Defi Farm #20 - September 11th Weekly Update

Hi everyone,

Welcome to the 20th weekly edition! It's crazy to think I'm nearing half a year of writing this newsletter. Let's dive in 🤿Over the past 7 days:SPY: +1.56%BTC: +8.8% ETH: +13.5%

Major L1's:SOL: +11.9%AVAX: +8.1%Near: +13.8%Algo: +7.5%FTM: +2.9%Today I'll go over:- ve-token models- Interesting news from this week- Cool projects and protocols I came across this week- This week's interesting farm

VE-token Models

ve-Token models continue to take up a lot of space in my brain. I don't have any incredibly strong opinions on them...yet. But they're something that I'm going to continue to think about. The model seems too important to ignore but too early to fully understand the long-term implications.

What are ve-token models?(ve is short-hand for voter escrowed)

The veToken model can mean many different things depending on which protocol you're talking about. It was first popularized by Curve (stablecoin swap protocol) which launched a native token, CRV that has three features: voting, staking, and boosting yield. All of these features require the CRV token to be locked, in the form of veCRV.

In the case of veCRV, the voting determines which pools (trading pairs) get the most incentives to distribute to liquidity providers. Theoretically, the more incentives a pool has, the more liquidity it attracts.

Let's go through a very basic example. Let's say that I'm starting a new stablecoin called $AndyIsStable. If I want my stablecoin to grow and be used across defi, I need to make sure there is enough liquidity for users to enter and exit $AndyIsStable positions.

As the creator of this new stablecoin, I could buy 10,000 $CRV, lock it for veCRV and then start voting to give the $AndyIsStable / $USDC pool more reward incentives. This could redirect some of the $CRV emissions to that pool, thus adding extra incentive for people to provide liquidity.

With those new emissions, let's say that instead of 0.25% APR there is now a 10% APR yield that you can earn if you provide 50% USDC and 50% $AndyIsStable to the liquidity pool. This would greatly increase the liquidity for $AndyIsStable and hopefully people's confidence in using it as a stablecoin.

So obviously - these votes and the power to redirect reward emissions have value to protocols. Because of that, a few new proejects and systems have been built to help capture that value.

There are things like Convex (a blackhole for veCRV) and there are also methods of briding (protocols paying incentives for people to vote to increase incentives for their pool).

The ecosystem built around these tokenomics has expanded drastically. I think this image by MetaCVX does a good job of capturing all of the major players in the space.

Just this past week, Platypus (a stable swap on Avalanche, similar to Curve) launched their voting gauge. Now, vePTP holders can vote on which pools get incentives AND protocols can start briding vePTP holders to vote certain ways.

Vector (similar to Convex, but for Platypus) is one of the largest vePTP holders, meaning that locked VTX holders can now start benefitting from vePTP bribes that VTX receives.

Here's the math:At current rates and levels - each locked VTX, controls ~21.55 vePTP.At the current bribing levels, you can earn $0.03 in bribes for each locked VTX if you vote for the pools with the highest rewards.

Projected out for a year, assuming current asset prices, and assuming bribe levels stay the same, you can earn 49.7% on VTX from bribes + locked rewards.

Does this mean that you should go out, buy a ton of VTX and start earning bribes? Not necessarily. In doing this, you are

• gaining price exposure to VTX, a small microcap, inflationary reward token that can easily go up or down more than 49.7% in a year.

• assuming that bribe levels for vePTP stay the same for 52wks (they could go up or down.)

Conclusion: I think that tokens such as VTX and CVX are interesting, but I'm not saying I think they're good (or bad) investments. I do think they're unique and worth studying. As the markets mature, I think these tokens have the potential to be valued directly off of future expected cashflows (bribes) much more like today's equities, and become much less speculative than other tokens in the ecosystem.

Interesting news and things from this week

Some cool stuff happened this past week. Here is just a small sampling.

• Omni (a crypto wallet) raised an $11 million seed round

• Syndicate (allows you to create an investment DAO in a few clicks) launched "collectives" a new method for connecting communities and capital

• DefiLlama now has a DEX volume tab that allows you to track trading volume across major DEXs

Interesting protocols/projects I found this week

Kreski (link) - Still in beta but Kresko is building a synthetic asset platform that will allow you to mint, trade, and manage synthetic stocks and commodities. (This is similar to Mirror from the Terra ecosystem, R.I.P.) For example, you could buy a token that represents the price of $GOOGL. Why is this cool? It's decentralized - anyone, not just US citizens could more easily start to buy exposure into US equities (and vice versa).

BLVKHVND DAO (link)- This is a professional esports coop that operates as a DAO. They recently won an esports championship (Pokemon Unite World Champions).

Interesting Defi Farm of the Week

I've talked about GMX.io a few times before but I think it continues to be the single best farm that exists across defi.

While I've been farming via GMX on Avalanch for 6+ months. I think the better option now is to be farming on the Arbitrum chain. You can buy GLP (a basket asset), stake it, and start earning 29.77% APR paid out in ETH.

I'm not going to go into depth about how GMX works and how it generates yield (there are a ton of great resources out there already). At a super high level:

GMX is a decentralized perp exchange - users can use up to 30x leverage to trade. I don't trade, but I've used their product to experiment and it has an incredibly smooth UX.

To offer leverage to traders, GMX shares fees and incentives to individuals to provide capital and liquidity in the form of GLP.

As a yield farmer you can buy GLP a token that is 52% stablecoins, 30% ETH, 17% BTC and stake it to start receiving rewards (fees the platform collects from traders).

Over the past few months, the growth of GMX as a platform has accelerated at an insane rate and the fees that they're generating have been consistently keeping them in the top 10 of fee-generating crypto projects.

If you're okay with buying an asset that has about 30% ETH exposure and 17% BTC exposure, I think this is the best yield you can get on it. What also makes this farm great is that the rewards are paid out in ETH, not an inflationary protocol token.

That's all I have for this week! Stay safe out there and as always, stay yielding!

Oh yeah! The merge is expected to happen this week! Stay safe, don't do anything crazy, and expect that there will probably be a lot of crazy price action!

-Andy