In the legacy financial world, yield has dried up. Yields on U.S. Treasury bonds have never been lower. The 10-year Treasury bond now offers you a less than 0.9% return. At around 2.1%-2.3%, AAA corporate bonds aren’t doing a whole lot better.
Knowing this, while also hearing about the Federal Reserve’s strong intentions to get inflation above 2%, it’s no wonder investors are ditching low-yielding assets and getting into more speculative investments. People are allocating capital in increasingly distorted ways. How else are they going to get a return?
David Hoffman is the co-founder of Bankless, a content studio with a newsletter, podcast and YouTube channel focused on how to live a life without banks.
On Ethereum it’s difficult to avoid yield. Yield is the default incentive for successful decentralized finance (DeFi) applications to attract capital.
At the most basic level, borrowing and lending applications like Compound and Aave are offering 4.6% and 6.2% interest, respectively, on deposited USDC. More sophisticated yield aggregators like Yearn are generating 7.8% in their basic yield strategies, and up to 16% in more aggressive strategies.
Uniswap, averaging over $1 billion in trading volume per week, is putting its 0.3% trading fees into the hands of those that have supplied liquidity to the protocol. Those that have supplied ETH and USDC to Uniswap have received a staggering 35% APY on a hybrid 50-50 USD/ETH position in the last 30 days.
No negative rates
The DeFi economy is constructed fundamentally differently than its legacy counterpart. In order for DeFi to work, it requires over-collateralization. No one can borrow more than they have deposited, and so far this simple safety net has been the foundation on which DeFi has been able to stand.
It is also the reason why Ethereum and DeFi will become synonymous with “yield” in 2021. In DeFi, rates can’t go negative. There is no room for fractional-reserve lending in DeFi, because it would break the trust model that makes these applications function. In order to remove trust (and therefore centralization), you must over-collateralize.
The elimination of fractional reserve lending in the DeFi economy is why yield will always be able to be found in DeFi. Negative yield is not possible in Compound or Aave; the math doesn’t allow for it. Because these protocols are solvent-by-design, in a scenario in which demand to borrow is at absolute zero, then the yield is also at zero, but not negative.
ETH: The internet bond
The launch of the Ethereum 2.0 Beacon Chain kicked off the long-awaited ability to stake ETH and receive ETH-denominated returns.
In addition to its native store-of-value qualities, the launch of ETH staking turns ETH into a capital asset that produces cash-flow for its owner. We have seen other protocols offer proof-of-stake style returns on alternative assets, but ETH is uniquely compelling because it is also backed by the native economy of Ethereum.
When the size of the Ethereum economy increases, staking yields are designed to reflect this growth. The relationship between the Ethereum economy and ETH should be familiar to the typical bond investor: Healthy economies are highly valued, therefore the native bond typically has a premium associated with it.
Ethereum has no debts to pay, it is solvent by design.
Ethereum cannot default on its ETH payments to ETH bond-holders. ETH is dependably issued to ETH bond-holders for compensation for providing security to Ethereum. Ethereum doesn’t need to collect taxes or generate revenue to compensate those who are looking for ETH-denominated yield. Removing this requirement is a boon to the valuation of ETH bonds because there is no risk of default. Ethereum has no debts to pay, it is solvent by design.
Bitcoin’s recent penetration into the minds of the legacy investor class shows people are interested in a protocol-constrained monetary asset. Additionally, DeFi’s explosion onto the scene, underpinned by offering extremely high yields not found anywhere else in the financial universe, shows how thirsty investors are for dependable yield.
The combination of ETH dividends to bond holders with constrained max issuance creates ETH’s uniquely compelling position as a macro asset in 2021 and beyond.
Last bastion for yield
In 2021, Ethereum is positioned to become the Schelling Point for yield. As bitcoin blasts the doors open on the investability of digital assets, it exposes a yield-rich world behind it in Ethereum.
The diversity of asset types and differing yield-generation strategies is likely to attract the attention of yield seekers of all types. Whether investors are looking for stable, low-risk U.S. dollar-denominated returns, or aggressive high-yield speculative instruments, Ethereum offers investors an array of financial products for them to choose from.
In addition to dollar-denominated returns, ETH as an internet bond is positioned as an instrument that offers upside exposure to the growth of the Ethereum economy, while simultaneously generating ETH-denominated yield for those ready to accept its volatility.
Aave and Chainlink hit new highs as Bitcoin price fights to hold $32K
Bitcoin (BTC) price opened the weekend trapped within the $33,500 to $32,000 range but at the time of writing the digital asset is struggling to hold above $32,000.
A few analysts have warned that the recent price loss of momentum may be a sign of ‘institutional exhaustion’ as selling pressure from Asia has increased since Jan. 19.
Despite Bitcoin’s current downtrend, some institutional investors are sticking to their prediction that BTC price will reach $100,000 before the end of 2021. This suggests that institutions are buoyed by rising investor sentiment and the new proposals for a Bitcoin ETF.
While Bitcoin still faces resistance around the $33,000 level, on-chain analyst Willy Woo sees one potentially positive development for BTC. Woo said that the Bitcoin Spent Output Profit Ratio (SOPR), a metric that shows the profit ratio of BTC by dividing the price sold by the price paid, had “a touchdown”.
According to Woo there was a:
“Full on-chain SOPR reset. Coins moving between investors per hour (24h MA) no longer carry profit on average. To push SOPR lower, investors would have to be willing to sell at a loss.”
Woo also suggested that investors are less likely to sell at a loss, an early signal that Bitcoin could be close to finding a bottom.
Altcoins and DeFi tokens soar
DeFi tokens and altcoins continued to forge their own path as Bitcoin searched for support. Polkadot (DOT), AAVE, Curve DAO Token (CRV) and Sushiswap (SUSHI) all rallied roughly 5% to 7%.
The surge in the price of many DeFi-related tokens has in large part been the result of an increase in DEX activity. Data from Dune Analytics shows monthly DEX volumes have increased since July 2020 and currently the total value locked in DeFi is at $23.89 billion.
Chainlink (LINK) continued its strong rally, setting a new all-time high at $25.50 and surpassing Litecoin (LTC) in terms of total market cap to become the seventh-largest project listed on CoinMarketCap. Aave price also broke to a new all-time high at $229.39 and the total value locked in the platform is $3.44 billion.
The overall cryptocurrency market cap now stands at $936.8 billion and Bitcoin’s dominance rate is 63.5%.
Ultra-rare alien CryptoPunk NFT sells for 605 ETH, or $750,000
Amid a wild market-wide bullrun for non-fungible tokens (NFTs), an ultra-rare “alien” CryptoPunk has sold today for 605 Ether, worth over $750,000 at today’s prices.
CryptoPunks are widely considered to be the original NFT project, released even before Cryptokitties, the blockchain-based collectibles project that propelled NFTs to mainstream consciousness. CryptoPunks developers Larva Labs report that Punks have accounted for $26 million in lifetime sales on their native marketplace, and the average sale price for Punks over the past year has been $6,199.
Each Punk has unique attributes, such as background color, accessories, and even some ultra-rare features, such as an “alien” or “zombie” appearance. The Punk that sold today, #2890, is one of nine alien Punks in existence.
— CryptoPunks Bot (@cryptopunksbot) January 23, 2021
The bidding for the Punk was competitive throughout the last week, with DeFi megawallet-turn-Twitter personality 0x_b1 putting in a 500 ETH bid. The Punk was last sold in July of 2017 for 8 ETH, meaning the owner made a 75x return on their investment.
The new owners are a group of investors that include FlamingoDAO, a “NFT collective that supports and collects premium NFTS,” according to a Flamingo spokesperson. The official FlamingoDAO Twitter handle confirmed the purchase with a meme:
— FLAMINGO (@FLAMINGODAO) January 23, 2021
“It’s simple: Cryptopunks is a groundbreaking project; it pre-dated the ERC 721 standard and crypto kitties,” said the spokesperson on the investment thesis. “Aliens are the rarest form of Cryptopunk and we believe that the acquired Alien will be prized by collectors over time and mature into an iconic digital art piece.”
Crypto art collector @gmoneyNFT, who himself dropped 140 ETH on a Punk earlier in the month, thinks that the alien is a fine investment despite the sky-high valuation.
“I think it was a great purchase. As the world moves more digital, the digital “flex” will be more and more important. It’s how humans operate in the physical world. It won’t change in the digital realm,” he said.
Long-derided as a secondary usecase for blockchain, sales like today’s demonstrate that NFTs are just beginning to have their day in the sun. NBA Topshot, a collectible highlight project from Dapper Labs, has proven to be tremendously popular, and Axie Infinity’s native critters have been selling for remarkable prices as of late as well.
Some critics have called into the question the sky-high prices rare NFTs have been fetching, however, arguing that simple digital scarcity is a shaky foundation on which to justify a $750,000 sale. @gmoneyNFT dismisses these criticisms, saying that there are plenty of real-world analogues that make just as much — or as little — sense.
“Why would someone pay millions of dollars for an original Andy Warhol screen print when you can buy the same one online for $20? Why would someone buy a pair of yeezy’s for $300 when you can buy a fake from the same factory, made with the same materials for much less? Humans like to feel special. The provenance has value.”
Voyager Token (VGX) gains 926% as mergers and acquisitions bring new users
Voyager Token (VGX), also known as BQX at some exchanges, is the native token of Voyager cryptocurrency exchange.
The exchange separates itself from its competitors by claiming to be a commission-free crypto broker platform and its smart order router also allows clients to trade at multiple exchanges.
Since the turn of the year, VGX has gained 620% and on Jan. 15 the token reached a new all-time high at $1.48.
In addition to having a fiat gateway, the platform also offers market data, interactive charts,crypto research and up to 9% interest on stablecoins, along with staking returns for Bitcoin and other cryptocurrencies if users leave them in their exchange wallets.
Token activity sees exponential growth
On-chain data shows that activity started to pick up just a few weeks ago, with the number of daily active addresses surpassing 1,500 while transfers quickly reached $60 million.
The Invest Voyager app allows traders to earn interest with no lock-ups and users staking a certain quantity of VGX token unlocks higher yields. Furthermore, the platform is owned by a listed company in Canada, Voyager Digital Ltd. (CSE:VYGR), a $600 million market capitalization fully-regulated entity.
The Canada TSX exchange listing deal also hides an interesting story. By acquiring a defunct shell company, Voyager was able to manage a reverse merger in Feb. 2019. More interestingly, not a single USD has been paid for the deal, which involved shares of the new company.
In Oct. 2019, Voyager announced a partnership with Celsius Network to manage a portion of its clients’ assets. Thus, the broker was able to diversify its staking offering.
Another notable milestone was Circle Invest acquisition completed in Feb. 2020, converting more than 40,000 accounts. Circle Invest was previously involved with the USD Coin (USD) stablecoin, besides Poloniex exchange, although both projects had already been divested. It is worth noting that the deal did not involve cash, being settled in Voyager Digital shares.
These developments explain the current uptick in user accounts and token activity and similar to Coinbase, Voyager’s fiat on-ramp and regulated status could make the exchange a top choice for future crypto investors located in the United States.
VGX price growth follows new acquisitions and European expansion
Currently, Voyager exchanges is available to every U.S. state except New York, as the company waits for its BitLicense approval. In October 2020, Voyager Digital acquired France-based LGO, a fully licensed European digital asset exchange focused on institutional investors.
LGO CEO Hugo Renaudin explained that the French company would discontinue its dedicated institutional exchange, while LGO would operate under the Voyager brand, although focusing mostly on retail.
The overall traded volume on Voyager’s platform reached $120 million in Nov. 2020, while its asset under management surpassed $485 million on Jan. 15. To date, more than 200,000 users have downloaded the iOS and Android applications and further expansion into Europe should increase the platform’s user base.
Data from TheTIE, an alternative social analytics platform, shows that the recent price spike was preceded by increased social network activity. Apart from a few users complaining of KYC-related withdrawal issues, the general sentiment around Voyager and VGX are positive.
Offering up to 9.5% annualized interest returns on stablecoins and being a fully-licensed broker offering altcoin trading and staking to U.S. citizens seem to be the primary drivers behind the platform’s momentum.
As for the economics behind the VGX token, the possibility of a debit card with cashback rewards, withdrawal fee discount, and interest booster on staking might be needed to drive its valuation further.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
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