DeFi Yield Generation Strategies – Tim Ogilvie

all right everyone we're gonna get started with our next speaker we have Tim Ogilvy who came to visit us from New York City let's talk about his business called staked thanks hey guys I'm generally the glass half-full on the talk you just saw generally want to talk about how you can earn yield in defy and some of the cool ways that money Legos are starting to come together and you can use them to potentially earn yield so in terms of who we are States works with principally institutional investors custodians and wallets to run the infrastructure that helps investors are in yield either through staking on proof of stake networks we run on about 30 proof of stake networks today we're gearing up for e2 coming hopefully this summer and we also run a set of smart contracts that help with trustless lending across ich die in u.s. DC so we work with a bunch of the the large investors trying to understand now how can I earn yield on the crypto I hold and so the you know that the basic theme that's happening here is kryptos changing it was an asset that's basically been stuffed under a mattress and it's changing to enable a lot of productive uses for it and what we look for and the things I'm going to talk about today are something that generates a yield for you something that's trustless so there's no concerns about custody and their minimal or somewhat acceptable or understandable risks that you can get by and I think general caveat here is these have real risk I mean bzx this morning is paying a $350,000 bug bounty you need to do your own research all of this is open source code and so you should do the research and stay safe so I want to start and just talk about like there are four basic primitive that make up the Legos in how you might be able to generate yield in d5 so that's staking that's lending that's arbitrage and it's automated market making there's some more on the horizon but these are actionable today that you can actually use and you can start to put together in ways that are interesting and so what I'm going to do is get into a quick overview of each one of these and then some cool ways people are starting to put them together and how that might look not down the line so probably the core use case of D Phi is the collateralized lending category where you've got a lender who is supplying assets to someone like compound B Z X or dy/dx and a borrower on the other side who puts up some collateral and and then looks to borrow another asset and so generally speaking those are gonna pay out anywhere it's it's all over the map Ethan there's a ton of supply and not a lot of demand right now nobody really wants to short eat and so that's got a very low yield whereas a lot of the USL are stable points are between five and ten percent these are generally because there's a speculator on the other side who wants to borrow dollars by eath and go some kind of margin long position and so ultimately while this looks like a really rich rate relative to one and a half on a US Treasury it's it's kind of peanuts to the speculator who's looking at a you know either a really material gain or a big loss if things go the wrong way and so you know those lending markets are pretty active and are kind of at the core of D 5 I think what's coming and I think people will we'll start to see is really another leg on the the defy stool is staking and staking basically looks like you are lending your assets to the protocol and and you you have some obligations in that you got to run a validator behind the scenes whether that's you're running it or someone like staked is running it but you're effectively depositing to a smart contract and then getting a yield back that's represented in the new block rewards if people creating assets and so when when he's staking goes live The Beacon chain is hopefully this summer that's going to look something like this graph in terms of you've got a set of maximum issuance that's going to yield anywhere between eighteen percent on the high end to two to three percent on the low end if everybody is staking their assets and so I think that that creates this dynamic where you have a liquid market and one of the things you're seeing is that staking and lending are basically two sides of the same coin and so we've seen the addition of what's effectively a staking yield into dye which has got the dye savings rate where you can lock your asset up it's got a very short lock up but you're effectively staking with dye and compound which is the kind of de-facto lending opportunity and and dye savings rate effectively move in lockstep so that people can as the dye savings rate moves up through governance the effectively the lending market has to move to provide a premium and this is what you see in traditional fixed income and it's what you'd expect you've got a benchmark rate and other fixed income instruments get priced at some spread to that my guess is the staking rates and yields look a whole lot like the risk-free rates or the benchmark rates that gets used in traditional finance and then you are gonna price things like lending and other activities based on the additional risk at some premium that's a spread to those those risks and I think you're starting to see that today in in compound and dime so our third primitive here are the automated market makers and these are guys like Eunice WAP or Bank or you can deposit assets into a pool of assets and so you become a liquidity provider to the market maker maybe you want to put assets into the EPI pool generally you want to put in at the 50-50 rate such that in this example I've got teni and 200 or 2,500 die in there which basically creates an automated market for a trader on the other side who can go in and supply 250 die to the protocol and get back one eath or something that looks like 1/8 let's of fees and those trading fees go to you as a someone who holds that asset and de+ so the contract you get the benefit of those trading fees and so the this is this is terrific if it creates a lot of fungibility in the market it's volatile though because when you put assets into a pool the price will change and your returns on those will change and so so you are actually taking a kind of market position here that will and your yield will very last 90 days they eat die pool you've gotten anywhere from between a negative 8% rate to a 20% positive rate depending on when you put your asset in and how those assets moved over time and so you know this is this is a specific type of decision where you've got to have a point of view that your asset you can either hold for long enough that you're okay with the price changes or just sort of ride out and you believe the the fees from trading are gonna outweigh your your benefits there and our fourth bit that that kind of keeps everybody on the rails in defy is is arbitrage and these are Liquidators in places like compounds who basically monitor the collateral that's been put up and purchased it at a discount if it falls below the collateral is a shin ratio and and there's a there's a whole host of examples that include rate arbitrage on interest rates and some of the tools around decks arbitrage and I'll actually share some examples here but they the core principle is around purchasing and selling something in an instant it requires capital but it generally doesn't tie it up for period of time so that's that's kind of our core tools we have to work with and and where things get interesting is where you can start to combine these things and so you know the-the-the sneaking and and lending markets are going to get tokenized as as gavin was referring to and there are some risks with that and there are some new opportunities with it it's going to happen and when that happens your new tokenized position effectively creates two new capabilities you've got the ability to sell it and you've got the ability to borrow money and use it as collateral against it and so when you have these capabilities and all of a sudden unlocks the ability to start locking some of the Legos together and there's some interesting stuff that people are doing so for example curve dot Phi is basically taking the lending Lego and the automated marketing market maker Lego and putting it together so curve is a it's a provider it's a stable coin version of you know swap where you can put in USD C and die and get a more efficient way of trading between those pairs but what they're using is not a underlying USD C or die they're using a tokenized version C die from compound and and CUSD C so that what you're getting is the combination of the two you actually get the lending rate from lending to compound plus the yields that are coming through from the exchange opportunity so so what you're looking at today on curve and this is very early this is an unaudited like there are dragons here kind of opportunity but it's got a twenty percent annualized yield on a u.s. dollar stable core so a super interesting use of D Phi that's starting to combine two of these primitives and create new opportunities [Music] you [Music]