Much like banks, there is competition with the Ethereum decentralized finance (DeFi) ecosystem; each protocol and ecosystem offers different benefits and drawbacks, especially regards to interest rates.
Due to this competition and simple market dynamics, there are clear rate arbitrages between platforms. According to leading DeFi data provider LoanScan, the interest rate that can be gained on a deposit of Maker’s DAI algorithmically-enforced stablecoin can vary from 8% to 15.87%. It’s a similar, potentially even worse sight, with other cryptocurrencies, with USDC interest rates ranging from 4.69% to 15.21%.
In true cryptocurrency fashion, there have been startups created to take advantage of this arbitrage. One of these startups, Staked (backed by Coinbase, Pantera Capital, and other prominent investors), launched a product to find the best rate on Thursday. Billed as a way to move users’ digital assets to the highest-yielding contracts, Staked’s Robo Advisor for Yield (RAY) should theoretically migrate stablecoins and other cryptocurrencies between Ethereum DeFi applications to maximize returns. As Staked CEO Tim Ogilvie said in a statement:
“Right now, crypto investors are attracted by the yields offered by DeFi lending opportunities. Most investors want the highest rate available but don’t want to constantly monitor and re-allocate as market conditions change.”
But according to Brock Elmore, the co-founder of a project that is likely to compete with Staked, RAY isn’t working the best. In a tweetstorm, the co-founder of Topo Finance wrote that Staked isn’t allocating assets efficiently, claiming that RAY “consistently underperforms their Compound (one of the leading DeFi lending/borrowing platforms) benchmark “because they just look for the highest rates and move their entire allocation there”.
.@staked_us claims to be allocating assets efficiently with their new robo-advisor.
They aren’t. The consistently are underperforming their @compound benchmark because they just look for highest rates and move their entire allocation there
Also no way to withdraw from their ui pic.twitter.com/7pb9ON4sd6
— Brock Ξlmore (@brockjelmore) September 14, 2019
Elmore drew attention to multiple pieces of evidence, including a screenshot that showed that RAY’s moves to maximize profit crashed DAI rates on a lending protocol to 4%, which is grossly under the 10% standard seen on most other platforms. What’s worse, Elmore points out, “[The] code is still closed source. [There is] no UI to withdraw, only deposit. They are in control of your funds via their oracle”.
Staked has since responded, pledging to release an update next week addressing these concerns.
Ah, the growing pains of DeFi, which its proponents say to be the future of finance altogether.
Still Better Than Fiat
Even if Staked was only yielding 4% for its clients, the rates are still drastically better than the fiat system.
As reported by Ethereum World News yesterday, the European Central Bank just cut its interest rate for deposits by 10 BPS (0.1%) to -0.5%. This comes as the Federal Reserve is also expected to cut rates too.
Of course, DAI isn’t exactly equivalent to the U.S. dollar or Euro. But if true parity in stablecoins can be reached, these high rates may begin to show investors the value of cryptocurrency. Just maybe.
Due to this […]