This document is updated each month and provides information and a comparison of Coinchange yield against different comparable indexes. We selected the components within the indexes to be direct, indirect or closely related to yield generation (DeFi and CeFi) and interest generation while maintaining strict requirements on funds availability, small to no investment minimums and high liquidity for stablecoin assets like USDC, USDT, DAI, BUSD.
We also provide a historical comparison of the rate across the indexes to provide some perspective on performance over time.
For the month of January, Coinchange has a higher average rate than all the indexes except for the CeFi Yield Index which is +0.07% higher than 5.28% APY. Coinchange rate remains multiple times higher than the CeDeFi index while not having any lockups, minimum investments requirements and being fully liquid. DeFi lending index increased by +0.3% from December, while the DeFi Minimum Risk Rate (DMRR) has increased by around half of it, bringing its net increase close to +0.60% since October. The DeFi yield index has increased from last month due to the market volatility and volume increasing in the recent relief rally, but its still recording a net increase similar to the DMRR (+0.57%) . The CeFi Yield Index has decreased this month to record the same rate as November 2022 of 5.35% APY.
After the contagion from FTX/Alameda on the centralized lenders settled down and concerns on CEX balance sheet have stopped we have seen what seems to be the last bankruptcy: Genesis Global Holdco and its lending subsidiaries. Although we still saw a relief rally at the end of the month, centralized lending has been slow to recover. If you want to learn why this debacle has happened over the past few months, Coinchange Research team published a blog post explaining the difference between CeFi lending and DeFi lending and why it matters. For January, we added 2 pools and removed one for Beefy Finance under the DeFi Yield Index.
The chart below provides a snapshot of the rate across indexes and standalone rate for the month of January. We then describe the component within each index and standalone rate via a legend. The methodology to calculate the rate is the monthly average over the time period (Jan 1-31) for USDC, USDT and DAI. The exceptions are the DeFi Minimum Risk Rate which uses a 30 day average TVL weighted stablecoin 30 day average lending rate, and Coinchange which uses a weighted average rate (explained in its dedicated section).
We organize the indexes into 3 categories of risk.
Below is the historical performance of the indexes mentioned above since January 2022.
Below is the historical performance of the indexes mentioned above since January 2022.
Comment on the index:
Nearly all Spool Finance vaults used are under $1M in TVL this month with the average TVL for the 6 vaults used being $410k.
Comment on the index:
Two of the three Yield Yak vault’s TVL have decreased under $1 Million. Two pools were added and one removed for calculating Beefy Finance rate, which had no impact on the DeFi Yield Index rate.
Comment on the index:
Maple Finance rate only uses Maven 11 permissionless pool since November. Only one borrower out of the two repaid their loan in January since Orthogonal (the second one) defaulted. Similar to December, TrueTrading has been the only borrower on the TruFi this month as per their loan maturity ending late January. However, refinancing is being negotiated with one of the borrowers, which appears to either lead to a partial default or a restructuring leading to higher lending interest for February.
Below is the historical performance of the indexes mentioned above since January 2022.
DeFi related indexes (DeFi MRR, DeFi lending, DeFi Yield) had their rates decrease during Q1 2022 and stabilized in Q2 2022. DeFi Yield index, on the medium to high risk end, stabilized at the end of Q3 2022 while having a short lived uptick in July.
Regarding CeFi related indexes (CeDeFi Yield, CeFi yield, Coinchange) they followed the same pattern in general as the DeFi related yield indexes except for Coinchange which saw its rate increase up until Q1 2022. CeFi related yield indexes rate stabilized in Q2 2022.
Coinchange saw its rate increase 4 times in September and sustained this rate up until November, which is attributed to the new non-correlated strategy that was launched in September. In November, the strategy’s algorithm determined that with current market conditions it should be rebalanced and thus led to the decrease recorded. In January we saw an uptick in the rate largely because our DEX strategy which has been resumed since last month benefited from the DEX volume increase. We further explore our strategies diversification and allocation across protocol types in our Asset Allocation Report - December and Asset Allocation Report - January.
CeFi Yield index remains close to its rate from October, partly because, Nexo rate remains at 8% since October despite all troubles around their competitions, GoldFinch senior tranche consistency at 7.8% APY. It either shows continued borrowing appetite by hedge funds, traders and companies or unsustainable rates that can soon turn into defaults (i.e TrueFi and Maple borrower defaults).
CeDeFi yield index finally stands out from the DeFi Yield Index and the DeFi Minimum Risk Rate since which has not happened since Oct-Nov 2022. All three are recording a slow but steady increase in the rates since September due to borrowing activity slowly increasing again alongside DEX volume.
The chart below represents the comparison of historical rates across indexes since January 2022 and aims to provide some perspective on performance over time. For full historical performance of Coinchange Earn Account check here.
A benchmark is a standard against which something is compared. In finance, investors use benchmarks to measure the performance of securities, mutual funds, exchange-traded funds, portfolios, or other investment instruments.
Generally, broad market and market-segment stock and bond indexes are used for this purpose. If there is an investment instrument, there is a benchmark to compare it to, otherwise comparison across investment products alone does not provide the full picture.
In crypto, benchmarks do exist as well. The most common are the top 10 or 15 cryptocurrency indexes by market capitalization. DeFi benchmarks exist as well in the form of indexes, most of the time tracking the market capitalization of top DeFi governance token, which can be found for DeFi sub-segments such as DeFi yield, Oracle, GameFi, NFT marketplace, etc.
The benchmark we are seeking here, is one that could serve the same purpose as the “risk-free rate” that exists in traditional finance. In theory, the risk-free rate is the minimum return an investor expects for any investment while not accepting additional risk unless the potential rate of return is greater than the risk-free rate. Determination of a proxy for the risk-free rate of return will depend mainly on the credibility, liquidity size of the product, and availability. In practice, although a completely risk-free rate does not exist, the interest rate on a 10 year U.S. bond is often used as the benchmark for most investors while foreign investors might need to factor in the currency risk.
In DeFi we can’t name such a benchmark “risk-free rate” since the technology it is built on is rather new and hence does not carry the same credibility as US T-Bill. Hence using “DeFi minimum risk rate” is more suited. Like in the TradFi market, DeFi has large investors seeking low risk returns in non-derivative markets which have high levels of liquidity with full redemption intraday. Protocols that fit the requirement are lending and borrowing protocols as per Credmark research. We should only take into consideration the rate of return of stable assets as the risk-free rate in TradFi is denominated in dollars.
Hence the minimal risk rate in DeFi could be determined by taking the TVL weighted average rate for USDC, USDT and DAI - as they are the most stable with highest liquidity - on AAVE and Compound - as they are the most secure and longest standing protocols in DeFi with highest Total Value Locked (TVL).
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