Real Yield Crypto Narrative, oh you mean Cash Flow?

Sometime during this current Bear cycle, crypto projects figured they needed to make “Real Yield”. Surprise, surprise businesses need cash flow to survive. You cannot sustain on ponzinomics alone.

Real Yield means the protocol has 2 things:
1) creates economic value
2) the value created is repeatable and reproducible

Real Yield is just like Cash Flow.

But this does not make the protocol “profitable” or “sustainable”. On top of Real Yield the protocol also needs to have the yield generated greater than out going expenses.

As my good Friend Drake on Digital says and schooled me on ponzis multiple times. Where is the Yield coming from?

A Sustainable Protocol is a Protocol where…
Real Yield > cost protocol maintenance + all emissions.

Emissions can take many forms. yield farming, liquidity incentives, staking rewards, airdrops are all examples of ponzi emissions.

Another way to think about Ponzis are that they are a thin veiled form of inflation. Ponzis work because of speculation, without speculation a good ponzi will instantly fall apart. But as most marketers know stories are more powerful than facts.

What are some good examples of Real Yield?

Three obvious categories of DEFI come to mind.
Lending Protocols, Dexes & Onchain Vaults.

First Lending Protocols

A quick shot below show the radical difference in “Real Yield” fee generation.

Aave tops out lending protocols consistently with TVL and fees generated. But how does this compare to lower TVL Cross Chain Competitors?

We can take and analyze another top 10 Lending protocol BENQI vs AAVE.
Taking a 7 day average of the TVL vs Fees generated we can calculate the fees per TVL dollar.

$0.00021/TVL dollar for AAVE
$0.00019/TVL dollar for BENQI

While the P/E ratio of 128x for AAVE and 95x for BENQI which could make a BENQI an argument for a better buy.

Both fees/TVL$ and P/E was pretty consistent across lending with limited outliers. This concludes that TVL is a golden metric for fees earned for Lending Protocols.

But what about Real Yield for Dexes?

Second Dexes & Real Yield

When it comes to Dexes Uniswap is above and beyond the market leader generating the most fees generating $9.2MM in the last 7 days. The issue with this that fees go to Liquidity Providers and no value accrues back to token holders. So it is unclear how the protocol creates economic value for UNI holders.

But how does UNI compare to lower TVL Cross Chain Competitor such as Trader Joe($JOE) on AVAX?

Once again taking a 7 day average of the TVL vs Fees generated we can calculate the fees per TVL dollar.

$0.00021/TVL dollar for $UNI
$0.00026/TVL dollar for $JOE

As you can see $JOE comparatively is a slightly more capital efficient “Real Yield” play but because there is no direct utility for $UNI, $JOE is much more interesting fee generating play with a 46.94x P/E ratio.

What about the veDEXES?

Voter Escrow(VE) is a DEFI game revolutionized by Curve Finance. However new market entrants are coming into the picture. A great example is Velodrome:

Velodrome is a DEX which drives a ton of fees, bribes and emissions back to the users using VE and liquidity providers.

Velodrome fees are the key to long term sustainability. Currently Velodrome is producing over $8,000 in fees a day. This level of fee generation is super impressive for being less than 3 months old.

To put this in perspective as of today august 10th 2022, Curve is the largest veDEX with 6.1 Billion in TVL. Curve generated $22,897 in fees. While Velodrome with 122 Million in TVL generated $8,999.

Using a simple calculation shows Velodrome is +11.25x more capital efficient in fee generation than Curve.

While Real Yield is important for Dexes and Lending Protocols it’s even more important for On-chain Vaults and Asset Management Protocols.

Real Yield for Onchain Vaults:

In a Bear cycle many crypto users have fled to more conservative stablecoin strategies.

One example is Pony Finance ($PONY).

We created the (pony finance) index product for this very purpose. Best stablecoin yields in all of Defi captured in one token.

The Pony finance Index comprises of auto-compounding Beefy Finance stablecoin LP vaults from 3 different chains (Avalanche, Polygon, Fantom and soon Optimism) Bridged and stored securely on Mainnet Ethereum.

Currently hovering right above 7% $PONY has seen stable coin strategy as high as 10% APY.

A recent example of stable coin vault and break down of real yield is in the recent launch of Sommelier (SOMM) Finance’s Cellar product.

As seen below 1.5% of the yield is “Real Yield” and 16% are liquidity incentives. SOMM is more transparent than most protocols and highly respect this aspect. SOMM is just getting started and their vault product is great example of generating “Real Yield” while also generating buzz and leveraging emissions to help bootstrap growth.

Stable coin vaults are a good way to conservatively earn “Real Yield” returns. What are some other vaults that can generate some higher returns.

Concentrated Liquidity Vaults

At the Consensus Conference in Austin this past June I met the ICHI team. ICHI has had a volatile journey this past year but has refactored their branding and strategy to be more aligned with earning “Real Yield” on their HODL and ANGEL Vault products.

ICHI’s HODL vaults allow for single side staking of assets while generating fees via UNIv3 concentrated liquidity management.

A concentrated liquidity strategy is effectively volatility scalping strategy.

Promoting an 80% IRR based on the last 90 days of data ICHI is a very exciting option. Diving in a bit more over the last 7 days average I calculated ~$100/day of fee generation on $651,000 of TVL for a return $0.00015/TVL$. This is currently more aligned to the return rate of stable coin vaults. The big difference here is the exposure to BTC which if you are long BTC this is a much better option. While ICHI manages your LP positions for you there concentration seems to a bit more broad then this Degen would play it. To ICHI’s credit they are still generating during this time period which includes the recent low-volume DeFi winter months.

Net Net about ICHI: If your goal is to accumulate BTC this is a quality strategy to look into.

Conclusion:

We went over a bunch of options and strategies to generate “Real Yield”.

Real Yield is not inflationary it is value creation and cash flow.
Real Yield does not use Ponzis.
Real Yield is one solution to the Crypto Bounce Back.

The Real Yield Narrative is powerful. It’s a very good step in the right direction for the Crypto Industry to become sustainable. And Sustainable is moral.

If you’re interested in learning about more growth strategies and real yield solutions for your project, we encourage you to connect on Twitter @bryancolligan. Join our Telegram for members-only alpha on projects we’re watching and DYOR resources for creating growth, credibility and engagement for your project.