'Crypto has survived utter devastation before, and the yield industry will rebuild itself faster, more efficiently and more composable than before,' writes AMcDougall_SC, president of Stablecorp. Opinion. Crypto2023, presented by Bitstamp.
Remember the halcyon days of DeFi summer? Bitcoin was roaring, the Grayscale arbitrage trade was wide open, the basis trade was just getting going, traditional finance interest rates were plummeting and the broader public started to realize that a fully liquid 10% on stablecoins looked pretty darn good compared to the 0% offered in their savings accounts.
Smash cut to today’s smoking wasteland of shattered dreams, shattered trust and near-zero yields. What happened? Was any of it real? Most importantly, what’s next? At this point, DeFi yields dropped precipitously and have stayed near 1%-3% on stablecoins since then on the bigger platforms including Compound and AAVE. However, CeFi yields stayed in the high-single digits as CeFi platforms slowly began to erode lending/deployment standards to move up the risk curve to keep yields high.
Going forward, there will be a significant amount of pressure on purely CeFi companies to disclose more information about their loan books and asset deployment strategies. There will also be a greater use of on-chain analytics tools to bootstrap that transparency where it is not forthcoming. The first is DeFi insurance such as Nexus or Unslashed. Effectively, DeFi insurance acts similarly to any other insurance policy where an event happens and you are able to file a claim for compensation. Except instead of an insurance company underwriting and selling you the policy, it is an insurance pool that you are buying insurance from and the providers of the capital are other participants on the platform.
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