Gearbox V2 Protocol Update: January 2023
Already struggling to keep up with all the news and segregating the alpha anons? That’s what the first month has been with the market being abuzz. So let us take that struggle away and bring you GEARHeads an overview of how the protocol is performing, including usage metrics, safety and health status, popular strategies, and CA user profitability. These updates are published monthly to track the progress of the Gearbox protocol and to keep the DAO and the broader DeFi community up to date on all the neat stuff Gearbox is doing.
It has been three months since Gearbox v2 was launched with Leverage Ninja mode, so in some sense we’re entering Q2 of V2. And the way devs seem to be working, this might also be the last one with a possible V3 in the works. Anyway, how’s the current V2 going? How much usage it’s getting? How healthy/safe the protocol is? What strategies are currently the most popular, and How well (or poorly) its users are doing in terms of profitability? Strap in, we’re going to get into all the details right now.
You can read last month’s update here if you want to know how we ended the year:
Protocol Performance 🧮
To provide a comprehensive update, we’ll first take a high-level look at the protocol’s performance. This includes the amount of borrowing and lending taking place, any liquidations that have occurred, and some high level data about how CAs are being used. We’ll cover three areas: liquidity pool stats, credit account stats, and integration stats.
You can see all the data here in the Dune dashboard made by apeir99n or here in Google Data Studio made by Amantay or in the analytics section of the Gearbox website, made by Harsh
TVL & Liquidity Pools: Passive APYs being one of the highest🏊♂️
1. TVL: TVL is currently $117.5, up ~12m since the last update. This is partially due to crypto prices being up overall (this would increase TVL of the WETH/WBTC in the protocol without necessarily needing the actual number of WETH/WBTC to go up), but it’s also partially due to an increase in deposits on the stablecoin side. This might be happening due to an increase in price of GEAR increasing leading to increased APYs on the LP pools. It’s good to see TVL moving back in the right direction after a decline last month.
2. Lending pools: Gearbox LPs have been earning one of the best yields in DeFi. At an average 30D APY of 6.75% on ETH and Stables at 5.8%+ Gearbox Offers some of the highest yields in DeFi lending. Further, with Gearbox LM activated at the moment, it can enable you to earn GEAR rewards that lead to increased APYs as token value rises.
Total supply on the lending side has moved back up to where it was in November, to $101m. APYs remain quite healthy on the lending side so (fingers crossed) we should see deposits continue to move in a positive direction. As noted above, some of the supply increase in $ terms comes from an increase in crypto asset prices, which “ncreases the supply of WETH in $ terms. There is currently ~$37m of WETH on the lending side, followed by ~$34.5m USDC, ~$22m DAI, ~$6m WBTC, and negligible amounts of wstETH.
Gearbox Lending pools apart from the APYs also offer a unique ability to lend without having to give direct custody to the borrowers. It also restricts the swapping of the assets to more risky/volatile one thus further increasing security of the LP assets and finally there’s no lock, no IL and no fee. You can check the complete details in the thread below:
3. Credit Account Borrowing: USDC borrowing remains king here, with ~$28m borrowed. This is followed by ETH, with ~$26m, then by DAI with ~$19m borrowed. WBTC and wstETH borrowing are negligible. All three of these assets are seeing significantly more borrowing demand than last month, USDC and DAI borrow are both up by $3m, and ETH is up by $5m (some of it driven by ETH price going up). Overall borrowing demand is very healthy.
With ninja list, which is effectively a list of users with average account size over $500k per CA, going beyond 750 people. We can effectively see a potential $200m worth of leverage demand that can be activated basis in increase in lending TVL.
4. Utilization Ratios: Utilization rates saw a drop in December but have picked up well since then. Overall, utilization is at 74%, which is in the healthy zone. USDC and DAI both have excellent utilization rates at 81% for USDC and 82% for DAI respectively, which is basically right in the goldilocks zone (in general we aim for 70%-85%). ETH utilization is significantly better than last month at 70%, up from ~65% last month, so that’s excellent news. wstETH and WBTC both have almost no utilization, but make up very little of overall supply as well, so in the grand scheme this doesn’t matter that much.
Credit Accounts🥷
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
1. Leverage Ninja Stats: As of right now, there are 121 CAs open, with 101 unique borrowers (some borrowers have more than one CA). Compared with the previous update, there are currently 3 less CAs open.
2. CA Size Stats: The average (mean) size of CAs is currently at 738k, with average borrow size at 606k and average collateral deposited into the protocol at around 127k. All three of these figures are up from last month, CA sizes have gotten bigger and people are borrowing a bit more than they were.
3. Leverage Stats: Average leverage in the system is at about 5.84x, which is a bit higher than last month — this is in line with people borrowing more as stated above. CA users denominated in DAI are the most “risk-on”, with 6.16x leverage. USDC borrowers average out at 5.94x leverage and WETH borrowers are a little bit more conservative, with leverage at 5.48x. We won’t include WBTC and wstETH here because the amounts are so negligible.
4. Health Factor Stats: The weighted average health factor for CAs is 1.097, which is slightly healthier than last month, and also indicates good overall system health. For context, you can be liquidated if this number falls below 1.
5. Liquidations: Since the last update there’s been 1 liquidation — we’ll discuss this further in the most/least profitable section further down.
Read our leverage bible for tips on how to manage risk better in Gearbox
CA Strategies/Usage Breakdown
This is where you’ll find the interesting stuff, at least if you’re a DeFi nerd like me. In this section, we’ll showcase some of the most popular strategies that CA users are implementing, and provide a quick overview of some of the most and least profitable CAs that we have identified.
NOTE: As you read below and you come to understand that your degen leverage trading & farming can also make you additional money if you did it on Gearboxremember one thing. To sign up as a Ninja you can either just pop up in our Discord or post directly on our governance forum. We usually add all the addresses on Tuesdays.
1. Convex & Curve
Convex continues to be the most commonly used protocol in Gearbox CAs with approximately $61.75m of assets in Curve via Convex, divided between four main strategies.
- The most popular strategy in Convex by quite some margin is the Convex sUSD-3Crv Pool, which currently has about $35.4m in assets. This Convex pool has also taken from other CA strategies as it continues to be the most profitable, up 8m from 27m last month. This strategy has the highest max APY of any stablecoin strategy currently at 38.1%. This is natively on Curve
- The Convex gUSD-3Crv Pool is still the second most popular strategy in Convex and the third most popular overall with approximately $12.1m in assets, despite some rumbling of concern (whether you see them as valid or not) with gUSD. This pool currently offers a maximum ROI of 24.7%, and its usage has increased by $3.6m compared to last month.
- The third most popular Convex strategy is the stETHCrv pool, with around $9.8m in assets. The yield on this strategy is (as of this update) actually higher than the yield on the Lido stETH pool, so we might see some users switching strategies if this trend continues. Max ROI on this strat is currently at 32.5%.
- The two Convex strategies that utilize FRAX, including one FRAX-3Crv pool and one FRAX-USDC pool, have a combined total of approximately $3m in assets — 2.1m in the 3Crv strategy and ~900k in the FRAX-USDC strategy.. The maximum ROI for the 3crv pool is 14.0%, and for the FRAX-USDC pool is 5.22%. The amount of funds in FRAX related strategies has fallen from last month even though APYs are looking better as of this update, so perhaps we’ll see funds flow back into these strategies going forward.
- The LUSD-3Crv pool is currently the last popular strategy that uses Convex, with $1.5m in assets. The current maximum ROI is actually decent right now at 14%, but last month the APY was negative so it’s not surprising that funds flowed out of it. We’ll see if funds start to reallocate to this pool now that the strategy is performing better, especially given recent fears about centralised stablecoins (LUSD is fully decentralised).
2. LLSD Cohort
Leveraged LSD or Leveraged Liquid Staking Derivatives are a set of strategies across ETH staking protocols where leverage is natively activated through Gearbox. Currently, Gearbox is the only product where you can find upto 10x leverage on your favourite LSD protocols. You can read more about LLSD on the article below.
Getting back to how they have been doing, Lido Staked ETH remains the second most popular strategy in Gearbox, with $17.3m of assets in this strategy. This is up about $4.2m from last month, which is not surprising for a number of reasons. Firstly, ETH price is up a bit since the last update, which would increase the 4 value that’s in the strategy without additional ETH actually going in. Secondly, liquid taking derivatives (LSDs) have been the talk of the town, and Gearbox is one of the only providers of a robust Leveraged LSD product. The popularity of this strategy is likely buoyed by the fact that staked ETH withdrawals are expected to be included in the Shanghai update, which is currently undergoing testnet preparations and is so far looking like it will go smoothly. Once withdrawals are live, users might feel more comfortable depositing into stETH as one major source of liquidation risk (a depeg between stETH and ETH) becomes much less of an issue. Of course, it also helps that yields remain very healthy — the strategy currently has a max ROI of 26%.
The other two strategies that involve Lido’s stETH are the Convex stETHCurve strategy with $9.8m in assets (discussed above) and Yearn stETHCurve strategy. Both these strategies involve splitting assets into stETH and WETH and depositing them into Curve to earn additional yields via LP fees and CRV emissions.
However, they also involve giving up half of potential staking yields since half of the assets are in WETH rather than stETH. During the last update, the yields on the Convex stETH strat were at 0%, but as of now they are actually higher than the more popular Lido strat highlighted above at 35.5%. The amount of funds in the Convex stETH strat are already up a bit, if these yields hold, you can expect this strategy to gain ground over the pure Lido strategy.
3. Yearn
~5.8m of assets are in various Yearn strategies via Gearbox, down from 8m in the prior update. This 5.8m is primarily split between two strategies, the yvWETH vault and the yvDAI vault. The WETH vault has a max ROI of -5.3% with 2.8m in it, and the DAI vault has a healthier max ROI of 10.5% with 2.5m in it. This speaks to the perceived safety/security of Yearn — there are still significant funds using these strategies despite the lower APYs compared to other strategies in Gearbox that use similar base assets. The remaining assets in Yearn strategies are negligible.
Is Gearbox making its users money?
What’s most popular often isn’t what’s most profitable, so let’s take a look at some of our most profitable CAs to see if there is any insight or wisdom we can learn from them.
Also, a sidenote — when evaluating the profitability of our CAs, we take a conservative approach by viewing everything through a pessimistic lens. This is because our primary concern is to ensure that we can always successfully liquidate an account for the amount we think it’s worth, even in worst-case scenarios. As a result, our reported profitability may be somewhat understated, and losses may be somewhat overstated. For more information, you can refer to this section in our documentation.
Top performing CAs
The theme for this month’s top performers is probably best summed up as
“If you aren’t a great trader, just do LLSD”
The top two most profitable Gearbox credit accounts are both owned by the same user and are both just long BTC with leverage. One of them is denominated in DAI, one in USDC. After a couple of months of commenting on these accounts, this humble intern has no more color to add. The best way to make chad returns is to get good at trading. How? No clue. I guess the big takeaway here is don’t fade king corn.
The other big takeaway is, well, kids, you should all be doing LSD. And by that I mean using Liquid Staking Derivatives, specific Lido’s stETH, and with leverage. After the top 2 Credit Accounts that belong to the chad BTC trader, rankings 3 through 7 are all CAs that just simply leveraged farming stETH, this strategy has 6 of the top 10 rankings. Their leverage ratios vary — the highest at 8x and the lowest at 3.87x, but effectively they are all using the same strategy. Currently there isn’t a huge gap between their profitability (9.2% → 10.9%) and there is no discernible pattern where the more levered stETH farmers are doing better than the least levered, but this perhaps will change over time. Remember, we’re only 3 months into this crazy leverage ninja experiment that we call Gearbox.
So that’s 8 of the top ten most profitable CAs covered. How about the other two? Well, the remaining two are both USDC denominated — one is simply farming the sUSD-3Crv pool at 7.84x and is doing quite well with 10% ROI to date.
An interesting one: The other appears to be a trader using low leverage who has done some trading on ETH and is currently holding a small position in CRV, which is interesting because CRV has a LT value of just 0.25 (meaning only 25% of its value is counted when calculating your CA health factor). Don’t quite know what to make of this CA to be honest (other than maybe it pays to get good at trading?) On the other hand, it gave this intern a chance to highlight a little bit of how the LT/health factor system works. You can learn more about that here.
Just FYI, as a part of my internship at Gearbox I have been tasked with highlighting interesting and/or profitable Credit Accounts each and every week on the cursed bird app that they refer to as twitter.com. Here are those threads so far — they are somewhat similar to this coverage of most/least profitable CAs and might be of interest to DeFi nerds:
Worst performing CAs
We often learn what not to do as much as what to do, this month, there’s one particular one. There was one liquidation between the last update and this month’s update and the takeaway here is simply
Don’t use too much leverage.
If you look at the data, there are only 23 accounts underwater. Only 1 account has lost more than 5%. The ninjas have been doing well and earning APYs that have led to constant value growth.
This CA was denominated in USDC, they took out 9x leverage, and deposited it all into the Convex sUSD-3crv strategy. At 9x leverage, even the smallest fluctuations can cause you to be liquidated — and even with stables, such fluctuations can happen due to imbalances in the pool or otherwise, whether upon your entry into the pool or upon exit.
If we’ve said it once, we’ve said it a million times. We do not recommend you use 9x leverage if you are any sort of typical user.
Hopefully next month we will have 0 liquidations again and we can go back to analyzing the “least profitable” CAs rather than the dearly departed victims of liquidation.
Protocol Health
Alright! That wraps up our protocol performance section. Moving on, let’s get into the latest developments related to protocol health & safety.
Bad Debt
There was one liquidation that happened since the last protocol update, and no bad debt created during the course of the liquidation. On the active position side, the liquidity of all borrow assets still fulfils swaps in a manner that won’t lead to bad debt. This is managed alongside Risk DAO. You can read more about their engagement below.
Audits
GIP-41 last month was raised and cleared for a Chainsecurity Audit. What was the audit for. That’s where the alpha lies. Go ahead and read the below GIP to learn more about the next version of Gearbox
Risk Assessments & RiskDAO Reports
Once again, the RiskDAO team has provided us with their insightful reports for you DeFi nerdlings.There were 4 reports written up by the RiskDAO team in January, plus an interesting discussion about the risks presented by GUSD and a potential depeg.
- Jan 6th: There was mention of Maple Finance reimbursing lenders who lost money in the default of an entity called Orthogonal Trading. Those who lost funds were compensated in the form of protocol token $MPL. A blogpost about put-based lending put out by options protocol Dopex was also highlighted. The RiskDAO team also highlighted that GUSD was trading 8% off-peg on CEXs, but that this wasn’t necessarily a material concern because liquidity is extremely low for GUSD on CEXs.
- Jan 13th: The report covered the Shanghai update and staked ETH withdrawals, and mentioned that this could open up levered arbitrage opportunities for users of protocols like Gearbox, potentially driving borrowing demand. An exploit of the Mycelium protocol was mentioned, as well as the mishaps of the Alameda liquidators, who got liquidated themselves in Aave for $72k. Finally, there was a detailed report of a misstep by risk analysts Gauntlet, who incorrectly set the number of decimals in a collateral factor, leading to a loss of 800k of user funds in a protocol called Moonwell. Gauntlet contributed to the reimbursement of funds for the users, but RiskDAO highlighted that Gauntlet’s simulation environment for parameter changes *should* have caught this kind of mistake.
- Jan 20th: There was some discussion here about GUSD, its relationship to the Gemini exchange and the Gemini Earn program, as well as the exposure that MakerDAO has to GUSD (500m). MakerDAO held a vote on whether to keep this GUSD exposure and the vote narrowly ended in favor of keeping the status quo. There was also chatter about the LSD narrative, including the increasing composability of various LSD protocols like Lido, Rocketpool and Frax’s frxETH. Additionally, a $6m exploit of a lending market on HECO (wtf is that??) is mentioned — this exploit was caused by shenanigans with collateral types.
- Jan 27th: As a follow up to the prior week’s update about the Maker/GUSD situation, the report mentioned that Paxos, as a part of their goal of getting USDP adopted by more users/protocols, increased the MakerDAO USDP debt ceiling to 1.5b from 0.5b, and offered to share in the interest (set by the Fed Funds Rate) with MakerDAO, which would boost revenue for the latter. The report also mentioned that world renowned “very profitable trading strategist” Avi Eisenberg was charged by the SEC for market manipulation of Mango. Also (relevant to Gearbox), LUSD re-pegged to $1 after some time trading above its peg, and lending protocol Euler listed cbETH as a collateral asset.
GUSD Discussion: Here’s a little insight into how genuine risk is approached by the Gearbox DAO — this is hard to summarize but if you are interested in how Gearbox might deal with unusual or critical market happenings now or in the future, I highly recommend you read this discussion between the RiskDAO team and DAO members about the risks posed by GUSD and how we can tackle them.
You can read all RiskDAO reports in the governance forum here, and the Gearbox Risk dashboard can be found here
Protocol Enhancements
It’s time to take a closer look at the protocol changes and updates that were implemented last month — keep reading to learn more.
Third Eye went Live!
Third Eye is Gearbox Protocols intelligence analytics tool. This enables the devs to at all times ensure that the safety and security of the protocol are to the standards expected. You can read the complete details in the thread attached above with the article explaining the entire working mechanism as well as the use of the intelligence tool.
V3 UX: Automation on chain
The Devs also announced a key new feature for Gearbox V3 called “Gearbots”, Gearbots are open sourced, immutable, automation contracts that enable a user to operate a credit account without any manual intervention, apart from setting the operational parameters.
There was a workshop on creating the said bots and examples of what and how they can be created. You can watch it in the video below.
All the alpha and details can also be read through the article below
Key Discussions
What ensures that the protocol keeps improving are the discussions that lead to the new innovations and advancements. January was full of those.
- There is some initial discussion about the potential addition of LUSD as a borrowable asset in Gearbox. You can discuss that here.
- There was a suggestion in the governance forums to add Stasis EUR, a Euro stablecoin, as a borrowable asset — discussion is ongoing.
- There was also a suggestion for adding the Crv/Convex FrxETH pool as a strategy in Gearbox, discussions are ongoing. You can read them here.
And that’s all folks…
Hopefully you found all of this intern’s babbling useful. See you again next month, Gearheads!
If you would like to earn passively, remember to LP into our Lending Pools to earn GEAR. If you want to take leverage as Ninja just ping us on Discord or post on the forum. Otherwise you can always get involved with the DAO — 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:
