Defi Farm #32 - Jan 1st Weekly Update

Hi everyone,

Welcome to the 32nd edition! It's been a while! I feel like I need to earn the title of a "weekly" newsletter back. Let's dive in 🤿 Over the past 7 days:SPY: +0.72%BTC: -1.6% ETH: -1.9%

Major L1's:SOL: -13.9%AVAX: -8.0%Near: -6.1%Algo: +3.4%FTM: -1.8%

On January 1st, I think it's also important to look at 2022 performance, as painful as it might be.

2022 Returns

SPY: -19.95%BTC: -64.2%ETH: -67.5%SOL: -94.2%AVAX: -90.2%Near: -91.4%Algo: -89.4%FTM: -91.1%

Today I'll go over:- Some caution on following Crypto Twitter- News from this past week- Defi farm of the week

Caution on following Crypto Twitter

I wanted to spend a little bit of time today spreading some caution. Over the past two weeks, if you've spent any amount of time reading CT, you've probably started to hear people talking about liquid staking derivates and saying that it's "the next big narrative".

Last month, no one was really talking about them at all. Now, it's gotten to the point that every other tweet is someone trying to explain why Lido, Rocketpool, or Stakewise are going to pump, especially with Beacon chain withdrawals coming soon. Even some of the individuals who I would tag as anti-hype seem to have gotten caught up in this excitement.

Be careful with this!

I think it's important to remember the type of market environment that we're currently in. Anyone who is still left in crypto is probably a lot more knowledgeable and educated than the average participant in late 2021. The current crypto market today is fewer individuals all trying to outcompete one another with very little (or negative) new capital coming in. Everyone is trying to identify "narratives" early, hoping that those narratives catch, and then dump on others.

This has been going on for a while in the Bear market. Rough order from my not-so-great memory:

Algorand ecosystem -> NFT royalty fees (or lack of) -> Arbitrum ecosystem -> Polygon "Their BD team is legendary" -> GMX/Gains forks and on-chain option protocols -> Trump NFTs -> Pudgy Penguins -> liquid staking derivatives

With the exception of GMX and GNS (not their forks), everything on this list has suffered a significant dip since its "peak narrative time".

Now - all of this doesn't mean that I'm bearish LSDs and those protocol tokens. Back in July 2022, I wrote that LSDs are incredibly important for defi infrastructure and that not enough people talk about their importance. I still think that they will hold a major part in the future of defi.

I just don't want people to blindly chase the narratives they read across crypto twitter. Could you make money chasing narratives? Of course. But you could also lose a lot if you're late, if you're too early, or if the narrative you're betting on never catches a bid at all.

In 2023, until the market improves, I think it's more important than ever to ignore most of what you see on Twitter and form your own opinions and ideas of what the future will look like.

Interesting things that happened this past week

Honestly, defi has been pretty quiet during the holiday season.

• AllianceDAO (really cool web3 accelerator) published a long list of web3 ideas they'd like to see, there's some really awesome stuff here (link)

• Gains and Trader Joe are now both live on Arbitrum

• Dictum Exchange rugged (link)

• Uniswap passed Solana in market cap

• Avi Eisenberg got arrested for "market manipulation" (link)

• Bitcoin Volatility Index is near all-time lows (link)

• I saw this good thread about Flash Loans, if that's a concept you've never heard of, you should read it (link)

Since there hasn't been a lot of new news. Here are some interesting metrics and data about the state of defi.

• DefiLlama released a 2022 YIR, lots of interesting data in here (link)

• More interesting data, Delphi Digital looked at USDC utilization rates on Aave over the past year (link)

• A very quantitative look at results of uni v3 positions. (link)

• Cool website that shows Avax burned per block (link)

Defi Farm of the Week

Yields are still pretty low across most defi protocols. Especially over the past two weeks when there has been relatively low volume.

If you want to earn yield, I think that your best bet right now is to take some of the blue-chip assets you have (BTC, ETH, USDC, etc), put them up as collateral, borrow USDC against them, convert ~50% into a blue-chip, form an LP position and start earning yield.

The rates to borrow USDC are VERY low across defi right now. Depending on the protocol and the exchange, you'll only have to pay ~1-2% borrow rate.

Obviously there are risks with this strategy and you'll have to stay somewhat active and manage your positions. Watch your Health Scores and make sure you don't get on the bad side of big IL from your LP positions.

If you're struggling to believe in the future of defi and crypto. I encourage you to watch this clip. It's about Bitcoin but I think does a good job of clearly + concisely communicating the potential of defi as well.

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