Gearbox V2 AllowedList Alpha: Yearning For More… APY 🥷
This is the second Alpha series! If you missed the previous one, here:
We’re on the cusp of Gearbox V2 and Leverage Ninja mode. Gearbox V2 includes not only a bunch of awesome new features, but it also means new assets & pools being added to the AllowedList…This unlocks a ton more ways you can interact with leverage whether you’re a yield farmer, gigabrain arbitrageur or degen trader. Let’s see how — with Yearn!
Stop talking, wen yields ser?!
Wait a minute, kind ser! With the latest Yearn no-performance-fee, it seems that the stETH/ETH Lido pool might become the highest-earning vault. With leverage… you can go as high as 30% APY net. Read below how.
Gearbox V2 will initially launch in Leverage Ninja mode: the leverage side (not the pool side, that’s open to everyone) will be temporarily restricted to a set of degen wallets who will help v2 test in prod a bit. That is, so we can see the system run live with real assets for some amount of time before opening to all.
Adding multiple Yearn vaults to the AllowedList
Today we’re going to go over a bunch of new vaults from our good friends over at Yearn that will be a part of Gearbox V2. The range of vaults that we’re including will allow for yield farmers of all different stripes to get leveraged yields and higher APYs on their farming positions.
What is AllowedList? Put simply, the AllowedList is the list of governance approved tokens and smart contracts that can interact with Gearbox’s Credit Accounts. If an asset or contract is not on the AllowedList, then you cannot interact with it in a Gearbox Credit Account.
In reality it’s actually a little bit more complicated than that. Gearbox was built to be super modular and composable, so theoretically there can be multiple different pools of assets for lending (e.g multiple pools for DAI), each with its own Credit Manager, which each has its own AllowedList for assets and contracts… But if you want to learn about this in detail, it’s probably best to read the docs.
Just a quick note — everything discussed in this article is subject to DAO approval. If the DAO views any of the new proposed additions to the AllowedList as too risky or insufficiently researched (or anything else), then the information in this article will change. Go discuss these things:
What is Yearn and how does it work
The chances that you are reading this post and haven’t heard of Yearn are extremely low, so we won’t go into too much detail here, but here goes.
Yearn is an open-source, decentralized asset manager that helps you automate and auto-compound your yield farming. Essentially, if you have LP tokens in soem farm where you get some other token as a reward — the Yearn vaults sell those tokens and compound your stake. Muh Buffet the compoundooooor.
They offer a large variety of ‘vaults’ that use different strategies to earn yield on whatever base asset you’ve deposited, whether it’s something straight forward like ETH or USDC or whether it’s something more complex like 3Crv pool tokens or Steth/Eth Curve LP tokens. If you want to learn more about Yearn, you can read their “manifesto” or their docs.
Yearn + Gearbox V2: what new pools are coming?
Note 05.09.2022: an original version of this article incorrectly stated that we were adding Curve 3pool yVault, Curve LUSD Pool yVault, and the Curve sUSD Pool yVault at v2 launch. While we very well might add these vaults at a later date, they will not be a part of the v2 launch likely. We got mixed up here between the new strategies available in Convex and the corresponding Yearn Vaults, our sincere apologies for that. Don’t worry, the intern will be punished… However, the Curve pools + Convex for those pairs (LUSD3crv, sUSD3crv, and GUSD3crv) should be there at the start!
We are adding 4 new vaults to the Gearbox AllowedList from Yearn. In v1, Gearbox only had 2 Yearn vaults integrated — yDAI and yUSDC. In other words, in v2, we are more than doubling the number of Yearn vaults on offer.
Also, before we dive into the specific vaults that will be added, it’s worth noting (given the current discussions about the importance of decentralization) that Gearbox has made an effort to include a number of alternate “stablecoins” other than DAI and USDC. These stablecoins all have pros and cons, and are positioned at different points along the collateralization and decentralization spectrums.
Obviously, many people will just lean towards the stablecoins that offer the best yields, but hopefully Gearbox can also cater to those users who have strong opinions about which stablecoins they feel comfortable using. We’ll also note that while previously the Yearn vaults available were limited to stablecoin vaults, we now also have an option for people who want to farm on Yearn with ETH.
Finally, it’s important to keep in mind that new assets and contracts can be added to the Gearbox AllowedList at any time (as long as the code has been written + it goes through governance approval). So if there’s a Yearn vault (or anything else) that you want added to the Gearbox AllowedList, let us know in discord, or even better, start building it yourself as a contributor!
Curve stETH Pool yVault
The Curve stETH yVault is one of the highest TVL yearn vaults (~$115m), and for good reason — the APY currently stands at 6.79%, which is pretty good for an ETH farming strategy. In comparison, the vanilla WETH yVault is currently yielding 0.47%.
That’s not to say that this yield is risk free though. The Curve stETH Pool yVault is pretty complex — it takes Lido stETH (liquid staked ETH), puts it in a curve pool with vanilla ETH. Yearn then takes this curve pool token and puts it into Convex, and auto-compounds it for you. There are actually 4/5 sources of yield in this strategy:
- Yield from ETH Staking
- Yield from trading fees on the curve pool
- Yield from Curve token emissions
- Yield from Convex token emissions
- Yield from Lido token emissions
The major risk you’re taking with this vault (other than the standard smart contract risk) is that stETH could depeg in a major way.
This could happen if a major issue occurs with the merge. If this happens, the Curve pool will become imbalanced, and your LP position in curve will end up being mostly made up of stETH, which in this scenario is worth significantly less than vanilla ETH. At least for the time being, however, leading to a liquidation nonetheless. Oracles dictate what’s “correct” at every block.
This kind of depegging has already occurred at a smaller scale. However, an exploit of Lido, or problems leading into the merge or the activation if staking withdrawals, or major slashing event could also lead to an even larger and more enduring depeg of stETH. On the other hand, the stETH Vault is one of the most popular Yearn vaults for a good reason — the stETH vault currently has an APY that’s more than 10x of the vanilla ETH Yearn vault. With >$100M deposited, clearly many think the strategy is worth the risk.
Curve FRAX Pool yVault
The Curve FRAX yVault is one of those vaults where the underlying pool pairs 1 asset with the 3CRV Pool token. That means that by participating in this pool, you’re (very approximately) holding 50% FRAX and 50% 3CRV, which is made up of DAI, USDC, and USDT. These LP tokens from Curve are then further deposited in Convex for additional yield from CVX emissions.
If FRAX is your stablecoin of choice, then this Vault is a decent option for you to earn yield on FRAX as a stablecoin.
In terms of liquidations, the liquidation (calculator will be coming up) happens if either one of the assets depegs. So it’s not like “oh FRAX is just 50% of the position so drop to 0.9 is basically a drop to 0.95” — no. Curve pools trade into an asset that is “devalued” so a depeg to 0.9 will dictate to the oracles that you position as a whole is now stables*0.9. So keep an eye out when choosing leverage. A 6x would be safe enough in such a scenario, actually.
ETH yVault
This is the vanilla ETH yVault by Yearn (technically it uses Wrapped ETH, but who’s keeping track).
This vault has access to a variety of strategies including lending ETH on platforms like Aave, Compound, Alpha Homora, 88MPH, and others. Other strategies include supplying ETH on Curve, Balancer for liquidity provision.
To see the full list of possible strategies, you can check out the Yearn docs.
This vault is the “vanilla” ETH vault, and fairly or unfairly, is generally seen as ‘safer’ than other more exotic ETH strategies like the stETH Curve vault mentioned above. Correspondingly, the APY on this vault is somewhat lower than on the stETH vault. Potentially, the APY on the ETH yVault will tend to fluctuate based on how much demand there is to borrow ETH.
WBTC yVault
This is Yearn vault for WBTC, or wrapped BTC.
The vault uses a large variety of strategies, including lending on Aave and Compound and LPing on Curve and Balancer among a wide variety of other strategies (see the full list of possible strategies here).
The yield on this vault tends to be quite low as there is not all that much defi activity where use of WBTC is required, which in turn means that there is often not that much demand to borrow WBTC. Defi yields using BTC as a base asset are hard to come by.
Still, if you deposit into the WBTC yVault, when there is an opportunity to earn decent yields on WBTC, you can bet that the smart folks over at Yearn will be among the first to find it, so the WBTC yVault is a pretty good place to park your BTC if you’re a bitcoin enthusiast who wants to participate in DeFi.
TEASER: how to use Yearn in Gearbox V2
Here are the steps to use the soon newly added Yearn vaults in Gearbox v2. The steps and UX are broadly the same no matter which vault you are depositing in, so in this case we’ll highlight the Yearn stETH vault as it’s currently the one with the highest APY.
The mockups below are not yet live, but shall be soon!
- Connect your wallet to Gearbox V2
- Open a Credit Account with whatever ETH (if you are going to use a stablecoin vault then at this step you’d open a credit account with DAI or USDC), approve the asset and deposit your ETH into Gearbox.
- Choose which of the new Yearn vaults in Gearbox V2 that you want to use — we made the UI super easy to navigate so you can do so in just a few clicks. In this case, we’re using the Curve stETH yVault.
4. The UI will demonstrate to you the effect that depositing into a strategy will have on the parameters of your Credit Account — your new health factor, new amount borrowed, approximate APY, borrow rate, & liquidation price.
5. When you’re happy with your gains and you feel it’s time to withdraw, you can simply click the minus button on the Farm tab in the CA dashboard.
An easier route… Multicall!
Or just go the easy route and take advantage of Gearbox’s multicall: choose the farm destination that’s available, and open -> deposit -> farm without having to go through it all one by one. Checkmate, complexity!
Potential of leveraged farming in Yearn
For the sake of brevity, we’re only going to go over the potential of the highest yielding of these new Yearn vaults that we’re adding, and as of right now the best yields can be found on the Curve stETH Pool yVault.
The stETH Vault is currently yielding 6.58%.
Assuming Gearbox has a similar cost of borrow on ETH as Aave (currently 2.68%), we get the following results for potential APYs.
With 7x leverage (the maximum you can borrow would be 9x approximately depending on LTs and LTV — but we’d generally recommend not to max out your leverage so you have a built in a margin of safety), you could be earning ~30% on your ETH position by using leverage + the Curve stEth yVault.
Once again, we’ll stress that this strategy carries some risks. For example, in the event of a significant depeg between stETH and ETH, you could quite end up being liquidated at 7x leverage. Back of the napkin math shows that if the depeg is > ~6% (e.g., stETH goes to 0.94 ETH, which has happened in the past, then you are at risk of being liquidated).
You might opt instead for 5x leverage, in which case you’ll be earning ~22% on your ETH position and the depeg would need to be >14% (1 stETH = 0.86 ETH) in order for you to be at risk of a liquidation. SAFU ok?
That’s the beauty of Gearbox though — you choose your own destiny! You can lever up to the level that you want and put your funds in the strategies you want. You aren’t “locked-in” to any particular amount of leverage nor any specific strategies or actions. Ultimately, Gearbox allows you to make your own decisions and live with the consequences.
If you want to go max degen, you can choose to go with 9x leverage (although we strongly do recommend you don’t use 9x leverage with this yVault). That’s why we’re excited about building Gearbox — it puts control back in the hands of the user — you can make your own choices about how much risk you want to take, and if you lever up too much you’ll get rekt.
Potential of adding YFI as a collateral asset on Gearbox is also being discussed. Jump to forum to read more!
Summarize it for me, Leverage Sensei!
- Yearn is a decentralized asset manager that offers a wide range of vaults that use different strategies.
- In the near future, Gearbox DAO will have the opportunity to add 5 new Yearn vaults to the AllowedList, broadening the choices of yield strategies available to users. More are possible soon after as well.
- These vaults include the the FRAX Curve metapool vault, Curve stETH Vault, and the vanilla ETH and WBTC vaults.
- These new vaults will give Gearbox users new options for the stablecoins they want to support or be exposed to, as well as an excellent option for earning yield on ETH positions.
- Rough calculations suggest up to 30% yields with these new vaults!
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:
- Main website: https://gearbox.fi/
- General Docs: https://docs.gearbox.finance/
- Developer Docs: https://dev.gearbox.fi/
- Mainnet dApp: https://app.gearbox.fi/
- Governance Forum: https://gov.gearbox.fi/t/start-here-forum-rules/
- Blog: https://medium.com/@gearboxprotocol
- Snapshot: https://snapshot.org/#/gearbox.eth
- Github: https://github.com/Gearbox-protocol
- Twitter: https://twitter.com/GearboxProtocol
- And, of course, the DAO notion pages:
