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 February, Coinchange has a higher average rate than all the indexes except for the CeFi Yield Index which is +2.28% higher and the DeFi Yield Index being +0.34% higher than Coinchange rate of 4.64% which saw a decrease of -0.64% from January rate. Our rate remains multiple higher than the CeDeFi index while not having any lockups, minimum investments requirements and being fully liquid and soon being non-custodial. The DeFi lending index increased by +0.76% from January standing at 2.82%, while the DeFi Minimum Risk Rate (DMRR) has increased by around +0.56% highlighting the continued interest rate hike operated by the Fed. The DeFi yield index has increased from last month by +0.89% to reach 4.98% due to the market volatility and volume increasing in the recent relief rally. The CeFi Yield Index has almost not budged since last month at 6.92%, recording a streak of 4 consecutive months above 6% APY. Unsustainable or continued appetite from hedge funds and traders is still a question, when most of the institutional money and funds have put crypto on “hold” since all the events that happened in 2022.
In February FTX/Alameda bankruptcy seems to be an old story alongside what at the time seemed like the final bankruptcy with Genesis Global Holdco and its lending subsidiaries. Now we had bank runs and banks shutting down (Silvergate, Signature, SVB). Those events materialized as a choppy market since the end of January, highlighting investors' indecisions and doubts. If you want to learn which metrics investors look at in such market conditions head over to our blog where we cover the subject. For February, we removed a couple of pools in the DeFi Yield Index since they came below our threshold. One component of the CeDeFi Yield Index also has its TVL close to the limit threshold.
The chart below provides a snapshot of the rate across indexes and standalone rate for the month of February. 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 (Feb 1-28) 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.
All Yield Index comparison - February
Below is the historical performance of the indexes mentioned above since January 2022.
Historical Minimal Risk Indexes comparison
Below is the historical performance of the indexes mentioned above since January 2022.
Historical Low Risk Indexes comparison
Comment on the index:
This month all Spool Finance vaults used are under $1M in TVL. The average TVL for the 6 vaults used was $340k. If this trend continues, certain Spool Finance vaults that fall under $500k-$300k will be removed from the index calculation.
Comment on the index:
Two of the three Yield Yak vault’s TVL are close to or below the $500k-$300k threshold. One of them has been removed from the calculation because it fell below. Only one pool out of the three normally used for Autofarm has been used this month because TVL fell below threshold, and one has been deprecated by Autofarm.
Comment on the index:
Maple Finance rate only uses Maven 11 permissionless pool since November. Two borrowers fully repaid their loan in the beginning of February where Flow Traders was the principal. Regarding TrueFi, since TruefiDAO stopped lending entirely since TrueTrading (the only borrower) is restructuring its loan agreement with Detl.ai since January and has not reached a final settlement as of the end of February. Thus the only option left is USDC.homes vault managed by The Tighe law firm with 230k TVL since 200 days ago.
The index rate has increased by 1.53% from November to February due to changes in the calculation method.
Below is the historical performance of the indexes mentioned above since January 2022.
Historical Medium to High Risk Indexes comparison
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. In February Coinchange rate remains close to the previous month rate, partly due to the strategy allocation to MMP which saws significant borrowing demand during this month. We further explore our strategies diversification and allocation across protocol types in our Asset Allocation Report - January and Asset Allocation Report - February.
CeFi Yield index remains close to its rate from Q4 2022, partly because Nexo rate remains at 8% since October despite all troubles around their competitions and themselves. It either shows continued borrowing appetite by hedge funds and traders or unsustainable rates that can soon turn into defaults (i.e TrueFi and Maple borrower defaults). GoldFinch senior tranches have had incredible consistency at 7.8% APY since its addition in August 2022 highlighting the borrowing appetite from real world companies in need of efficient financing.
CeDeFi yield index finally starts to decouple from the DeFi Lending Index and the DeFi Minimum Risk Rate, which has not happened since Sept 2022. All three are recording a slow but steady increase in the rates since September due to borrowing activity increasing alongside DEX volume picking up.
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.
Historical All Index comparison
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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