ETH2.0 LIDO has staked about 9 million ETH, with a total TVL of $18B, making it the largest on-chain liquidity staking protocol.
At the same time, the on-chain TVL of LSDFI protocols headed by Lybra Finance, Pendle, Unsheth, etc. has exceeded $1.3 billion. LSD has become the vortex center of on-chain liquidity.
As DeFi protocols develop, crypto investment strategies are gradually shifting from volatility profiting to protocol yield + token holding ratio dividend methods.
What are the on-chain investment yield strategies?
In addition to basic token LP yield, let's summarize the current asset yield models by sector.
Gains Network, GMX and other GLP models of decentralized contract trading platforms.
Take GMX as an example. Users provide liquidity by minting $GLP. $GLP is an asset that tracks changes in the price of the underlying index. The GLP pool consists of 50% stablecoins and 50% blue chip assets ($ETH, $BTC, $UNI and $LINK). Using the GLP pool, GMX provides 4 token/dollar trading pairs for traders.
The assets in the pool are used for trading. Traders can hold leveraged positions in either direction.
LPs and traders are counterparties. GMX's liquidity supply is a game-theoretic strategy.
If the trader makes a profit, he withdraws the principal + profit in $ETH from the $GLP pool.
If the trader loses money, he will withdraw the principal - loss in $ETH from the $GLP pool.
The current GMX pledge annual rate is about 5.56%, and the GLP annual rate is 25.76%.
The annual rates of GMX V2's ETH\BTC\LTC\SOL-USD GM POOLs are all above 20%.
Compared with the traditional liquidity LP mining model, GLP has higher risks, more complex operations,
LSD-LSDFi Staking, Derivatives
Currently well-known decentralized ETH2.0 staking protocols are mainly LIDO, RocketPool, FRAX, etc. Centralized exchanges such as Coinbase, Binance, and Kraken provide relatively convenient ETH POS staking services.
Take Lido as an example, how can users obtain higher annualized returns by staking ETH?
First, users can stake any amount of ETH to get a 1:1 stETH, and earn an annualized income of 3.8%.
Then, users can go to DeFi protocols such as Curve and AAVE to provide liquidity for the obtained stETH and earn annualized returns.
While depositing Curve and earning APY rewards, deposit the formed LP into the DeFi yield protocol Convex Finance to earn more annualized returns.
After combining with LSDfi, users' stETH obtained after LIDO's ETH staking has new investment paths. For example:
Users deposit stETH into Lybra Finance to mint eUSD, converting the income model to rebase income. Users stake the obtained eUSD into the protocol to generate annualized profits.
At the same time as users mint eUSD, users can also earn LSDfi's annualized returns by locking $LBR or $esLBR within a specific time.
Similarly, LSDFI also has considerable governance token staking pools and LP liquidity mining pools to provide users with relatively objective annualized returns.
The LSD track has become the biggest value capture target for on-chain liquidity. After the Two-tiered staking proposal, the amount of ETH delegated and liquidity will be further improved, and users will have more ways to profit, including but not limited to:
Users can choose to delegate stakes without worrying about staked assets being reduced, while still being able to earn relatively low-risk interest without worrying about losing some capital.
Users can also delegate suitable node operators to earn interest higher than the current one. Node operators cover operating costs and risks through high interest rates.
The Two-tiered staking model allows more low-threshold ETH to be delegated, allowing more users to make more efficient use of their ETH and earn more rewards. At the same time, more users will also participate in node operation.
RWA, RWAfi Yield
After the RWA concept outbreak in 2023, a considerable number of DeFi protocols have turned to on-chain yield methods combined with real-world assets to help investors earn more returns.
Take the recent Frax V3 as an example. Due to the fact that the yields of US Treasuries and US dollars exceed on-chain yields, Frax V3 uses the RWA+DeFi strategy.
Frax v3 integrates the use of interest on reserve balances (IORB) rates from the Federal Reserve through the IORB oracle. Higher IORB rates will trigger the Federal Reserve Banks to pivot toward more RWA collateral such as Treasuries and dollars, while lower rates will induce rebalancing back toward on-chain strategies.
In addition to dollars and short-term US Treasuries, mutual funds and repo agreements are also part of Frax's RWA strategy.
Users can stake Frax V3 stablecoins: $sFRAX to earn an annualized return of more than 5% dollar rate. The current annualized return is 6.3%.
Another stablecoin staking and earning RWA leader is MakerDAO. Similarly, MakerDAO holds a large amount of US Treasuries and has considerable US dollar reserves. Users can deposit its stablecoin DAI to earn 5% DSR, but due to regional restrictions, VPN and restricted area users cannot use DAI earnings.
Web3 - X to Earn
Investment yield strategies stemming from Web3 incentive mechanisms often come with high risks and high return volatility. For ordinary users, although the threshold and logic of participation are relatively simple, and the initial annualized returns are high, the difficulty of investment profitability is higher.
First of all, take the traditional Gamefi model as an example. Users invest in NFTs to obtain corresponding game assets, NFT PASSES, etc. as prerequisites for participating in Gamefi Play to Earn. During Gamefi's initial outbreak, the APY and inflation rate are often in an out-of-control state. Users need to earn a higher percentage of Game Tokens to maintain their investment returns.
In the current Gamefi 2.0 era, users need to configure more NFTs and tokens to carry out Gamefi earnings and investment strategies. A considerable number of users adopt custody and lending of NFTs to participate in Gamefi, but more users are practitioners of P2E themselves. Different from traditional on-chain earnings, Gamefi requires users to spend a lot of time carrying out earnings behaviors. Users' own operations and judgment will also determine the success or failure of investments.
NFT-inclusive NFTfi+Web3 models also similarly confuse investors. On the other hand, Socialfi still does not have a clear token yield incentive system.
Most of the APY settings for Web3 earnings are above 365%. A few Web3 products with NFT assets as the core will choose to control the token inflation rate within 3% per month, but this will still bring considerable devaluation.
Traditional DeFi's new liquidity models
Behind the LP liquidity earnings, innovations for on-chain liquidity have never stopped.
Among them, Uni V3's range orders allow users to provide liquidity within a specific price range, concentrating market-making funds within that price range. This can greatly improve the efficiency of earning fees within that price range. Funds outside the range will be invalid. The overall distribution of the pool's liquidity is the sum of the price range curves set by all market makers.
On the other hand, Curve V2, which is also for non-stable assets, uses a weighted sum of two market making curves, constant product and constant price, to obtain a new market making curve. The difference is that this curve will adjust dynamically. Curve V1 can only concentrate liquidity around a fixed price, while Curve V2 will dynamically adjust this price and the degree of liquidity concentration based on internal oracles.
Curve V2 defines a value K, which is a dynamically adjusted parameter that determines the shape of the curve. The larger K is, the smaller the curvature and the closer the curve is to the constant price curve, and the more concentrated the liquidity. Curve V2 calculates the D value based on internal oracles, and this parameter determines the anchor price, that is, the price where liquidity is concentrated.
Curve V2 concentrates liquidity by mixing constant product and constant price curves, constantly updating the weights of the two curves. Internal oracles determine the anchor price of liquidity concentration, and update this price to achieve liquidity concentration around the market price.
Paying close attention to the liquidity innovation of traditional DeFi protocols and implementing different investment strategies against them leads to more stable on-chain earnings.
The complexity on-chain gave birth to centralized one-stop earnings services.
Centralized earnings platforms have become the choice for most users today, such as ETH 2.0 staking on Coinbase and Binance, Binance and OKX's Launch Pool and Lending.
This means that CEXs need to reduce the learning and operating thresholds for users, attract more liquidity to cryptocurrencies, although the complex CEX products and focuses are still highly professional investors.
Take XEX Exchange as an example, asset earnings with CEX as the bottom layer
Alpha Rabbit AI Quantitative Trading Robot
With the development of AI technology, the AI quantitative trading robot Alpha Rabbit was born based on Deep Reinforcement Learning.
Using deep learning technologies such as convolutional neural networks (CNN) and recurrent neural networks (RNN), it automatically analyzes time series data in the digital asset market to formulate superior trading strategies to achieve relatively high APY returns in the highly volatile cryptocurrency market.
Alpha Rabbit makes full use of reinforcement learning frameworks, including deep Q-networks (DQN) and policy gradient methods, to deeply analyze historical data and real-time information about the cryptocurrency market, in order to capture optimal actions in various investment decision-making processes.
Alpha Rabbit monitors market risks in real time and adjusts investment portfolios based on market volatility to minimize potential risks. Alpha Rabbit also supports diversified digital asset investments, not just limited to tokens like BTC and ETH.
Alpha Rabbit greatly reduces the traditional trading threshold. Traders do not need to fully understand the principles of market operation, nor do they need to invest a lot of time in learning technology and fundamental analysis, let alone continuously monitor current market trends. AI trading also reduces the requirements for trading execution speed and accuracy, ensuring scientifically rational trading operations.
Strategy Following, Contract Copy Trading
X-EX allows platforms or excellent investors to share and execute their investment strategies. Users can choose to follow and synchronize investments, such as sharing on-chain liquidity strategies, sharing and following aggregated on-chain earnings, etc.
Similarly, X-EX allows investors to select one or more experienced and successful traders, and then automatically copy their trading activities to their own accounts. This means that when the copied trader opens a position, closes a position, or modifies a trade, the investor's account will also execute corresponding operations synchronously.
Users can choose traders or investment strategies with stable and reliable data on the platform based on the data of strategy providers and traders, selecting those that meet their own risk preferences and investment objectives.
CEX users also need to manage risks. Investors can choose multiple traders to diversify risks and avoid relying too much on a single strategy or trader. Investors should also set appropriate stop-loss rules and risk control strategies to ensure the security of funds.
Conclusion
Yield-based investment strategies aim to earn certain incentives by staking tokens and applying them. However, due to the complexity of on-chain operations and transactions, ordinary and new users may find it difficult to complete crypto yield investments. Therefore, exploring centralized platforms for on-chain investment and centralized platform quantitative trading investment may be fruitful areas in the future.
I have outlined some scenarios about current on-chain investment management and one-stop investment on platforms, but crypto investment is still an evolving field. I look forward to further integration and development of designing effective on-chain investment systems and centralized platform investments.
