ETH Yield Strategy

So, a bit of context: there’s a major lack of opportunities for meaningful yield generation using pure ETH right now, and a lot of regular, old ETH supply which is desperate to earn yield. You might even say that ETH holders are in a bit of a pickle.

This strategy would use supplied ETH to borrow USDC/USDT/Dai from Compound/Aave/Maker and deposit them in high yielding stablecoin opportunities. Like other jar strategies, the profits from the deposited stablecoins (that is, the yield minus the cost of borrowing minus a tiny margin of safety as a repayment buffer) can be used to buy more ETH, which can then be redeposited in the borrowing protocols and reinvested, enabling users to compound their funds. Alternatively, for a little more simplicity, the strategy could skip the ‘buy more ETH’ step and users could receive compounded stablecoin profits plus ETH when they withdraw.

The strategy would also monitor the price of ETH/USD and automatically repay the loans before becoming liquidated. This is a key source of value for users, and would be very hard for a normal user to replicate on his or her own.

The beauty of this (when borrowing from Compound at least) is you literally get paid to borrow - the interest rate is -2%. In that case, you’d want to automatically dump the COMP too. When borrowing Dai from Maker (which is a lot more scalable with larger amounts of capital), the stability fee is a paltry 2%. If borrowing rates become greater than investing yields, the strategy would halt and repay the loans in order to avoid losing money.

In addition, the strategy could automate repayment of the borrowed funds in the event of a flash crash/sudden dip in the price of ETH, something that would be hard to replicate for non-developer individuals who wanted to do the same thing.

To recap, a vanilla ETH pool can provide real user value in three ways:

  1. Auto-allocating to the highest yielding stablecoin strateg(y|ies).
  2. Automatically paying back loans if ETH plummets to avoid liquidation risk.
  3. Auto-compounding the user’s assets.

Because the opportunity cost of capital for ETH yields is so low, a relatively small PICKLE emission would be needed for this strategy in order to drive serious TVL.

7 Likes

I really like this idea…we could deposit the borrowed stablecoins in our own PickleJars and ETH holders get yield without IL.
We wouldn’t even need to allocate Pickle emissions directly, as depositors would earn Pickles from the stablecoin jars. With a borrowing cost of 2% and 50% collateralization, we could put it all into the 3pool jar and ETH depositors would net ~15% (and that’s without the 2.5x boost).

1 Like

Solid idea!
This would likely attract 10s of millions of TVL into this new ETH pJar. yearn’s ETH vault is doing nada atm (waiting on v2 launch?).

Support (if feasible!)

Supporting a naked ETH strat all the way. If people are bullish on ETH wiith 2.0 release and the possibilities of it reaching anywhere near an ATH then they will want their eth out of LP pools in the coming months.
My only worry is like something that happened to Yearn and it became too big too quick. I would be in favour of a low risk and therefore lower yield for something like this and maybe even a capped amount to deposit as a test phase.

2 Likes

I love these sort of ideas!

To keep this on-mission, rather than “highest yield jar”, could we distribute it in a way which would help achieve our peg goals for other assets?

e.g. if USDC was undervalued, ETH as collateral for a USDC loan (which increases demand for USDC) then add that across the stable-USDC LPs, or whatever strategy we’d hope drives the price in the right direction.

This way the APY expectation would also be more stable, as we don’t expose it to the impermanent loss of ETH-X LPs, but have more fine-control than the curve pools