This week we are exploring the best yields in DeFi for Frax issued assets. No network is to far or protocol too obscure, we’ve searched high and low to bring you the best round up of Frax yields.
We’re going to be sharing new ideas with you everyday of the week from now on.
However, the only place to discover them will be in Friend.Tech.
We recently launched our FT account a few weeks back and we want to deliver good value to our key holders.
So let’s jump into our favorite yields of the week.
Liquidity for Pendle Finance - 8.08% for sfrxETH
We love Pendle. It’s breaking new ground to unlock yield and liquidity for sfrxETH. We’ve covered Pendle a few weeks back and so if you have questions about how the YT/PT system works, go give our article a read.
Samuel McCulloch
When adding liquidity in Pendle by supplying your sfrxETH to the protocol to get a Standardized Yield (SY) token. If you don’t choose “Zero Price Impact Mode” the protocol will mint PT and YT and sell the YT for more PT.
Let’s refresh about what we wrote about YT/PT:
What are YT and PT tokens?
Yield Token (YT): YT captures the yield component of an underlying yield-bearing asset. For sfrxETH, this would be the ETH earned until maturity.
Holding YT gives rights to the continuous yield generated by the underlying asset, which is represented as "Underlying APY" within the Pendle interface.
What’s cool about this is that investors trade future yield expectations in real-time. Essentially, purchasing YT means going "long" for the yield of the underlying. One can buy “cheap” YT and then if the Underlying APY goes up, so does the price.
Principal Token (PT): PT, on the other hand, embodies the principal or the initial value of the yield-bearing asset. Upon the token's maturity, PT can be exchanged at a 1:1 ratio for the underlying asset.
For example, if a user possesses 1 PT tied to a certain asset like stETH, upon maturity, it can be redeemed for the equivalent value in stETH. A noteworthy trait of PT is that its value, while initially less than the underlying asset due to the extraction of the yield component, will gradually converge with the asset's value as it nears its maturity date. This predictable appreciation towards the underlying asset's value by the maturity date forms the basis of its Fixed Yield APY.
Interestingly, after you provide liquidity, you can take your SY liquidity tokens and deposit them to one of the many Convex-like vePENDLE aggregators.
For this example, we’re using Magpie, but StakeDAO and Equilibria also provide similar services.
Magpie allows you to get the max boost for your liquidity, without having to lock up PENDLE for several years. As of writing, you can increase the boosted PENDLE rewards received by 2.5x, increasing the total yield for sfrxETH liquidity up to 8.08%. That’s nearly a 2x increase over the regular staking yield.
The bet here is that PENDLE appreciates more relative to sfrxETH over the next year and half. If PENDLE goes to zero, you’ll still get 4.6% on your sfrxETH, and you will have missed out on 20% of your yield. This seems like a fair risk tradeoff in the long term.
As always, this is just analysis and not financial advice. Using Pendle adds extra risks which are outside of the control of Frax and you potentially could lose all your funds.
Come Join Us at Friend.Tech
You can discover the rest of our ideas in our Friend Tech chat. We'll be sharing new ideas daily and will help you find the best Frax yields.
We're testing this out over the next few months, as we think facts should be free, but opinions are worth buying a key for! So come join us in our room to learn more.
CurveCap on Friend.tech
If you are looking for some good intro information about Friend.Tech, check our friend CurveCap who wrote a great post about it today.
