Yield Indexes and Benchmark Comparison - Stablecoin Assets November 2023

closely related to yield generation (DeFi and CeFi) and interest generation while maintaining strict requirements on funds availability (same day), small to no investment minimums and minimum liquidity requirement of $300k TVL for stablecoin assets like USDC, USDT, DAI, MAI, MIM, stETH, DSR.

We also provide a historical comparison of the rate across the indexes to provide some perspective on performance over time.

Yield Indexes

November Comparison

For the month of November, Coinchange is still at the top in terms of yield being tracked with a stable 7.47%, making it the ninth consecutive month above 7%. CeFi Yield index is the only index above Coinchange’s rate at 8.16% losing close to 1% from October, being close to September’s rate. The DeFi Minimum Risk Rate (DMRR) has jumped to 5.14% from 3.55% previously due to increased borrowing demand. The CeDeFi index (monitors Coinchange main competitors) remains stable at 4.72% just 0.22% more than previous, while being  2.75% lower compared to Coinchange rate. The DeFi lending index has also jumped to 5.47%, similarly to the DMRR due to increased borrowing demand. DeFi Risk Free rate stands at 4.42% maintaining consistency above 4%. The Risk-Free Rate - Non-adjusted for inflation is still close to 5% while decreasing since the previous month at 4.5% from 4.81%.

The DMRR, the DeFi Lending, the DeFi Yield, the CeDeFi Yield index and the DeFi Risk Free Rate have been hovering around the 4% APR (+/- 0.5%) since April this year while continuing on their ascending trajectory. In November they are all closer to 5% due to the current crypto market environment and activity.

In November, the TVL increased moderately in dollar terms from around $42B to $46.6B for the whole DeFi market. DEX 30day volumes have stayed comparable to last month at $74B in dollar terms from $60B in October after the almost doubling from September at $35.2B. Stablecoin market cap stayed flat at ~$128B from ~$125B with the top two, USDT ($90B; +$5B) and USDC ($23B; +$0) accounting for about 88% (+3%) of the total market cap.

The state of the macroeconomy seems mixed with both positive and negative indicators. Money printing has not picked up yet but is estimated to start again in Q2 2024. GDP numbers show growth in the US while inflation remains stable.  

Regarding regulation, the MAS will soon launch its CBDC for retail customers, Hong Kong regulators seem to want to open Spot BTC and ETH ETF for retail participants. The institutional update is mixed with Binance agreeing to pay a $4.3B penalty to DOJ, while Blackrock, Fidelity, Vaneck are meeting with SEC regarding their spot BTC ETF fillings. We cover more subjects for this month in our DeFi Research News - November.

For November, no changes have been applied to the different indexes. 

The chart below provides a snapshot of the rate across indexes and standalone rate for the month of October. We then describe the component within each index and standalone rate via a legend. The rate calculation methodology is the monthly average over the time period for the different stablecoin rate tracked: USDC, USDT, DAI, MAI, MIM, stETH, DSR. The exceptions are the DeFi Minimum Risk Rate which uses a 30 day average TVL weighted stablecoin 30 day average lending rate.

We organize the indexes into 3 categories of risk. 

• Minimal risk: Risk-Free Rate non-adjusted for inflation as well as DeFi Minimum Risk Rate fall under this category. 
• Low risk: DeFi Lending Index, DeFi Risk Free Rate and Coinchange rate are parts of the low risk category.
• Medium to High risk: CeDeFi yield, CeFi yield and DeFi yield are found in this category.

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Indexes Legend 

Minimal Risk Indexes:

Comment on the index: No comment 

DeFi Minimum Risk Rate 

• Calculation method: 30 day average TVL weighted 30 day average stablecoin lending rate (USDC, USDT, DAI)
• Index components: Compound on Ethereum, Polygon, Arbitrum and AAVE on Ethereum, Avalanche, Polygon, Arbitrum, Optimism
• Requirements details: Markets are fully liquid (can be withdrawn within minutes) without minimum investment with highest liquidity in DeFi. 
• Risk information: The index reflects the minimum level of risk an investor in DeFi can take to earn yield. The methodology and reasoning behind the DMRR is explained at the bottom of the document and aims to function as a benchmark for DeFi, similarly to how the ‘Risk-free Rate’ functions for traditional finance.
• Data sources: For AAVE and Compound rates we use Dune analytics query. For the TVL we use the aggregate numbers for AAVE v1, 2, 3  from DeFi Llama CSV export. For Compound TVL we use a Dune analytics query and DeFi Llama CSV export.

Risk-Free Rate non-adjusted for inflation

• Calculation method: 30 day average 10 year U.S Treasury note yield, non adjusted for inflation.
• Index components: 10 year U.S Treasury note rate, non adjusted for inflation. 
• Requirements details: Highest amount of liquidity in the investable landscape, redeemable when the U.S market is open. Minimum investment can vary  depending on broker & dealer but generally the minimum is 1 bond worth $1,000.
• Risk information: Investment product carrying the minimum amount of risk an investor is willing to take to earn yield in TradFi. It is used as a benchmark in the traditional market to calculate and compare investments against each other. 
• Data sources: We use the non adjusted for inflation 10 year U.S Treasury note from the U.S Department of the treasury website.

Below is the historical performance of the indexes mentioned above since January 2022.

Low Risk Indexes

Comment on the index: no comment 

DeFi Lending Index 

• Calculation method: 30 day average stablecoin lending rate (USDC, USDT, DAI)
• Index components: Compound on Ethereum, Polygon, Arbitrum; AAVE on Ethereum, Avalanche, Polygon, Arbitrum, Optimism; Venus on Binance Smart Chain
• Requirements details: The markets are fully liquid (can be withdrawn within minutes), without minimum investment and have among the highest liquidity in DeFi across networks. 
• Risk information: The main difference between the DMRR and DeFi lending index is the amount of risk taken via the component of the index. By adding more lending platforms to the index that still satisfy requirements, we gradually increase the risk of insolvency or risk of loss for the calculated rate. 
• Data sources: For AAVE and Compound rates we use Dune analytics query and DeFi Llama CSV export. For Venus rates we use DeFi Llama CSV export and manual recording for historical rates from Nanoly (H1 of 2022).

Coinchange Yield

Comment on the index: no changes made.

• Calculation method: 30 day average stablecoin rate (USDC, USDT, DAI) across diversified & non-correlated DeFi strategies.
• Index components: Coinchange on Ethereum, Avalanche and Binance Smart Chain
• Requirements details: Coinchange does not have lockups or an investment minimum. Withdrawals are processed during the same day of the request. All funds are deployed in DeFi without CeFi counterparties and are fully on-chain. 
• Risk information: Coinchange’s strategies within each Earn account have protocol and blockchain diversification at the core. Strategies are non-correlated, meaning that it is diversified across market mechanisms while benefiting from outsized growth. Learn more in our Asset Allocation Report - November.  
• Data sources: Directly pulled from Coinchange backend, the same rate as the one earned by Coinchange retail users.

DeFi Risk Free rate

Comment on the index:

• Calculation method: 30 day average stETH rate for top providers and DAI Saving Rate (DSR)
• Index components: MakerDAO for DSR, Lido, Rocketpool, CBETH, BETH for PoS yield; all on mainnet.
• Requirements details: High liquidity, no lockups apart from withdrawal queue. 
• Risk information: ETH LST from those providers could be considered the most secured across the decentralized/centralized spectrum. The DSR can be considered the most secured and highly liquid native yield on decentralized stablecoin.  
• Data sources: rated network for ETH PoS yield and DeFi llama for the DSR.

Below is the historical performance of the indexes mentioned above since January 2022.

Medium to High Risk Indexes:

CeDeFi Yield Index 

Comment on the index:  no comment

• Calculation method: 30 day average stablecoin rate (USDC, USDT, DAI) 
• Index components: Centralized companies operating in Decentralized Finance to generate yield: Coinchange, Idle Finance and Swissborg.
• Requirements details: All platforms do not have lockups or an investment minimum while having high liquidity, except for Swissborg rates. We chose the rate that does not require a stake of Swissborg’s token. They enable higher yield but require lockups of 12 months and its platform token to be staked in various amounts to get to a certain tier account providing increased yield and reduced fees. 
• Risk information: In this index the only Low Risk rate is Coinchange whereas the others are medium to high risk. The primary risks are bankruptcy due to poor asset management practices with either too much leverage or lack of safeguard measure in place.
• Data sources: Wayback Machine snapshots for some historical rates but not all components have allowed the Wayback Machine to capture snapshots of their website. Hence we mostly use the rates displayed on the component’s web UI every week to calculate a 30 day average while saving screenshots in the database as proof. 

DeFi Yield Index 

Comment on the index:

• Calculation method: 30 day average stablecoin rate (USDC, USDT, DAI, MAI, MIM, sUSD) 
• Index components: Decentralized platform offering yield or aggregating yield across protocols and platforms: Yearn Finance, Beefy Finance, Yield Yak
• Requirements details: None have lockups or an investment minimum. Only pools with good liquidity, secure assets and safe protocols have been selected for each index component.
• Risk information: DeFi yield aggregators have varying degree of risk from medium to high depending on a multitude of factors such as: smart contract security, team relevancy, source of the yield generated, aggregation method for the yield, ownership and security of smart contracts. 
• Data sources: Yearn.Vision, maintained by Yearn.finance devs, is used to populate the rates. Displayed 30 day average rate on web UI is used for Beefy, while for Autofarm we manually recorded daily rates to calculate the 30 day average. Yield Yak rates are coming from DeFi Llama CSV export.    

CeFi Yield Index 

Comment on the index: 

• Calculation method: 30 day average stablecoin rate (USDC, USDT, DAI)
• Index components: Centralized companies generating yield via lending interest primarily: Nexo, Goldfinch senior pool, Coinbase Earn, Clearpool. 
• Requirements details: Nexo does not have lockups or investment minimums but it has an investment maximum $100k after which, the rate decreases dramatically. This standard “retail rate” has been selected for the index. Nexo offers higher yield if chosen to earn in $NEXO rather than in kind along with holding a certain percentage of your portfolio value in the token indefinitely over time. Goldfinch senior pool is selected because it has the lowest risk while only having a 2 weeks notice for withdrawal. Coinbase Earn USDC rate does not have an investment minimum. Clearpool borrowers are at least rate BB in credit score by Credora.
• Risk information: Due to the business model of CeFi platform they carry significant amounts of risk, such as: borrowers default, bankruptcy risks, no asset control and low to no transparency, just to name a few. We have seen the extent of the damage this can cause with the bankruptcy of Celsius, Voyager, YouHodler, BlockFi and Genesis Global Holdco and two subsidiaries in January.
• Data sources: We use Wayback Machine snapshots of their website for some historical rates but not all components. We also use the rates displayed on the component’s web UI every week to calculate a 30 day average while saving screenshots in the database as proof. Lastly we use DeFi Llama CSV export when available and if accurate as per numbers displayed on the components UI.  

 Below is the historical performance of the indexes mentioned above since January 2022.

Performance Overview

Historical commentary:

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. Q4 2022 saw all DeFi related indexes move in a general uptrend. 

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 decreased in Q2 2022 and stabilized in Q3 2022 for CeDeFi Yield index while Coinchange and CeFi yield index saw a significant uptick. In Q4 2022 all DeFi related yield index moved in a general uptrend while remaining higher than previous quarters.

Current performance commentary:

Coinchange records a consecutive streak of 9 months above 7% APR while reaching more than 8% for 2 of those. Since the start of Q4 2023 Coinchange is benefitting from sustained activity in MMP and DEXs due to price action and volatility of the market. We further explore our strategies diversification and allocation across protocol types in our Asset Allocation Report - October and Asset Allocation Report - November.

In Q4 2023, all indexes are in general uptrend apart from the CeFi yield index and the Risk-Free rate - Non adj for inflation which have decreased in November. Overall the indexes are following the trend initiated in the previous quarter.

CeFi Yield index remains above 7%, recording a 8 month consecutive streak so far. This is partly because Nexo rate has remained at 8% since October 2022 and went to 10% in October while Clearpool maintains its pools above 7% in APR. This shows continued borrowing appetite by hedge funds and traders supporting well built models or unsustainable rates that can soon turn into defaults (i.e TrueFi and Maple borrower defaults earlier in the 2023).

CeDeFi yield index has been decreasing since July but has now shifted in to uptrend since September, recording 3 consecutive month of rate increase. In May it finally decoupled from the DeFi Lending Index and the DeFi Minimum Risk Rate, which has not happened since Sept 2022. DeFi yield is following the same setup and has been increasing since September while being above the CeDeFi yield, the DeFi Risk-Free rate and the Risk-Free rate - Non adj for inflation. 

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.

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Methodology for DeFi Minimum Risk Rate

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, 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).