Fraxlend Attracts $10M in Collateral as a Whale Deposits CRV

OCT 26, 2022 • 4 Min Read

Amey Dandawate Amey Dandawate

🌅 Welcome!

A Southeast Asian crypto hub proposes clamping down on leverage and the CEO of a prominent crypto exchange is stepping down.

Today, we take a look at the reason behind the growth of Fraxlend and our Research team examines principal protected yield in DeFi.

This is the Delphi Daily. Let’s dive in.

🚨 In Case You Missed It

  • Singapore proposes a slew of crypto regulations, including a ban on leverage for retail investors.
  • Alexander Hoeptner, CEO of BitMEX, has left the firm. CFO Stephan Lutz has been appointed as interim CEO as the exchange plans to launch a token.
  • Bybit invests $3.8M in T-Scientific, the third-largest shareholder of Bithumb, via convertible debt.
  • Cash App users can now send and receive payments in BTC via the Lightning Network.

📊 Fraxlend Attracts $10M in Collateral as a Whale Deposits CRV

  • Fraxlend is an over-collateralized lending and borrowing protocol that allows users to create isolated money markets between any two ERC-20 tokens. Currently, users can borrow FRAX against six collateral tokens.
  • The protocol was launched on Sep. 6, 2022. Within seven weeks of launch, users have deposited more than $10M of collateral and borrowed more than $4.5M of assets.
  • Most of this growth has materialized during the past seven days as total collateral deposited has grown by 382% and total assets borrowed has grown by 459%.
  • The growth can be traced to three transactions by 0x7a…5428 in the CRV money market. The address collateralized 10M CRV tokens to borrow 3.5M FRAX tokens. The address is labeled “ Founder #1” by Nansen’s wallet profiler.
  • As a result of the activity, the address forms 76% of the total loans issued by the protocol. Currently, the debt position stands at a healthy 40% loan-to-value ratio against a maximum allowed 75%.
  • The CRV money market has reached a utilization rate of 90%. Currently, lenders are earning 9.8% APY while borrowers are paying 10.3% APY.

The Emergence of Principal-Protected Yield in DeFi

  • After two years of free money, DeFi yields have fallen to unimpressive levels. The days of depositing stables into a Yearn vault for 20% APY seem long gone.
  • Crypto yields are now struggling to compete with government bonds. Users have been forced to venture further out on the risk curve to generate worthwhile returns.
  • This usually entails prolonged exposure to cross-chain bridges and obscure yield farms – a recipe for disaster.
  • Principal-protected vaults are an emerging niche of DeFi structured products that attempt to provide risk-averse investors with yield that compares to more aggressive strategies elsewhere.
  • These vaults attempt to guarantee the user’s initial deposit by concentrating risk into house money earned by the principal via safer yield avenues.
  • This is akin to a barbell strategy, where a strategy utilizes both sides of the risk/reward spectrum (low and high risk/reward) in order to boost returns.
  • Theoretically, the potential for composability and the inability of this immature market to efficiently price risk should allow these products to flourish.
  • But a key question remains: Are principal-protected products a value add, or another zero-sum gadget?  Vovo, Brahma, and Ribbon are three projects paving the way in this space.

  • Ribbon’s R-Earn vault takes an approach that is similar to Maple Finance. Vault funds are lent to market makers (Wintermute and Folkvang Trading) at 9.75% APR over 28-day epochs.
  • The vault sets aside a portion of the weekly interest payments to guarantee a base yield of 4% APY. The remainder is used to purchase weekly ATM knock-out barrier options.
  • Knock-out options expire worthless if the underlying asset exceeds or falls below a predetermined threshold.
  • By purchasing both calls and puts, the vault creates a straddle-like “twin win” payoff structure that allows depositors to profit off of intra-week volatility up to 8%.
  • For more on principal protected yield, Delphi members can read our Delphi Pro report here.

🐣 Notable Tweets

Types of DeFi Structured Products

Y2K Finance – Insurance for Stablecoins

Create a FREE account to continue reading

Check Out Delphi Pro

Immediately access the entire catalog of Delphi's research, & private Discord