To Our DeFi Community,

Compound’s launch of the COMP token earlier this week may have very well sparked a new trend in DeFi – liquidity mining (also known as yield farming). In case you somehow missed it, the leading lending protocol has begun distributing COMP tokens to each of the protocol’s money markets pro-rata by the total interest accrued. While many were anticipating the launch, few expected the results.

After initially listing on Uniswap for $16, COMP tokens have soared in value. That may be an understatement too. In less than a week, the protocol’s native governance token has risen to over a $2.2B valuation as COMP trades at around ~$225 per token, making it the highest valued DeFi protocol by market cap while dwarfing its incumbent, MakerDAO. Moreover, value locked in Compound went stagnant for the better part of a year. But the launch of a tokenized incentive drove a massive wave of new capital into the protocol almost immediately, increasing its total value locked by over 4x in less than a week to reach over $400M.

This isn’t a one-time thing either. A few weeks ago, Balancer also launched a similar token distribution mechanism where users who provided liquidity to its protocol earned BAL, the network’s native governance token. Within days of launch, the emerging liquidity and asset management protocol surged in all metrics across the board, putting it in striking distance with its main competitor Uniswap. Even looking back further, Synthetix‘s launch of liquidity incentives last year along with native inflation for Synth minting (i.e. SNX staking) revitalized the project and allowed it to surge to #2 in total value locked in 2019. The effects of liquidity mining and similar token distribution mechanisms are extremely apparent. It drives growth. 

 

While the concept of yield farming isn’t new, DeFi may have finally found the right recipe as protocols take a page out of the SAFG token model.

The trend is just getting started too. Just yesterday, we saw a hint of what’s to come with Synthetix, Ren Protocol, and Curve teaming up to launch a tokenized incentive for building BTC liquidity on Ethereum. Anyone who deposits sBTC, renBTC, or WBTC on Curve will receive an attractive basket of tokenized incentives including SNX, REN, BAL, and CRV (along with trading fees). The SNX and REN incentives will come wrapped in a Balancer Pool Tokens, effectively allowing users to earn BAL on top of the tokens issued by the Ren and Synthetix core teams. Moreover, Curve recently announced their CRV native governance token which will be distributed via a similar yield farming mechanism. Adding to the narrative, the announcement of Curve’s governance token has driven the protocol to reach new all-time-highs in volumes, surpassing Uniswap, and other leading liquidity protocols in daily volume earlier this week. The launch of this multi-asset yield farming incentive (while having exposure to BTC) ultimately displays the potential for Ethereum’s best attribute – composability.

This may be DeFi’s ICO moment. The one that sparks new levels of innovation and a new wave of interest into the ecosystem. And of course, a bull run. The ICO experts from 2017 better move on over because there’s a new career path in town.

Yield farming: it ain’t much, but it’s honest work. 

Till next week!

-Lucas

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Interest Rates

DAI

USDC

  • Highest Yield: BlockFi at 8.6% APY (centralized)
  • Cheapest Loan: Compound at 4.05% APY
  • Biggest Mover: Coinbase lowers deposit APY from 1.25% down to 0.15%

 


 

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