We could be getting into into the period of genetically modified yield farming. Or possibly decentralized finance (DeFi) simply doesn’t make sense anymore.
There are at present much more DAI in provide on Compound than there are DAI in the world, a minimum of in accordance with the numbers reported by Compound’s web site. Assuming that nothing has gone awry there, the numbers appear not possible. But they may not be.
Liquidity on Compound is shifting dramatically between belongings as new guidelines for distribution of its governance token, COMP, take impact.
Compound’s web site experiences a gross provide of 401 million DAI proper now regardless that there are solely 148 million DAI in existence, in accordance with DAI Stats.
The complete provide of DAI on Compound skyrocketed as properly, going from $42 million Wednesday to $173 million right now.
The most cheap clarification for that is that Compound counts every deposit of DAI as further gross provide, even when that DAI was simply borrowed and re-deposited. So think about there have been 100 DAI and a consumer deposited 200 USDC. They might then borrow all that DAI and deposit once more. Many customers are in all probability operating just a few wallets to make this work extra simply.
As Electric Capital’s Ken Deeter put it in an e mail to CoinDesk, “Note that that is truly what banks do with USD as properly. If I deposit $100, and $90 will get lent out, somebody will get paid with that $90 they usually deposit it in the financial institution. Now there’s $190 in the financial institution regardless that there was solely $100 to start out with.”
At about 21:00 UTC on Thursday, Instadapp put out the message that it was time to move deposits from USDT to DAI in order to maximise yields and it looks like customers took be aware.
As we beforehand reported, the addition of COMP yields makes these machinations very profitable.
The value of COMP is $178.80, as of this writing.
A guidelines change went into impact Thursday that tweaked the incentives for these seeking to mine new COMP.
Previously, the guidelines had favored the fundamental consideration token (BAT) market as a result of it had the highest rates of interest after large deposits into its liquidity swimming pools. The guidelines now solely rely complete borrowed and complete deposit, ignoring rates of interest. So there’s not incentive to sport a excessive price with a dangerous cryptocurrency.
However, liquidity suppliers haven’t exited BAT positions as quick as may need been anticipated. The complete provide to Compound has gone from $320 to $249 million, although yields on BAT stay sturdy, at 5.4%.
Read extra: Compound Changes COMP Distribution Rules Following ‘Yield Farming’ Frenzy
At 7%, DAI has by far the strongest yield of any token on Compound proper now, making it enticing to purchase on the market and provide. With Tuesday’s change to the protocol – which went into impact right now – all that counts for COMP earnings going ahead are the complete quantity borrowed and lent.
Yield farmers will search for the greatest risk-adjusted return and since DAI has the highest yield with low volatility, it’s a really clear guess.
This was precisely what the MakerDAO neighborhood was apprehensive about earlier this week. Cyrus Younessi, from MakerDAO’s danger staff, wrote:
“There is an opportunity (chance, even) that we see an unprecedented demand for Dai. Much of the pure provide for Dai may be locked up in COMP farming, scaling down sell-side order books.”
As discussion board consumer “Maker Man” put it right now in the MakerDAO chat, “Remember this complete COMP factor is a recycling concern – this isn’t essentially draining DAI liquidity although it’s going to are likely to drive a siphon of it if it continues.”
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