The Cryptoverse is today focused on the yETH vault, and particularly its overnight growth. People were commenting on it holding ETH 215,000, or “0.2% of all ETH in 1 day” just several hours ago.
Now (13:32 UTC), looking into the vault, we find the balance of ETH 345,129, with the value of nearly USD 142m. Per etherscan.io too, wrapped ETH (yWETH) token tracker shows yWETH 351,151, and 3,361 addresses.
And the cryptoverse is busy explaining how this new and complicated DeFi (decentralized finance) toy works.
In his daily newsletter, SetProtocol product marketing manager Anthony Sassano explained the yETH vault strategy this way:
You deposit your ETH or WETH (wrapped ETH which conforms to the ERC20 standard) into the yETH or yWETH vault.
The vault takes that ETH and automatically puts it into a MakerDAO CDP/Vault with everyone else’s ETH.
The yETH vault borrows DAI from this vault against this ETH at a 200% collateralization ratio (as a protection against liquidation).
Then, it puts that DAI into the yDAI vault.
By doing this, it adds liquidity to the Curve Finance’s Y pool.
Then, it can earn trading fees from the Y pool and staking the yCRV tokens on the Curve DAO, in order to farm CRV.
It then “recycles the CRV and trading fees into ETH by buying more of it on the open market.”
And here is another, this time, visual attempt:
The benefit of this, said Sassano, is that those who are willing to take the risk can gain automatic exposure to over 100% APY (annual percentage yield) without understanding the details of how the strategy works. But a major risk is if the MakerDAO Vault/CDP falls to below a 150% collateralization ratio because of a ETH price drop. “This would mean that the yETH vault is open to being liquidated and yETH holders could lose money,” he warned.
As to what putting one’s ETH in a yETH vault looks like, Eric Wall, the Chief Investment Officer at crypto asset management firm Arcane Assets, shows it here.
Wall also commented that “We come up with fun ways yETH vault strategists can take advantage of the fact that yETH is probably going to control more than enough stake to 67%-attack ETH 2.0 PoS.” To this, Ethereum co-founder, Vitalik Buterin, tweeted that to say that one entity getting enough to do a 51% attack on PoS (proof of stake) is fatal – is a myth.
Meanwhile, as reported by Cryptonews.com, US-based crypto research firm Delphi Digital warned that, with the roll-out of staking on Ethereum and DeFi protocols like yearn.finance introducing ETH vaults, the market for the second-most valuable cryptoasset may get significantly tighter.
thanks, but then I do not understand why the APY of yETH and yDAI is almost equal? If you draw DAI from the ETH and earn interest on this you should only be earing on a fraction of the total value so the yETH APY should be a fraction of the yDAI APY.
Where am I wrong?
— Martin Köppelmann (@koeppelmann) September 2, 2020
Would only be controversial if a significant % of ETH gets stolen by a malicious actor – especially immediately ahead of proof of stake. That was a big argument for the DAO fork – can’t have a malicious actor controlling a large % of ETH in POS.
— billΞ.eth (@BillyLuedtke) September 3, 2020
as crypto progresses, we unlock more tech trees to enable mass participation of the degeneracy https://t.co/dpvp3GNpXx
— 찌 G 跻 じ ⚡️ 🔑 (@DegenSpartan) September 3, 2020