Returns of Hodling versus DeFi-ing

Transcript

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okay perfect all right I guess I'm gonna start now so my name is Alex and I am the CTO and carpenter at Darren and today I'm gonna talk a little bit about returns of investing in d5 versus just holding some creatures such as a theorem or a Bitcoin so first of all I just want to show the chart of a theorem price over the last year so that is from March last year until today so and the results are going to be a lot affected by that because all the returns are compared as if you were to invest last march to be precise on the 3rd of March last year

and it was almost the very bottom and so like over the year the price of every room was almost always higher than that point so that's why the result I kind of thought it's a lot by that so that is just something to keep in mind because right now the price of a theorem is most of you probably aware is around 220 last year the same date it was about 1:30 or so and just a few words about defy it seems to be the most popular application of a theorem these days and it got lots of traction over the last year and there are like lots of instruments that came around that allow you to better manage your risks and some of them the most

prominent ones are compound tokens and unit swap polls those are the ones that I'm going to compare in terms of investment returns later on but before we go in for it I just want to say that the whole ship I think is pretty early stage and it's not a final product so anyone who decides to invest and if I must be aware of multiple risks one risk is economical lots of protocols are developed based on certain assumptions and it's really hard to predict how a market is going to behave if one piece of that brokes and so it's pretty risky and also there like a technical risk as always because you need to trust a card there be many bollocks and as recent examples

of busy Excel it's never reliable completely so investor sentiment of that but let's get started so the key takeaways of this talk is that with arrival of defy it's easier now to actually manage your risks in a while investing in crypto because until now the only thing possible was to decide whatever crypt you like the most but then the growth of crypto was primarily based on pure speculations so except for speculation there was not much actually affecting the price well now they're like some products that you can understand how exactly they work where the profit comes from and based on

that you can just make certain decisions another thing interesting take away from here is that actually certain automated strategies such as set protocol and such as a moving average crossover it actually outperformed ether over the last year if we invested on it so it correlated a lot but it still shows better returns than just investing in the theorem and I'm gonna show a little bit later and the last point is that with the perience of products such as compound it became pretty easy if you don't really want to take the risk of price volatility you can just deposit certain stable coins such as dye or use

DC whichever you prefer and then you can just earn very low but very stable interest on top of that and so first thing I want to talk about is compound as most of you probably heard of it's a protocol that basically a money market with both liquidity and anyone can supply liquidity in one out of eight supported assets and then whenever you take it back you get some interest on top of that so I'm specifically interested in compound dipole which basically means that you put your die into the pool which is a stable coin which price is almost equal to one

year's dollars one year's dollar over time and as the last year showed the average APR was around 7% which means if you just put some dye into compound by now you will have 7% returns on top of that and just to show the size of the protocol they originated 240 million US dollars worth of loans since their appearance slightly more than a year back with their second version of the protocol and right now the size of the market is 42 million of worse of outstanding loans and here is the chart over the last year that shows certain performance so we assume that if we put

10,000 u.s. dollars slightly more than a year back into compound than the rate red line is going to show our actual balance which will be around ten thousand eight hundred by the moment and it steadily grows and not the interesting thing is the interest rate which is flexible and that changes all the time but as I shouted the previous slide if you average it over the year it will be around seven percent however as you can see it's pretty volatile so it can be as high as 17 percent at the very beginning but it also can drop almost to three two percent which is super low but on average it still produces seven percent of interest and that's probably

the most conservative investment that you can do in to defy and just to mention that as well here compound is not the only protocol allowing you to do that there are actually a bunch of alternatives such as dy/dx where you can also invest money in there was busy but the recently it was broken so I guess I wouldn't recommend doing that there is also are they that also kind of provide similar functionality the next thing I would like to talk about is uni swap and maybe some of you know uni swap is an exchange but what I'm more interested in right now is to look at it not as an exchange but as a opportunity to invest money in because it's basically

liquidity pools that exist on chain and people can trade using those pools but in order to let people trait someone need to supply liquidity and you can choose whichever pole you like and then you need to deposit equal amount of ether and whatever the other token is traded in that pool and again I'm gonna look at aetherium die unis whirlpool which means that by doing investment in that pool you need to supply the equivalent amount of eath and die in here has dollars so you need to let's say supply five thousand dollars in with and five thousand dollars and die and then based on that you can track your returns and also just to give the

overall overview there is currently and yeah so you make the profit from the face so once you supply liquidity into the pool then other people trade using that pool and from every trade happening out there there is a small cut of 0.3 percent that gets distributed between people supply and liquidity to the pole so over the last year since February 2019 there was 1.5 million u.s. dollars collected and total split between all the liquidity providers and just to show the size of the protocol there is about 16 very liquid pools that have more than thousand eath invested in them and there's like over 50 pools with at least

hundred is locked in them and the total like new liquidity at the moment is around 57 million yes dollars and here again are the returns and here the mass is pretty interesting because if you remember the first chart that I showed that showed the price of aetherium like iran July it went pretty up high and until that moment the returns of unit swap investment was pretty stable but once the price dropped which was around here so here's when they a theorem price dropped and that was at the moment one actually hyuna swap investment turned out to be pretty profitable because the way the investment works like the perfect scenario for you is that you

withdraw your money from you nice lob when etherion price is almost at the same level when university so when there is a huge decline in a theorem price from the moment when university people and now then you're not seen many returns but once the price starts coming back to the same value so it was like 150 let's say when you invested then it raised a lot or you didn't see much of returns in Hoonah swap but once it started going back to like going back down to whatever 200 suddenly you started seeing many returns and another lines on this chart is basically a green line is a cumulative net return that is basically how much fees are getting

collected by the protocol and the impermanent laws is basically in the decline of the price so you see that when the price of a theorem was super high the decline was very high as well and yes like over the last year as you can see you would have made approximately 15% of total on top of your investment and potentially surprisingly enough if a theorem price is going to drop down again those returns compared to a theorem volt even increase but on the other hand if the theorem price is starting to grow right now those returns are going to be pretty negligible comparing to just investing in the theorem itself and the last thing codes like to touch on is a set protocol

set protocol is one of the most interesting products available in defy these days because they provide automatic strategies basically the way it works they have multiple tokens that they have around 50 different strategies of the moment and the way it works they usually consist of multiple asses let's say it could be 50% a theory and 50% stable coin or like 75% Bitcoin 25% aetherium and the way it works there is certain algorithm encoded in that strategy that rebalances the underlying assets depending on market conditions and the strategies I'd like to look at are actually called what are they called

ma Co which stands for moving average cross over basically they're like specifically two strategies that I'd like to discuss is 20 days 20 days moving average crossover and fifty days moving average crossover basically the way those strategies work is that they consist of a theorem and die as underlying assets and whenever the price of moving average over the last twenty or fifty days depending on the strategy crosses the certain line then the strategy rebalances and either by my ether or sells it back to die and as I mentioned in the very beginning that was pretty interesting that again if you remember the very first charity of price

of a theorem this church is very correlated which is quite understandable because what the strategy does it bites by the theorem for you and sells it depending on certain algorithm and it almost always holds some ether as part of the strategy so there is no surprise that there is a pretty high correlation between the price of a theorem and the returns of this strategy but what is more interesting is that actually over the last year at least strategy outperformed just holding a theorem which I find pretty interesting and inspiring and again here is just like the red line the main line is just the value of ten thousand dollars invested in December 2018 so if you did that back

then by now you would have had almost twenty six thousand which is like two hundred sixty percent return so that is pretty cool this is just the summary everything I just discussed just to compare things at the bottom just to compare I also showed that how much you would have made by simply holding ether and Bitcoin and since the last year was pretty bullish and the price grew quite a lot even simply hot in Bitcoin you would have made pretty decent 130 percent return but that's not always the case because you never know what the next year is going to be and the for strategies up there are the ones that I

just discussed so the compound one is super conservative and it gives pretty low return compared to all of the others but that's just again because the year was pretty bullish and Crypt itself grew a lot but also the cool thing about the compound strategy is that the lowest value was the 10,000 that he invested so it can never go back it's super conservative and when the market is not this bullish it's also a nice option to invest in and as I said the Maaco strategies provided by talking said they actually outperformed significantly the price of ether while there was only 70% increase in price of ether since last

March there was almost 160 percent of profit using one of the strategies and you would have ended up having almost 26,000 out of 10,000 invested and DNA swab dipole also does not look this cool compared to all their other strategies but also it's a very unique strategy that actually comparable to investing in some shares and expect some dividends in a way because the main return that you get from investing in Hoonah swap pool is actually how much how well the exchange performs how many traits are happening there and depending on how much volume goes through the pool university in the more

fees you collect and in the end it might be also print arresting pretty interesting thing to do and I guess I'll just yeah follow us on Twitter is there an underscore IO and I'd guess I'm just gonna keep this light for now while I'm answering questions anyone can see that yeah thank you for now yep anyone has any questions I thank you for the representation what do you think of curve and their project curve is pretty amazing I love their products and it's super race and solid eNOS include this in the slide but actually yeah what

they did is they kind of created a similar product to uni swap but specifically for stable coins and the main drawback of unit swap investments is what I said is if the price of one of the assets goes far away from what you what the point was when you invest it in we have care if it's pretty much virtually impossible because it's for stable coins it's like dye versus use DC which are supposed to be stable which means there is no expected price decline and math under the hood is pretty similar and yeah so that's also definitely cool opportunity out there but it's relatively new so I did not get a chance to include this in to my slides so maybe next time I present that curve

is going to be there too there's one more question over there I believe just wait for the mic thank you so I just wanted to ask you about what about the strategy based on pool together because you know essentially the return would be a little bit better than compound we would just be more spiky well altogether is basically a lottery and it's built on top of compound and the math expectation of the return is exactly the same but the difference is that while investing directly in compound you just get pretty low but stable return but in particular it's like there is a high chance you get

zero there is no way to lose and there's a tiny tiny chance that you get the whole thing yeah but my understanding was that you also have some sponsored money in pull together so the effective return I've pulled together is actually superior to compound I think is sitting at like 11 and a half percent or something like that if you account for the sponsored I well I might be not aware about all the details but Basin understandings purely on top of compound so the math expectations' of the returns is supposed to be exactly the same but I might be wrong thank you any other questions out there I guess there is one more in front the what do you think about arbitrage

arbitrage and how do you think it could be stricter and be a way to diversify the earnings in Devoy well arbitrage is always going to be there and I mean any market has arbitrage because no market is completely efficient and as long as there is certain inefficiencies in the market there is going to be arbitrage and I guess that's a good thing because we're a bit trashy they're like money are so like they're always going to be people trying to take a cut from those different arbitrage opportunities like there's like different interest rate and different protocols others like slightly different exchange price for the same as some different protocols and I guess the coolest think about defies that

everything is so composable and people can like take care of they can build on top of existing protocols kind of trying to improve the protocols in terms of like arbitrage opportunities but it's never going to be perfect because I guess there is no value in fully efficient markets so there's going to be always some arbitrary opportunities and I guess that is good for a market yep one mother can I ask a question about the business model of the different products that you describe so basically you need swap I guess they take a part of the fees compound also takes some part of the spread by understanding well

ideally or like rather theoretically right now they say they don't have any business model at the moment because they're just protocols and in fact you need swap does not take direct fees for themselves like as a company behind but they can also do liquidity provisioning the same conditions as anyone else called do and make money from that and for compart as far as I understand that so there's a certain security pull so there is like a certain fee because there's always a sprat between interest rates on lending and borrowing and because of that spread there like always some money sitting in the protocol itself but based on what compound team

says they are not going to Heathrow that anytime soon and it rather works not as a profit for the company but more like some kind of security deposit in case something goes wrong so there's like some spare money sitting in the protocol kinda to smooth down the situation when everything goes pretty bad and like one of the market crashes sounds like that and what about sets protocol I am actually okay actually I do you know so like for said protocol the business model is that they are coordinating with multiple also liquidity providers because basically the way set protocol works there are like automatic rebalancing happening here and there and people are

incentivized to participate in those auctions and basically those auctions allow you to buy certain asset from the 10th talking side when the rebalancing is happening and so there is also money in there because it kind of creates arbitrage opportunities mentioned early because when one of the tracking cells get rebalance then you can supply liquidity and if you have access to that liquidity and you're actually aware that auction is happening potentially can make money out of that just buying some houses from the talkin side and selling it in the market for budget price and I guess so can a related question the defensibility and all of these is due to the liquidity right like yeah basically but also like just to reiterate again

it's not restricted as a business model for volunteers but it's more like an open process so the founders like the team can benefit from that but also anyone else in the market who is aware they are also free to participate and it's actually incentivize and encouraged a lot because the more competition there is like the better the rates are and so it's good for everyone anyway all right cool another clap round of applause I guess all right thank you so much there's a lunch break now and yeah