How to achieve stable high returns through Decentralized Finance in a bull run?

The original text is from On Chain Times

Compilation|Odaily Planet Daily Golem(@web3_golem)

While many investors are busy searching for the next AI Meme coin with a hundredfold return or trying to guess which old altcoins will pump again without any signs, there are also people focusing on the high-yield opportunities brought by Decentralized Finance in the Bull Run. The demand created by the Bull Run has caused the on-chain yield to skyrocket, thereby amplifying some interesting Decentralized Finance strategies.

This article will delve into the strategies for the cyclical use of sUSDe in different lending markets, how to use a calculator to estimate actual returns, and how TokenJLP operates, etc.

Kamino Finance (Note: sponsored by Odaily)

Kamino Finance is the sponsor of the original text. Kamino’s various indicators (such as TVL and fees) are rising, and the protocol currently offers the highest yields on assets such as SOL, SOL LST, and stablecoins. These yields can be easily obtained by depositing assets into the lending market, including:

The Annual Percentage Rate of USDC is 18.3%;

The Annual Percentage Rate of PYUSD (Ethena market) is 27% ；

The Annual Percentage Rate of USDS is 15%.

The Annual Percentage Rate (APR) of SOL is 9% ;

Kamino’s more complex yield strategies include their Multiply product, which allows leveraged operations on SOL LSTs (effectively gaining leveraged exposure to SOL staking yields), as well as JLP. Currently, combined with JLP Annual Percentage Rate and USDC lending Annual Percentage Rate, the Annual Percentage Rate of JLP leveraged Position exceeds 100%.

To learn how Kamino Multiply Treasury works and how it is designed to mitigate drop liquidation risk, you can read the complete guide: Maximizing Solana Yield with Kamino Multiply.

Ethena’s sUSDe loop trading strategy

Since the election in early November, the funding rates of assets such as BTC and ETH on the exchange have risen significantly:

The Annual Percentage Rate (APR) earned from Ethena’s revenue and holding of sUSDe is positively correlated with these funding rates, as the protocol hedges the underlying asset’s spot exposure through short-term futures contracts. Therefore, the APY of sUSDe has risen significantly in the past few weeks, currently around 21%. Here are several ways to take advantage of this income:

AAVE

There are several ways to obtain high yields for sUSD, one of which is the relatively new strategy of integrating sUSD into Aave. The specific method is:

Using sUSD as Collateral on Aave;

Collateral borrowing such as USDC and other Stable Coins;

Exchange USDC for sUSD.

Repeat step 1…

In this way, you can effectively obtain leveraged exposure to sUSDe yield, with the actual return being the sUSDe yield minus the USDC loan Intrerest Rate multiplied by the applied leverage factor.

Aave sUSDe Market

(Note: The current deposit limit has been reached, but it is expected to be increased in a few days. So if you want to make a deposit, please follow closely for the official announcement when it reopens.)

Due to Aave’s E-Mode maximum Loan-to-Value ratio (LTV) of 90%, depositors can utilize up to 10x leverage. The table below shows the return of this strategy at each iteration based on a 21% sUSDe APY and a 12.5% USDC loan Intrerest Rate. In this example, 10,000 US dollars worth of sUSDe is used as Collateral to borrow 9,000 US dollars of USDC, which is then converted to sUSDe and used as Collateral again. The total Collateral balance is now 19,000 US dollars, with 8,100 US dollars of USDC borrowed, resulting in a total borrowed amount of 17,100 US dollars. This process can be repeated up to 100 times, or until the strategy’s LTV reaches 90% (0.9). As shown in the table, the more iterations, the higher the strategy’s APY.

Aave sUSDe revolving loan

Please note that manually performing this operation requires some effort and multiple loops will result in higher gas, so this method only makes sense when the scale of the strategy execution is large.

And for ways that can be automated and consume less gas, we can use Fluid.

Fluid

Fluid recently caused widespread follow due to its DEX integration, which introduces smart debt and smart Collateral. On Fluid, users can automatically leverage and deleverage, making the process faster and cheaper.

The maximum LTV of the sUSDe>USDC or USDT market on Fluid is also 90%, allowing up to 10x leverage. However, compared to Aave’s 3% liquidation penalty, Fluid’s liquidation penalty is only 2%, and the liquidation risk is significantly lower. Fluid uses Smart Contract pricing as the Oracle Machine for sUSDe, so even if sUSDe temporarily depegs due to Liquidity contraction, the multiplier Position will not be liquidated due to price drop. Positions will only be liquidated when borrowing Intrerest Rate remains high for a long time and users are unaware, or when the sUSDe contract is attacked.

The introduction of Fluid DEX and Smart Debt allows users to borrow sUSDe by using their USDC/USDT Liquidity pool positions as Collateral, thereby obtaining Money Laundering. The debt will be a mixture of USDT and USDC, and the borrowing cost will drop due to the positive Money Laundering earned from these assets. In the example below, the actual Annual Percentage Yield (APY) paid by the user is 3.79%, instead of the borrowing cost between 8% and 9%.

This forms a higher Annual Percentage Rate (APY) as long as the borrowing Interest Rate for USDT and USDC is lower than the APY for sUSDe. Based on the current Interest Rate shown in the tweet above, when the leverage ratio reaches 90%, the strategy’s APY is 101.1%.

Fluid sUSDe revolving loan (click here to access the real-time calculation table)

Please note that the sUSDe>USDC/USDT liquidity pool has reached its maximum capacity, but is expected to increase soon. Meanwhile, users can access the standard sUSDe>USDT or sUSDe>USDC liquidity pools, which also offer automated leverage and deleverage functions.

In general, when using these strategies, it is recommended to closely follow the Interest Rate of borrowing, as they may have significant Fluctuation and may result in the strategy no longer being profitable. It is also important to note that in the world of Decentralized Finance, there is no such thing as risk-free, and the risk of Smart Contract may lead to financial losses, especially in the event of a vulnerability attack.

Note - How to calculate the actual sUSDe annual percentage yield (APY)

Based on the fees earned in the previous week, Ethena distributes rewards to the sUSDe contract. Therefore, the APY displayed on the Ethena user interface is usually different from the actual real-time APY. This difference is important because a change of a few percentage points can affect whether a cyclic trade is profitable or not.

To calculate the actual APY, you can check the reward information sent to the sUSDe contract. The rewards are sent every 8 hours. By adding up the past three transactions (rewards in the past 24 hours), dividing by the total supply of USDe (click here to view), and then multiplying by 365 days, you can obtain the real-time sUSDe APY.

Please remember that the earnings of sUSDe are obtained through the pump of sUSDe price, not through the claimable earnings.

JLP

JLP has been discussed multiple times before. We delved into its underlying design earlier this year and concluded that, from the perspective of volatility adjustment, JLP outperformed most mainstream encryption assets.

In the performance since the beginning of the year, JLPpump increased by 87%, while BTCpump increased by 90%, ETHpump increased by 65%, SOLpump increased by 104% (data as of December 4).

From the perspective of volatility adjustment, we calculated the Sharpe ratio, which takes into account the volatility and on-chain interest rate (set at 7% per annum in this case). As shown in the graph, JLP’s performance exceeded that of BTC and other major assets by more than 2 times after considering volatility.

The reason why JLP continues to outperform other assets is mainly due to the significant fees paid by perpetual traders on Jupiter, as shown in the figure below. More information about JLP can be found on the Gauntlet dashboard.

Conclusion

In this article, we introduced two high-yield Liquidity Mining strategies. However, there are still other high-yield strategies to choose from, such as Pendle’s high fixed income, YTToken, basis trading, etc. These strategies involve different levels of risk and potential returns, which we will detail in the future.