Gearbox V2 Protocol Update: March
The third month or the year brought us third degree volatility by the crypto gods. Between the USDC depeg and the general market structure movements, there was a lot of opportunities to get rekt or to make money. From a protocol point of view, there was a lot that the code and the risk framework were now going to be tested on. From being able to handle the liquidations to the LTVs we set. Ensuring bad debt never seeps in was Gearbox’s top priority, and the risk systems delivered. Between these stresses more development and devs doing something, this update is bound to be one to remember….
Apart from the usual updates, this update carries a significant milestone for Gearbox Protocol and DAO both. Gearbox will be releasing a pre-V3 version that focuses on enhancing and reinforcing the security module of the protocol. This is done in light of the recent DeFi hacks and in an effort to reduce possible complexities as well as attack vector in the codebase. Given V3 will be built on top of the V2 codebase in order to have a battle tested code, it makes even more sense to solidify the codebase before we make further strides. Along with the security module, we’ll be adding the Curve and Convex pools for MiM and expanding LLSD with cbETH addition. The update is likely to go live post a GIP next week.
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 🧮
This update begins with a high-level overview of the protocol’s performance, encompassing borrowing and lending activities, liquidations, and key data on Credit Account (CA) utilization. We’ll focus on three areas: liquidity pool stats, credit account stats, and integration stats. (These stats are accurate as of the time this report was being written)
TVL & Lending Pools 🏊♂️
1. TVL: The current TVL stands at approximately $88m, slightly higher than last month Despite the ongoing bear market, we’re working to gradually rebuild TVL following the USDC scare in February.
2. Lending pools: The total supply in lending pools currently stands at $77m. The pool allocations are as follows: ~$14.6m in DAI, ~$22.2m in USDC, ~$30.1m in ETH, ~$6m in WBTC, and ~$4m in FRAX.
3. Credit Account Borrowing: Credit account borrowing now totals $53.3m, with the following asset breakdown: ~$11.3m borrowed in DAI, ~$16.5m borrowed in USDC, ~$22.2m borrowed in WETH, ~$275k borrowed in WBTC, and ~$3.1m borrowed in FRAX.
With over 750 Ninjas now registered, this translates to a small bottleneck on the supply side. Assuming a slightly lower average account and borrow size, Gearbox should be able to keep utilisation similar even with another $100M or so supplied. With V3 and addition of Mid-Tail collaterals, we should see this grow even further.
4. Utilization Ratios: The overall utilization ratio is 69.1%. Individual utilization rates are as follows: 77% for DAI, 74% for USDC, 74% for WETH as well, 4.6% for WBTC, and 77% for FRAX.
Consistency of utilisation ratios leads to consistency in terms of supply rate as well. Below charts show how consistent utilisation on V2 has been. This ensures that lenders are constantly earning similar rates.
5. APYs: Currently, total APYs are highly attractive for passive lenders: DAI at 5.26%, USDC at 4.74%, WETH at 5.19%, WBTC at 2.09%, and FRAX at 5.52%.The organic APYs (without token incentives) are as follows: DAI at 1.05%, USDC at 0.98%, ETH at 1.6%, WBTC at 0.01%, and FRAX at 1.11%.
The APYs over a range of 30D(or even more) don’t change much, showing how consistent Gearbox’s performance in passive lending side has been.
The devs have recently revamped the UI for 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/
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: Currently, there are 113 CAs open, with 96 unique borrowers (some borrowers have more than one CA). This represents a decrease of 14 CAs since the last update, it appears that some Gearbox users have closed their accounts in the past couple of months. This happened during the USDC depeg where over $40M worth of CAs were closed as markets became uncertain. A large chunk of the same returned as the FUD cleared and USDC stabilised.
2. CA Size Stats: The average (mean) size of CAs now stands at 579k, with an average borrow size of 473k and an average collateral deposited at 106k. These figures have increased since last month, with CA sizes slightly growing on average in both collateral and borrow amounts.
3. Leverage Stats: The average leverage in the system is approximately 5.68x. The breakdown of leverage by asset is as follows: DAI borrowers are the most “risk-on” with 6.17x leverage, followed by FRAX borrowers at 5.64x, WETH borrowers at 5.62x, USDC borrowers at 5.47x, and WBTC borrowers at 3.9x, being the most conservative.
4. Health Factor Stats: The weighted average health factor for CAs is 1.096, which is slightly less healthy than last month but still indicates a reasonably sound overall system health. The health factors for individual assets are as follows: USDC at 1.110, WETH at 1.102, WBTC at 1.100, FRAX at 1.090, and DAI at 1.071. For context, users can be liquidated if this number falls below 1.
5. Liquidations: Since the last update, there have been no additional liquidations.
What do these stats mean? To break it down, our Ninjas put up $106K to get access to $580K worth of assets through leverage, even at this 5.68X leverage, there have been no liquidations. With sUSD pool at 5.81% and stETH at 4.7% being 65% of the TVL, an average ninja at the moment is making over 14.5% APY over their leveraged position.
CA Strategies/Usage Breakdown
For all the DeFi enthusiasts out there, this section is for you. Here, we’ll discuss some of the most popular strategies that CA users are implementing and provide a quick overview of the most and least profitable CAs that we have identified.
Convex/Curve
Convex continues to be the most commonly used protocol in Gearbox CAs, with several strategies employed by users. Gearbox is also the source of over 1% of all Convex TVL now.
Here’s a breakdown of the assets in each strategy:
1. Convex sUSD-3Crv Pool: This remains the most popular strategy in Convex, with about $21.4m in assets. This Convex pool offers an APY of 30.7% at max leverage.
2. Convex gUSD-3Crv Pool: This pool has about $8m in assets and offers a max APY of 41.4%, its the second most popular convex strategy and the third most popular overall. This pool has recovered a lot since the last update, when it had only 2.6m worth of assets in it.
3. Convex stETHCrv Pool: Holding approximately $7m in assets, this strategy currently has a max APY of -4.3%. The stETHCrv pool continues to underperform plain Lido stETH.
4. Convex FRAX-3Crv Pool: Holding approximately $3.5m in assets, the APY for this pool is 19%.
5. Convex LUSD-3Crv Pool: The LUSD-3crv Convex pool currently has $1.2m in assets. The current APY is 9.25%.
Lido Staked ETH (and associated strategies)
Lido Staked ETH remains the second most popular strategy in Gearbox, with $20.7m of assets in this strategy. The popularity of this strategy is likely due to several factors — the successful Shanghai/Shapella update to Ethereum mainnet recently has enabled staking withdrawals and the stETH/ETH peg seems more stable/secure than ever, which definitely helps with its popularity. The strategy currently has an APY of 17.3%.
There is also the aforementioned Convex stETHCrv pool which has 7m of assets in it. Gearbox also has the Yearn stETHCrv strategy available, but it often dips into negative APY territory and consequently doesn’t currently have assets in it.
Yearn
Approximately $3.86m of assets are in various Yearn strategies via Gearbox, with the majority split between the yvWETH vault and the yvDAI vault. The WETH vault has an APY of 20.77% with $1.66m in it, while the DAI vault has an APY of 22.03% with $2.2m in it. 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 are negligible.
How successful are CA users with their strategies?
Often, the most sought-after strategies aren’t necessarily the most lucrative ones. Let’s take a closer look at some of our high-performing CAs to identify valuable insights and lessons that can be learned.
Our industrious unpaid intern (https://twitter.com/gearbox_intern) posts a weekly thread highlighting the most profitable, interesting, or noteworthy Credit Accounts users. Be sure to check out these threads if you’re keen on learning about profitable strategies or innovative ways to leverage your Gearbox CA. Here’s an example:
Keep in mind that when evaluating the profitability of CAs, we adopt a conservative approach by accounting for potential worst-case scenarios. Our main priority is to ensure that we can always liquidate an account for its estimated value, even in unfavorable market conditions. As a result, reported profitability figures might appear more cautious (and losses on CAs seem larger than they actually are). For more information, please consult the appropriate section in our documentation.
Top performing CAs
TLDR: Leverage farming is safe and easy, leverage staking is the preference but leverage farming with your leverage trades will make you the most money.
If you’ve been following the NOTW updates, you’ll know that the legendary WBTC trader has finally closed his long WBTC position and freed up the leaderboard for some new entrants. (As the tweet above shows)
This CA previously had 2 of the top 5 most profitable CAs, so now that these CAs are closed lets update ourselves on what kind of strategies are proving most profitable in Gearbox.
Keep in mind that this analysis excludes all CAs that have been closed — the users that have already reaped their profits and closed their CAs won’t show up in this list. This is a list of the most profitable *current* CAs.
Of the Credit Accounts in the top 10, the #1 most profitable user is one who uses Gearbox for a mixture of farming and trading. They have used Gearbox to leverage farm the Frax3Crv pool as well as make directional bets on WBTC and ETH.
The remaining 9 spots in the top 10 are taken up by leveraged stakers — they are all borrowing WETH to stake in Lido’s stETH with varying degrees of leverage (between 5x and 8x).
Every month we harp on about the power of combining leverage and LSDs, so we won’t go on and on about it here. Suffice to say that Gearbox + Lido seems to be a match made in heaven — higher yields with relatively low risk of liquidation because a major depegging is quite unlikely, especially now that the Shanghai/Shapella update has happened smoothly.
Worst performing CAs
Since there have not had any liquidations since the time of the last update, this time we can actually dive into some of the CAs that are on the brink (rather than just explaining why someone was liquidated).
Currently, even the worst performing CAs are not doing that badly — none of the top 10 worst performing CAs are down more than 5% (although this can be attributed to survivorship bias — those doing worse may have closed their accounts or been liquidated).
The #1 worst CA is currently holding staked ETH whilst borrowing WBTC — which effectively means this is a long ETH/short BTC position. This is a good counter-example for the previous success of the WBTC trader as well as the current best performer — if you take directional trades, sometimes you win but sometimes you lose.
In this case, the user has made a bet that ETH will outperform WBTC (this CA was only opened last week) and so far they are losing on this position, but its possible their fortunes will change. One interesting thing to note here is that this user is cleverly taking advantage of very low borrowing rates on WBTC and earning yield on stETH. On a perp exchange, while they may earn yield on the short BTC position, they would often pay back the same amount of more on the long ETH position in funding rates. But on Gearbox, because there is structurally low WBTC borrowing demand, you pay next to nothing on the WBTC borrow and you have access to yields on the ETH long via stETH — which means this long/short trade also generates positive yield for you.
Long story short, the #1 worst performing CA on Gearbox is actually quite an interesting one to look at and think about.
At the end of the day it’s up to each user to decide for themselves when its worth incurring slippage to switch strategies and when it makes sense to stay the course.”
Of the remaining 9 least profitable CAs, 6 of them are in the GUSD3crv Convex pool, and 3 of them are in the SUSD3crv pool. To be honest, these “worst performing” CAs are only down at most 4.4%, so there probably isn’t all that much to learn here — a brief look at some of these accounts shows that they may be switching strategies too often (every strategy switch involves slippage, which can add up and erase your yields if done too frequently). On the other hand, staying in a less profitable pool (gusd-3crv seems to have underperformed susd-3crv since the inception of Gearbox) can also lead to worst performance, so at the end of the day it’s up to each user to decide for themselves when its worth incurring slippage to switch strategies and when it makes sense to stay the course.
Protocol Health
Gearbox continues to be healthy as a protocol, with 0 bad debt and orderly liquidations (on the rare occasion that they happen).
Bad Debt
Since the previous protocol update, there have been no additional liquidations nor any bad debt accumulated. Last month we covered the USDC depeg, since that update no events of a similar magnitude have occurred.
Audits
Audits for Gearbox v3.0 are getting underway. Based on the feedback, the devs will be making changes, if any and we can expect an end of Q2/early Q3 launch date.
The upcoming security update has been audited by ChainSecurity.
Risk Assessments & RiskDAO Reports
RiskDAO stays on top of the action, providing weekly reports that delve into the most interesting/scary/captivating DeFi developments from a risk standpoint. Here’s a summary of the topics they covered in March:
March 3rd: Jump Crypto recovered $140m from the Wormhole exploit (in a questionable way involving a court-ordered upgrade to a smart contract), and French police arrested the Platypus hackers. A significant BNB liquidation overhang occurred on the money market Venus.
March 10th: Alpha Homora and Iron Bank faced a standoff over $32m bad debt. Iron Bank froze all AH user deposits, and AH sought community feedback on a debt transfer scheme. Silvergate Bank announced a voluntary liquidation and wind down. Silvergate was one of the largest banking partners of many crypto exchanges and other related businesses.
March 17th: The RiskDAO published a post-mortem about the USDC de-pegging event. Silvergate, SVB, and Signature banks were taken over by the FDIC/FED. There was a major depeg in USDC caused by te anouncement by Circle (issuer of USDC) that they had 3.3b exposure to SVB. This in turn caused depegs in stables that are reliant on USDC, like FRAX and DAI. Binance allocated $1bn from the “industry recovery initiative” to purchase crypto. Alpha Homora and Iron Bank standoff remained unresolved.
March 24th: BTC broke through $28k and ETH reached $1.8k. Balaji placed a $2m bet that BTC hits $1m in the next 90 days. Alpha Homora and Iron Bank standoff continued. Euler hackers returned $5.4m of stolen funds.
March 31st: Arbitrum $ARB airdrop dominated headlines for this wee. Alpha Homora community approved a proposal to resolve the standoff with Iron Bank, who awaited feedback. Euler received $176m back from the hacker. CFTC accused Binance of operating an unregistered derivatives exchange, and MakerDAO community voted to retain USDC as the primary reserve asset.
Protocol Enhancements
There are big changes afoot at Gearbox… We recently announced Gearbox V3 which is currently in audit. You can get the full scoop here:
Gearbox V3 and Early security release
V3 progress continues, we are in audit. We will be releasing one portion of V3 earlier than the rest — the V3 security model will be released sooner because SECURITY DOESN’T WAIT.
A quick reminder of all the cool stuff that will be in v3:
- Risk segmented pools that allow for higher APYs on passive lending — otherwise known as Alpha Pools
- Total Asset Limits and Asset Quotas per User
- Related to per-user Quotas, Minimum Viable Tokenomics
- Quotas also allow potential deployments to L2s, and integration of smaller DeFi protocols
- Gearbots (automated strategies, HF protection, limit orders)
- 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
Only a couple of GIPs were voted on and passed by the DAO in March, only one non-admin one.
[GIP-49] Extend GEAR/WETH Liquidity Mining
GIP-49 reduced the amount of GEAR used in the LM program for the GEAR/WETH pool in Curve. This was done because even under theoretically ‘worse case’ circumstances, there would still be enough liquidity in the GEAR/WETH pool to be viable (5–10% of circulating supply). This proposal obviously leads to a lowering in the APR of the GEAR/WETH pool, but in theory allows the LM program to run longer and also reduces the % of GEAR supply spent on rewards.
That’s all for this month. Stay tuned for the next few months, with V3 on the horizon things will likely get hot and heavy soon(tm).
If you would like to earn passively, remember to Lend 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:
