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Unrepressed Yields: 12% USDC, 8% PAXG, 6% BTC

first posted: 2021-03-21 13:31:48.787238

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For all the talks about Defi, it appears that "centralised finance" platforms are offering very high returns in "hard tokens". They guarantee a high annualized yield paid daily or weekly.

High Rewards for Hodling on Centralised Platform

Here are a few platforms:

  • BlockFI (US, wire through silverbank/swift) pays 6% on first 2.5btc, 3% beyond, 5% on paxg, and 8.6% on stablecoin
  • Youhodler (Cyprus), pays 4% on btc, 8% on paxg, 12% on stablecoin
  • Nexo pays 4%-5% on btc, 8% - 10% on usdc, +2% (the larger number if you hold 10% of your aum in their altcoin) +2% is paid in Nexo
  • Celsius pays 4% on btc, 10% on stablecoin, 25% more if you hodl 20% of your aum in their altcoin cel
  • Aave: has very high rates, but they fluctuate daily and require very expensive switch contract from metamask, so I could not use that.

While liquidity is daily in theory, some users of those platforms have complained that "compliance check" slow down withdrawal by weeks.

Caveat: not your key, not your coins.

How are such high rates possible?

Someone on internet that I have reason to believe is knowledgeable on crypto told me that he thinks that these platforms are definitely not a scam. Liquidity on these platforms is overnight, so the platforms could reduce their rates and depositors could withdraw if they feel remuneration is too low.

Here are the explanations for such high current yields.

Crypto: BTC, ETH

Depositing BTC allows those platforms to lend BTC. Blockfi try to get lots of smaller (>2.5 btc) deposits rather than whales deposits that could go away overnight. According to these platform's executives, they lend to institutional borrowers who do not go naked short on Bitcoin, instead, the lending allows to go short on one exchange and long on another, those allowing cross-exchange arbitrage.

Greyscale BTC Trust was another example of how such an arbitrage was possible. As the Greyscale premium went negative, the arbitrage changed sign.

Stablecoins: TUSD, USDC, USDG

Here, the executive explanation was less transparent, it seems that platforms are happy to pay 8%-12% on illimited fiat stablecoins.

The reason for that is probably shorts fiat long bitcoin speculators who are ready to pay high rates on margin loans.

Goldcoin: PAXG

This coin pays 5%-8% it looks that it is between stablecoin and crypto remuneration.

The reason being not explained, I suppose that it is less volatile than crypto and therefore can be lent at higher leverage, allowing higher returns.

Info on blockfi:

Info on on Celsius:

  • AUM 2.2bn in Nov 2020 source
  • Israel dev, compatible with US and non US hodlers, funded by ICO altcoin CEL
  • Celsians: Ask Anything
  • Celsius deposit rates with 40% bonus for receiving celsius interest
  • 25% bonus for platinum celsius holder
  • according to rates published by Celsius, you can get up to 18% rate on fiat if paid in CEL and holding 25% CEL, this means you can compound at around 14.7%, but the rate differential is such that you end up almost never converting any of your stablecoin into CEL. However on the app, the rate appears to be 10% whether paid in CEL or in stablecoin.
  • CEL chart

Despite the 18% headline rate, we see that the lower rate of return on CEL results in compound rates that differ only 0.4% and force the loyal followers to remain invested in the altcoin.:

The compound rate boost is more significant for BTC, as the rate differential with CEL is smaller and holding CEL ass much of a drag on the portfolio average compound rate.

Info on Nexo:

  • ICO with altcoin Nexo
  • Swiss (? jurisdiction)
  • 5bn in AUM
  • Nexo deposit rates (8%, 10% if interest paid in Nexo, requires hold 10% stake to get 2% extra to 12%, also, Nexo pays currently around 2% dividends)
  • Nexo chart

Info on youhodler:

  • company is swiss+cyprus based
  • not clear how much assets
  • non US compatible
  • invest up to USD100k, no rate above that.
  • Youhodler deposit rates

Update 20210421

A reddit post explains that once you receive money from Blockfi, your bank might be very inquisitive about the source of funds, so simply using the ramp on and off might help, also, the user seemed to say that it was preferrable to leave the balance for a 2 month on bank before moving it again to avoid having to do full KYC. I have not gone off-ramp yet, so this is something to be mindful of.

A reddit search uncovered this blog article with a comparison.

  • Comparison shows that Voyager, ledn.io and swissborg also offer high stable coin interest
  • Youhodler is not so much discussed

Even more informative is this article. This second article delves into the economics checks the speed at which support answers queries, and talks about the wholesale market:

companies reviewed are:

  • Abra
  • Nexo
  • Celsius
  • Defi contracts
  • Gemini
  • Voyager
  • LEdn
  • Blockfi

A few take-aways:

  • Genesis Trading LLC is the safest lender. Genesis only accepts clients with $5m or more in assets. Their minimum deposit sizes are 50 bitcoins, 1000 ETH, and 500,000 USDC. Their current rates for those coins are 1.5% for bitcoins, 2% for PAXG, 3.75% for ETH, and 10% for USDC, for a one-month term.
  • Anyone who pays more than Genesis Trading has an unsustainable business model: he is paying extra for customer acquisition while having to pay for KYC and Safety.
  • Someone on reddit said that Blockfi and Celsius have best reputation
  • Nexo support never came back to me as I needed to ask status on advanced kyc verification despite many emails in 3 weeks, they keep sending boilerplate emails about unprecedented volume and replying within 5 business days hoping that you will forget them..
  • Celsius token cannot be converted on their site, the only way to do that according to a reddit forum is to send it to metamask and convert it with uniswap. Conversion cost in on the ETH blockchain cost an arm and a leg currently. So it is far preferrable to get cash reward.
  • Blockfi is now further reducing interest rate on PAXG and tier 1 BTC

Grayscale BTC Trust Discount: a more placid investment?

As pointed out by the Celsius CEO, there is way to earn 10%-16% in a year or so if the GBTC fund discount reverses.

Grayscale BTC trust is a CEF (closed end fund) has a 2% annual fee and used to trade at a significant premium. There was some talk of unlocking value out of its NAV now that it trades at a discount. We initiate monitoring of the discount in June:

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Update 20210726

Best rates as follow

  • BTC: hotbit defi 1D 7%, GBTC sometimes has over 10% discount, youhodler 4%
  • PAXG: youhodler 8%
  • USDC: Bybit 15% 21D defi mining, youhodler 12%, nexo 10%, celsius 8.8%

Update 20211205

UST pays 20% on Anchor protocol, see this Terra Defi tutorial. UST is a defi synthetic stable coin, there is market depeg risk.

Update 20220122

hodlnaut has a 13% yield on the first 25k of stable coin

Update 20220317

yield app has 14% on stable and 8% on btc if one invest 20k yld token (worth 5k), so it is worth investing for larger amounts.

Update 20221009

Terra depeg risk materialized, it was preceded by a few weeks of rumors on twitter and reddit. Celsius and Hodlnaut were rumored to have lost from the Terra depeg for a few weeks, and suffered a run. They are both out of business.

Blockfi was bailed out by FTX. Yield.app, Youhodler, and Blockfi pay 8% on stable coin. The rate differential to T-bill is now only 5%, whereas it was 12%.

Update 20221129

I forgot to mention that hodlnaut and voyager went bankrupt following the UST depeg.

It appears that FTX was dumping depositors coins to pump their house token FTT, or as its CEO would explain, it was not keeping reserves in the depositor's token. As allegedly explained in an all hands FTX meeting, FTX had syphoned funds to prop-up Alameida for a long time and FTX was faking a position of high liquidity while being in fact insolvent. FTX asked the companies they bailed out to deposit coins with them. Blockfi are going through judiciary bankruptcy. Genesis trading stopped redemption.

There hasn't been riskfree opportunity in yield crypto space such as the GBTC 30% premium (which dissappeared in Q1 2021 and has now grown to be a 40% discount) and the crypto futures contango of 12% above risk free rates observed until May 2021 which is now -4%. All these platforms that collected funds from retail to lend wholesale had lost much of their business model by the time they were put in place. Options only trade near the money, which makes them very expensive.

Youhodler still operates, but according to reddit does not pay interest on more than $2500 of balance unless one uses their high risk leverage system, which charges very high interests.