Defi Farm #29 - November 20th Weekly Update

ABY - always be yielding

November 20, 2022

Hi everyone,

Welcome to the 29th weekly edition. Another week, another year of crazy stuff that happened. Let's dive in 🤿 Over the past 7 days:SPY: -0.17%BTC: -3.0% ETH: -9.1%

Major L1's:SOL: -15.9%AVAX: -6.5%Near: -21.4%Algo: -6.6%FTM: -6.2%Today I'll go over:- Remembering realized yield- News from this past week- Defi farm of the week

Realized Yield

I've written about this concept before but I wanted to bring it up again and dive deeper because I think it's one of the most essential concepts in yield farming. I also think it's simultaneously one of the least understood concepts.

What is realized yield? It's the yield you realize. What does that actually mean though?

If you enter a liquidity provider position on just about any defi protocol, you will see an APY or APR % listed that is getting paid out. That % is a function of fees, any reward emissions being paid out to subsidize liquidity, the total value of LP deposits in the pool, and most importantly the current USD value of the tokens being paid to LPs.

Let's look at this AVAX/USDC pool on TraderJoe as an example. LP's are currently earning 19.32% for providing their liquidity. Some of that is paid out via fees in the underlying tokens (14.8%) and then 4.52% of that pool is paid out via the $JOE token.

If you wanted to "realize" this 19.32% APR, you would have to be consistently selling your yield off into a stablecoin.

Most people aren't going to do that. Your realized yield will depend on the price of the tokens you're earning as an LP if/when you sell them.

For this example, let's just focus on the 4.52% JOE token incentives portion of the yield that LPs are getting paid.

Let's say you entered this LP position today and for a month were consistently earning 4.52% in JOE, you held the farmed JOE, and USD value of JOE price stayed the same.

Then after a month of farming, the value of JOE increased +50% and you decide to sell the farmed JOE that you have been accumulating. Your realized yield is going to be much higher than the 4.52% that was displayed on the website while you were farming.

But the opposite scenario can happen as well. Let's say that after a month of farming and not selling your rewards, the JOE token decreases in price 50% and you decide to sell. Your realized yield is going to be much lower than the 4.52% that was displayed while you were farming.

So what?The tokens you're being paid in an LP position matter a lot! If those tokens trend towards zero and you're not constantly selling them off, your realized yield will be lower than whatever APR/APY % that's listed on the site.

Pay less attention to the listed % and more attention to the tokens that the % is paid out in.

Two great recent examples of this in practice have been in Stargate and QiDAO.

For 3 months when the price of $STG was ~$0.30-$0.40, the % paid to LPs displayed on the website was always around 5-7% for most stablecoin pools. In late August, the price of $STG rose to a peak of $1.20.

If you had been farming STG and just accumulating, then sold after the price jump, you're realized yield would've been much higher than 5%-7% on your stables.

A more recent example just happened on QiDAO. For the past ~3months, stablecoin pools on Qi were paying ~6-8%, paid out in the Qi token. During the past 3 months, the Qi token ranged from $0.15-$0.07.

Recently a huge wallet has started to buy a ton of the Qi token, causing it to raise to $0.20+For anyone who had just been accumulating for the past three months, if they sell their Qi into stables now, their realized yield will be much higher than the 6-8% that has been displayed for the past few months.

Cool things that happened this past week

Defi farms of the week

As mentioned above, Convex launched a pool on Arbitrum this past week. If high ETH gas prices have kept you from exploring the Convex ecosystem, you now have a reason to get involved.

There are a number of different pools available. If you want to go risk on, in a mitigated way, most people will probably be most interested in the USDT/BTC/ETH pool. It's split 33.3%/33.3%/33.35

How to get started?

  1. Deposit USDT, wBTC, wETH, or a combo of them into the Curve tricrypto pool on Arbitrum

  2. Stake your LP tokens into this pool on Convex to boost your yield

That's all I have for this week! Stay safe out there and as always, stay yielding (in a decentralized manner)!

If you ever want to chat with me and nerd out about defi/web3, I made some time available on my calendar each week. Feel free to schedule some time!

Oh yeah, and I forgot to say this last week. Congrats - if you're still here and still involved, you've successfully outlasted Three Arrows Capital AND SBF.

You just earned yourself another badge.