFi.
Protocol Health
Gearbox continues to be healthy as a protocol, with 0bad debt and no noteworthy events from a risk perspective since the last protocol update.
Bad Debt- None
Since the previous protocol update, there have been no additional liquidations nor any bad debt accumulated
Audits
Audits for Gearbox v3.0 are fully underway. Based on the feedback, the devs will be making changes, if any and we can expect a Q3 launch date.
The upcoming security update has been audited by ChainSecurity.
Risk Assessments & RiskDAO Reports
RiskDAO consistently stays on top of what’s happening in DeFi, delivering weekly briefings that update us on the most intriguing and/or alarming developments within the DeFi landscape from a risk perspective. Below is a summary of the subjects they addressed in April:
April 7th: Euler’s hacker returned all misappropriated funds, credited to ongoing negotiations with the Euler team. Do Kwon was detained in Montenegro, facing extradition to the U.S. and Korea. The Arbitrum Foundation stirred controversy by requesting 750m $ARB from the community for operational costs, later ignoring the voting outcome and stating it was a ratification. Additionally, the foundation admitted to previously spending 10m $ARB, confusing the community. Binance’s remaining capital for crypto purchases is down to $113m. BProtocol introduced a new Risk Oracle for DeFi lending markets, promising automatic risk monitoring and decision-making.
April 14th: BTC and ETH saw improvements, breaking $30k and nearing $2k, respectively, following the successful Shanghai upgrade. The Euler hacker was revealed to be a regular individual named “Jacob” rather than a North Korean hacking group. BlockSec managed to rescue 100 ETH for 0xSifu. Sentiment, an Arbitrum-based lending protocol, lost approximately $1 million in a hack. Tier 2 stablecoins like TUSD, USDP, and LUSD gained market share from incumbents like USDC and BUSD.
April 21st: The ETH Shapella upgrade was completed successfully, with ETH seeing a 13.1% surge within 48 hours. The upgrade permits users and validators to unstake via partial or full withdrawals. Borrowing demand for LSDs remained low with a utilization rate of 13% on Aave’s stETH market. FTX’s recovered funds increased in value, sparking talk of the exchange’s relaunching. HundredFinance was hacked on Optimism for about $7m in various tokens. Tether blacklisted $3 million of USDT belonging to an MEV bot due to law enforcement pressure.
April 28th: Following the Shapella upgrade, ETH staking inflows remained positive with net inflows (excluding rewards) reaching ETH 639,436. RAI co-founder, Ameen, announced a new stablecoin project called HAI, launching on Optimism. An article by The Defiant suggested that hacked DeFi protocols rarely recover, emphasizing the importance of security. HundredFinance released a post-mortem on last week’s hack, involving Compound-forks. The stand-off between Alpha Homora and Iron Bank escalated, with AH’s community voting to commence legal proceedings against IB if no agreement is reached.
Protocol Enhancements
While V3 is the key release this year, there are multiple developments planned between now and then. Here’s what’s happening:
Gearbox V2.1 to go live!
The pre-V3 upgrade that bolsters and battle tests V3’s security, introduces 40%+ APYs through MiM and expands LLSD with cbETH is about to go live. You can read the article below to understand why it was introduced, what it corrects, what the additions are capable of and the APYs you can earn at different leverage levels.
Curve V2 pools for 40%+ APYs
Discussions to go live soon!
Gearbox Spot Leverage Trading dApp?
Heard this in a discord call? Well, the below article will give you all the alpha you need, if you are ready to find it👀
Refresher on V3
Here’s a brief refresher on the exciting features that will be part of v3:
- Risk-segmented pools on new strategies that should translate to higher APYs for passive lending, also known as Alpha Pools.
- Implementation of Total Asset Limits and Per-User Asset Quotas.
- In relation to Per-User Quotas, we’re introducing Minimum Viable Tokenomics.
- Quotas will also facilitate potential rollouts to Layer 2s and the integration of smaller DeFi protocols with lower TVL/liquidity.
- Gearbots for automated strategies, high-frequency protection, and limit orders.
- We’re adding new integrations/assets, including Balancer/Aura and others.
GIPs and Protocol Changes
A link to the snapshot voting page for Gearbox where you can see all the latest proposals https://snapshot.org/#/gearbox.eth
There was only one protocol-relevant GIP in the month of April (there were *many* of these in May so stay tuned!).
[GIP-51] Allocate GEAR to Balancer/Aura g-USD pool bribes
This proposal was about whether or not the DAO should allocate 1m GEAR every 2 weeks to “bribe” those in the Aura ecosystem to vote for the Balancer Boosted Gearbox USD Pool. The idea is that this might be a more efficient way of incentivizing people to deposit into Gearbox on the lending side (by going through this Balancer Boosted pool, which comes with incentives from other protocols). The TLDR is that it might be a cheaper way to incentivize depositors on the passive lending side, as compared to incentivizing the lending pools directly. This vote passed, hopefully this will see this Balancer pool grow (which in turns mean more lenders in Gearbox).
Each month we get closer and closer to the launch of V3, which will come with new features, new strategies, new tokenomics, and a whole host of super cool rad neato stuff. The contributors can’t wait. We’re pumped. We hope you’re excited too. That’s it for the protocol update for this month, see you next time!
If you would like to join — just get involved on Discord. Discuss, research, lead and share. Call contributors out on their bullshit and collaborate on making things better. Here is how you can follow developments:
- Website: https://gearbox.fi/
- dApp: https://app.gearbox.fi/
- User Docs: https://docs.gearbox.finance/
- Developer Docs: https://dev.gearbox.fi/
- Forum: https://gov.gearbox.fi/t/start-here-forum-rules/
- Blog: https://medium.com/@gearboxprotocol
- Github: https://github.com/Gearbox-protocol
- Twitter: https://twitter.com/GearboxProtocol
- Snapshot page: https://snapshot.org/#/gearbox.eth
- And, of course, the DAO working docs:
