November 9, 2020 · 5 min read
Where is money made in Defi?
We’re back with a new kickass product that assists your Defi journey 🎉
There is a feeding frenzy around decentralised finance (Defi). The most popular decentralised exchange Uniswap has surpassed more than $3bn locked in it, and there was a peak in October of more than $12.5bn of assets in Defi. Much of the excitement has been driven by the returns earned for providing liquidity for ‘automated market making’. This has meant individual token owners can act as market makers for specific pairs, with the potential of significant fees, by providing their tokens. The decentralised exchanges use the pooled tokens to provide a market, and a liquidity boom in response to this has driven huge crypto-market activity.
Calculating the good, bad and boring in Defi
To demonstrate the kind of varied return - both positive and negative - which you can receive from this activity, Novum Insights chose three pairs; YFI/ETH, SUSHI/ETH and DAI/ETH. Yearn Finance (the good) was praised throughout August and September for providing regular, high yield, SUSHI (the bad) was the most famous project to become infamous over night, and DAI (the boring) a stable USD$ tethered token. All are shown against ethereum (ETH), which is one of the most popular tokens for liquidity providers to use.
Hello Novum Insights Defi Calculator
Our free-to-access calculator shows the impact of investing US$1000 in each of these pairs from the launch date of SUSHI on the 28th August until the end of September so slightly more than one month of providing ‘liquidity’ to the market. If your browser supports HTML5 (like Chrome for example), you can move the dates around within this range to experiment with different ‘buy’ and ‘sell’ dates to calculate the impact. Sneak peek of our calculator below.
So tell me, should I provide liquidity or just HODL?
With Yearn Finance providing liquidity to the YFI/Eth pair during late August to the end of September period was generally a more profitable strategy (gas, not included) during the period than simply buying and holding. Investors benefited from a surge in the price of the asset to mid-September of more than $40,000. However, it should be noted while YFI comes out very favourably in a late August to late September analysis, a torrid October for the token, would have led to a bath for those who kept on investing after the end of our tool’s analysis. All graphics calculate the ending value from the day a trade is made and assume the pair was held until the end of September.
For a wider look at the tool, click here to see the results :)
BTC doesn’t care who walks into the Oval Office?
Bitcoin dramatically outperformed during election month, shooting past $15000 last Thursday. The graph below tracks the performances of different major equity markets, cryptocurrencies, currencies and gold in the last 30 days. Bitcoin markets have strongly outperformed all major asset classes with the BTC price increasing more than 37% in a month. This has seen a dislocation of Bitcoin from wider crypto markets, with alt coins generally underperforming, and XRP for example failing to make any gains in the same month. NASDAQ surged by 8.5% last week along with the blue wave**.**