The Tie Research
The Hitchhiker’s Guide to Yield
By Jack Melnick
May 09, 2023
- Proof of Stake Inflation
- Real World Interest Rates
- Borrowing / Lending
- Non-Incentivized Liquidity Provision
- Cost Reduction- Use of smart contracts allows removal of administrative costs for moving capital (e.g. no 3rd party provider is needed to figure out the payment waterfall, then dole out cash to participants). Removing this expense could return between 50bps-150bps on deals.
- Structured Products- This is a common example stemming from smart contract flexibility. As a practical example, on-chain structure gives uninhibited access to create Risk Weighted Assets (RWAs - Effectively ETFs), defined by industry, country, or any other scope. Smart Contract composability can also drive uptake, through its ability to create DeFi primitives not possible in traditional finance.
- Access to opportunities: Double digit yields are now more accessible through DeFi protocols, which package up opportunities around the world for investors to see. Generally speaking, quality RWA yields are common, managers just don’t yet have the capacity, time, and network needed to find and assess them.
- ETH staking rate grows extremely quickly because of its relative value proposition, causing staking rates to compress down to basis yields.
- Basis rates for ETH rise after the merge, as demand for staking liquidity raises rates.
- Greater capital efficiency allows for more leverage, and subsequent demand, driven by existing assets in the space.
- Demand for leverage in DeFi returns, causing demand for borrows, and subsequent rates offered for lending, to increase.
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10Ybaseline ratecryptocrypto yielddefiecosystemsILliquidityMoney Marketrisk free ratestablecointokenomicsweb3yield
Jack Melnick
Jack Melnick, Author at The Tie
VP of Research