Back in June, we asked, are DeFi yields dead?
At first glance, this seems to be true. As the value of token emissions and risk appetite plummeted, DeFi returns continued to compress. Gone is the frantic bull run of triple-digit yields, as Aave and Compound’s stablecoin deposit rates on Ethereum are lower than those on U.S. Treasuries.
But there are still plenty of opportunities if you know where to look for yield.
As the cryptocurrency market shrinks and liquidity mining incentives become obsolete, yield farmers (those who earn yield by providing liquidity for DeFi) are now turning to generating yield from more sustainable sources that generate real transaction fees or The loan interest on the market-tested agreement gave birth to "real income".
While these opportunities require farmers to take on a higher level of risk commensurate with higher returns, they are still a way for DeFi users to generate income during this bear market by committing some capital.
Let’s analyze some of the best opportunities for ETH, BTC, and stablecoins that fit this pattern.
GMX
Deployment network: Arbitrum, Avalanche
Assets: ETH, wBTC, USDC, DAI, USDT, FRAX
Risk: Moderate
Yield: 22 - 29%
GMX is a decentralized perpetual contract exchange. The protocol employs a unique model where users act as counterparties to traders on the DEX by providing liquidity to a basket of assets. This pool is called GLP.
GLP is mainly composed of major assets such as ETH, wBTC, and stable coins, and aims to provide LP with index exposure. In order to open a position on GMX, traders need to borrow from GLP, and the borrowing fee replaces the traditional funding rate. This fee, along with fees incurred by traders for opening positions, liquidations, and swaps, is paid 70/30 to GLP holders and GMX stakers in ETH or AVAX. Currently, the protocol has $348.8 million in assets in GLP deployed in Arbiturm and Avalanche.
Policy overview
In order to earn income on GMX, users can provide liquidity to GLP.
The GLP pool currently expects an annual interest rate of 29.4% for ETH on Arbitrum and 22.54% for AVAX on Avalanche.
On Avalanche, GLP holders can further increase their returns through esGMX rewards, which are GMX tokens vested within a 1-year period, and can be used to obtain higher rewards through what the protocol calls multiplier points.
risk factors
GLP liquidity providers mainly bear two forms of protocol-specific risk.
The first is inventory risk, because LPs will face the risk of asset price fluctuations in the pool. The second risk is trader profit and loss risk. As mentioned earlier, GLP is the counterparty of traders on GMX. This means that if a trader makes huge profits, especially by shorting, a portion of the GLP could be drained, causing the LP to lose money.
Hop Protocol
Deployment network: Ethereum, Arbitrum, Arbitrum, Polygon, Gnosis Chain
Assets: ETH, USDC, USDT, DAI
Risk: Moderate
Yield: 6 - 8%
Hop is a cross-chain liquidity network. Hop allows users to transfer assets between Ethereum and L2 (such as Arbitrum and Optimism) in minutes, bypassing the 7-day withdrawal delay of Optimistic Rollups. The protocol does this through AMMs, where it uses intermediate tokens (hTokens) to facilitate the exchange between L1 or L2 natively issued assets. Each hToken represents a liquidity provider's ownership of real assets deposited into Hop, and like a typical AMM, liquidity providers earn transaction fees for every transfer processed by the network. To date, the agreement has facilitated $2.7 billion in bridging volume.
Policy overview
The protocol has several different pools where users can provide ETH, USDC, DAI, USDT or MATIC liquidity to HOP.
So far, the pools with the highest yields are the ETH pool deployed on Optimism (8.5% annual interest rate) and the USDC pool deployed on Arbitrum (6.8% annual interest rate).
HOP is also discussing launching a liquidity mining program that will further increase LP returns - keep an eye out for updates on its governance forum.
risk
HOP liquidity providers take two risks. The first is price risk, because users face the risk of price fluctuations of the underlying assets they provide liquidity.
The second risk is network risk, since an LP on a HOP is affected by the security of all L1s and L2s it is connected to. If any of these networks were attacked or experienced any type of critical issue, the LP's funds would be at risk.
Maple Finance
Deployment network: Ethereum, Solana
Assets: ETH, USDC
Risk: Medium/High
Yield: 5-7%
Maple is an under-collateralized lending platform. Maple enables institutions such as market makers or VCs to obtain under-collateralized loans through a separate lending pool. These pools are managed by an entity known as the pool principal, which assesses the creditworthiness of the borrowers. According to the situation of different pools, any user or whitelist address can loan USDC or ETH to obtain loan interest and MPL rewards. To date, Maple has originated $1.6 billion in loans.
Policy overview
While some pools on the platform are licensed, there are currently several Maple pools that accept public deposits.
These include the USDC pool and wETH pool managed by Maven 11, which currently have APYs of 7.7% and 5.3%, respectively, and the Orthogonal Trading USDC Pool, which has an APY of 7.9% for depositors.
Of the three pools, the Maven 11 USDC pool is likely to be the most attractive on a risk-adjusted basis because it has the highest coverage ratio (the value of the assets backing the pool relative to outstanding debt) at 8.6%.
risk
Maple lenders bear liquidity risk as depositors in the three aforementioned pools will be subject to a 90-day lock-up period during which they will not be able to withdraw their funds. In addition, users also bear credit risk, because the counterparty of the pool may not be able to repay the loan.
Given that borrowers' ledgers are not fully on-chain, lenders must trust pool principals to properly assess credit risk.
Goldfinch Finance
Deployment network: Ethereum
Assets: USDC
Risk: High
Yield: 17-25%
Goldfinch is a credit protocol.
While Maple is focused on giving crypto-native institutions access to on-chain capital, Goldfinch aims to do the same for real-world businesses, as these companies will be able to use the protocol to access credit to fund their operations. Goldfinch obtains liquidity through a tranche system to originate loans, and participants can provide liquidity to a senior pool and a single junior pool. The key difference between the two is that deposits from a senior pool are spread across all pools on the platform, while a junior pool represents loans made to a single borrower. The junior pool is subordinate to the senior pool, meaning that if a borrower defaults, senior depositors will be paid before the junior pool. Currently, there are $99.2 million in active loans across 12 active pools on Goldfinch.
Policy overview
There is currently only one junior pool accepting deposits – the Africa Innovation Pool.
Users of the pool can borrow from Cairus, an emerging market credit company. The current annual interest rate is 25.3%, and the yield is composed of 17.0% USDC loan interest and 8.3% GFI rewards. The advanced pool is also open for deposits, with an annual interest rate of 14.6%, including USDC loan interest and GFI rewards.
risk
There are several important risks that Goldfinch lenders should be aware of, such as credit risk, as borrowers defaulting on their loans could put the lender's funds, especially depositors in the junior pool, at risk. Additionally, junior pool lenders bear some liquidity risk because while the tokens they receive FIDU represent recourse to their USDC and can be redeemed through the senior pool, if the redemption is illiquid, the lender may Unable to exit its position.
bonus opportunity
There are more opportunities for DeFi users to obtain non-release income.
Notional Finance (APY 4-7%): On Notional, users can obtain loan interest through fixed-rate loans of ETH, wBTC, USDC and DAI, and the APY is between 4-7%.
Sherlock (APR 5-28%): Users act as backing for agreements that have passed the audit of the Sherlock network, and can obtain up to 28.7% of USDC income.
Liquidity mining still exists
As we have seen, through protocols such as GMX, Hop, Maple, and Goldfinch, there are many opportunities for DeFi users with risk tolerance to obtain above-market interest rates. Since most of their earnings do not come from token releases, these protocols are also likely to maintain high returns for the foreseeable future.
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