Welcome to our second edition of This Week in DeFi – a newsletter covering the top stories in open finance!
The global pandemic doesn’t seem to be slowing DeFi down. This week was jam-packed with headlines as Coinbase made a seven-figure move to support popular DeFi apps along with the team behind tBTC raising $7.7M for its upcoming launch and even less DeFi specific news like Binance making the monstrous $400M acquisition for CoinMarketCap.
We also saw one of the more notable launches this year with Balancer – a new DeFi liquidity and asset management protocol – going live on Ethereum main net.
Balancer is similar to Uniswap but instead of normal 1:1 markets (like DAI/ETH or USDC/ETH pools), Balancer is able to host any amount of tokens in a single pool – currently upwards of 8 tokens at genesis. In essence, it allows assets to be combined into a liquidity pool while issuing a token representing an index of the underlying assets – nearly identical to an ETF. Like Uniswap, depositors also earn trading fees from anyone looking to access the pool for liquidity.
In short, the ability for anyone in the world to issue an ETF with a combination of both traditional and crypto-assets while earning fees opens up massive potential for DeFi composability in the coming future. Liquidity and portfolio management will be turned on its head and we’re excited to watch it unfold!
That said – let’s dive into how interest rates have changed in the past week!
The aftermath of Black Thursday and the DSR drop to 0% is still in effect as lending rates continue to sit around historic lows. Major lending protocols struggle to offer yields >2.5% as Compound, dYdX, and Aave are averaging 2.35% APY. The only exception seems to be Nuo, offering significantly higher rates than anywhere on the market.
While the 17.67% APY is extremely attractive, the fact that Nuo offers 7.5x higher rates than its peers is a discrepancy worth noting. It’s important for DeFi users to remain level-headed during these times of volatility and understand that higher returns generally equates to higher risks. Be cautious. If you’re keen on lending via Nuo, it may be wise to explore insurance options (like Nexus Mutual) for your deposits.
Taking a step back, it’s no secret that the DSR to 0% is affecting the broader DeFi debt markets. We can only hope that as Maker continues to recover, we’ll see MKR holders elect to bring the DSR back online. Once this happens and there’s a baseline for the “risk-free rate”, we can expect other lending protocol and crypto banks to follow shortly after.
The other major DeFi stablecoin has also taken a hit in the lending markets as interest rates experience a significant downturn. As we can see, pretty much all major lending protocols and crypto banks have decreased offered rates in the past 30 days. Notably – dYdX and Compound – are both offering <1% APY.
Despite the issuing crypto bank (Coinbase) offering 1.25% on USDC holdings, it seems that DeFi lending protocols are struggling to offer above USDC’s risk-free rate. That in mind, we’re beginning to see that there may be a correlation between USDC and DAI lending rates as competition for DeFi user adoption between the crypto-backed and fiat-backed stablecoin heats up.
Looking forward, we’ll be watching to see how USDC lending rates move after the DSR begins offering non-zero returns – hopefully in the coming weeks.
Find a full overview on all DeFi lending and borrowing rates on our Rates page!
Coinbase’s USDC BootStrap Fund deposited $1.1M into popular DeFi applications – Uniswap and PoolTogether.
The non-custodial portfolio manager, liquidity provider, and price sensor protocol went live on Ethereum main net after announcing a successful $3M raise last week.
Keep Network raised $7.7M led by Paradigm for its trustless mechanism for bringing Bitcoin over to Ethereum via tBTC
The team behind the DeFi savings application embarks on a journey to build a layer 2 solution leveraging Optimistic Roll-Ups (ORUs) in order to scale its peer-to-peer payments feature.
In Other News…
- KyberDAO Governance Updates: Staking, Voting, and Delegation via Katalyst
- Synthetix adds equity indices and Brent Crude in its recent upgrade
- Fixed Lending is Heating Up
- Swap Rate Integrates Aave Interest Rates
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Analyst at Bankless – one of the leading resources for open finance. Lucas is an active contributor to the DeFi ecosystem with appearances in other notable DeFi outlets including The Defiant and Our Network. He has years of experience working with dozens blockchain and token startups where he focused on token economics, marketing, and growth.