Fixed Rate Yield with ETH

  • Non-LP tokens: DAI, USDC, xBTC
  • Curve LP tokens: LUSD v2, allUSD v2, MIM+3CRC, 3Crypto v2, stETH v2, EURS v2

Trade

Given

  1. stETH trades at a discount to ETH, currently ~0.9825
  2. stETH yields 4.8% on Lido, the largest staking service
  3. Curve stETH / ETH pool yields 3.13%
  4. Element Finance fixed-rate yields 3.65% (for stETH swap)

Assumptions

  1. Beacon Chain merge is complete and ETH2 is live in 12 months
  2. Element fixed rates remain above LP vault / floating rates
  3. Fees are ignored

Mechanics

24 hour average of stETH / ETH on Uniswap
Curve stETH / ETH pool
April 15, 2022 steCRV — ePyvcrvSTETH pool on Element

Risks

  1. Execution Risk: Beacon Chain migration execution, leading to longer wait to receive full stETH
  2. Market Risk: ETH price risk; minimal impairment loss on Curve stETH/ETH pool
  3. Interest Rate Risk: Element fixed rate rollover
  4. Competition Risk: decrease in staked ETH rewards, caused by increase in total ETH staked on the Beacon Chain; decrease in Curve stETH/ETH fees due to higher yielding alternatives
  5. Smart Contract Risk: This strategy relies on smart contracts from Lido, Curve, and Element. All three have been audited and backed by highly regarded, and active, investors.

Alternatives

  1. Ribbon.finance Weekly covered call strategy on stETH. Currently yielding ~16%, but the protocol charges a 2% management fee and a 10% performance fee. Options come with a different risk profile as well.
  2. Notional.finance Notional offers fixed rate notes, like Element, but only accepts spot deposits of DAI, ETH, USDC, and wBTC (instead of interest bearing assets like Element). Fixed rates are lower for ETH (2.66% currently) or you could provide liquidity for the ETH pool, which yields 4.53% (variable).
  3. Alpha Homora Leveraged yield farming.
  4. Spot Lending Most decentralized lending options, like AAVE or Compound, offer very low rates on ETH deposits. Currently, AAVE is pays 0% while Compound pays 0.08%. Centralized exchanges offer better rates, but max out at 8.78% on BitFinex, with Celsius runner up at 5.35%. BitFinex and Celsius are, of course, centralized organizations.

References

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