⍺ DeFi Alpha: Private DeFi With Aztec & Delta-Neutral Yield Farming

• Yields: 62% APR on Stablecoins, 15-18% on ETH and BTC
• Starter Tutorial: Private DeFi on Ethereum with Aztec Connect
• Degen Tutorial: Introduction to Delta-Neutral Yield Farming

DeFi Alpha is a weekly newsletter published for our premium subscribers every Friday, contributed by Defiant Advisor and DeFi investor at 4RC, DeFi Dad, and our Degen in Chief yyctrader. It aims to educate traders, investors, and newcomers about investment opportunities in decentralized finance, as well as provide primers and guides about its emerging platforms.

Motivation

Two years ago, DeFi investors could easily name every yield farming opportunity without much effort. It was a simpler time, when only a handful of teams had launched with any liquidity to trade, lend, borrow, provide liquidity, or even demonstrate new primitives such as no-loss savings by PoolTogether.

But times have changed! Before the current bear market took hold, DeFi liquidity had grown to hundreds of billions of dollars across Ethereum with new burgeoning DeFi economies taking shape on EVM-compatible chains such as Polygon and Avalanche and non-EVM chains such as Cosmos and Solana. Any given day, a new DeFi or NFT project is launched.

So, after writing and creating countless DeFi guides and tutorials since 2019, we at The Defiant agreed it’s time we publish a more detailed weekly guide on all you need to know to keep up with new and old yield earning opportunities.

This is DeFi Alpha by The Defiant.

Any information covered in DeFi Alpha should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions. Any mention of a token or protocol should not be considered a recommendation or endorsement.

🙌 Together with:

• Oasis.app allows you to borrow Dai against your favorite crypto assets, Multiply your exposure and Earn, all in the most trusted way.

📈 Yield Alpha

Each week we will provide options to earn yield on ETH, WBTC, stablecoins, and other major tokens.

• Stablecoins – LP with DOLA, USDC, USDT, and/or DAI at 61.91% projected vAPR in the Curve DOLA+3Crv LP staked in Convex.
  • This yield is accrued in CRV, CVX, and trading fees.
  • To participate, one must first deposit into this Curve DOLA-3Crv LP and then stake the LP here in Convex.
• ETH – Earn 15.78% projected vAPR with the Curve alETH LP staked in Convex
  • This yield is accrued in CRV, CVX, and trading fees.
  • To participate, one must first deposit ETH or alETH into this Curve alETH LP and then stake the LP here in Convex.
  • Check out the Beginner Tutorial today to learn more!
• BTC – Earn 17.74% projected vAPR with the Curve pBTC LP staked in Convex
  • This yield is accrued in CRV, CVX, and trading fees.
  • To participate, one must first deposit pBTC, renBTC, sBTC and/or WBTC into this Curve factory pool and then stake the LP here in Convex.
• AVAX – Lend AVAX to the sAVAX/AVAX pool on Platypus via Vector at 14% APR
  • This yield is issued in VTX, PTP, QI, and AVAX.
  • To participate, one must deposit into the AVAX Stake option here on Vector.
• SOL – Lend stSOL to leveraged farmers on Tulip Protocol at 4.53% APY + 4.9% APR from the underlying SOL liquid staking rewards issued to stSOL holders
  • This yield is backed by interest paid by borrowers on Tulip + staking rewards.
  • To participate, one must deposit stSOL in the Tulip lending tab.
  • To obtain stSOL, one can trade on a DEX or mint it here on Lido.
• MATIC – stake MATIC with MaticX and LP MaticX-MATIC on Balancer for a net 21% APY
  • The yield is backed by validator rewards using the MaticX liquid staking derivative + trading fees on Balancer + BAL rewards + SD rewards.
  • To participate on Polygon, I use the Stader MaticX dApp to mint MaticX.
  • Then, I deposit into the 50/50 MaticX-MATIC pool on Balancer and stake the LP.
• ATOM – mint pATOM and stake the pATOMs on Ethereum to earn more pATOMs on pSTAKE at a rate of 13.5% APR
  • The yield earned is issued and claimable in pATOM.
  • To participate, one must first mint a 1:1 representation of ATOM as pATOM on Ethereum by using the pSTAKE dApp under Stake
  • Then, deposit/stake pATOMs to get stkATOMs and earn 13.5% APR
• FTM – stake with sFTMx by Stader, earning 13% APY
  • The yield is issued in FTM rewards, as sFTMX is earning FTM via validator rewards to support Fantom’s PoS network.
  • To participate, one must deposit FTM to receive sFTMX here on Stader.
• HBAR – stake with the first HBAR liquid staking derivative by Stader, earning 40.5% APY
  • The yield is issued in HBAR rewards, as HBARX is earning validator rewards.
  • To participate, deposit HBAR to receive HBARX here on Stader.
  • Caution: This is in beta and withdrawals will not be possible until July 2022 or later.

🪂 Airdrop Alpha

In each DeFi Alpha guide, we update a list of the most obvious DeFi protocols that have yet to announce and/or launch a token.

Arbitrum Odyssey

Layer-2 rollup Arbitrum kicked off a two-month-long program on June 21.

Participants will be able to claim NFTs based on completing various tasks over the summer.

Week 1 was Bridge Week and we walked you through it in a previous issue of DeFi Alpha.

Participants can now claim their Week 1 NFTs.

Week 2 involved the GMX derivatives protocol but was paused after heavy traffic on Arbitrum caused gas fees to spike.

https://twitter.com/arbitrum/status/1542159105946787840

We’ll be watching for the Odyssey to resume.

Hop Airdrop

$HOP went live on June 9. Claim here.

If you followed the guide posted in previous issues of DeFi Alpha, you should be eligible.

Optimism Airdrop

Congratulations if you followed our guide betting on a hunch that Optimism would release a token!

$OP is Live! Claim guide here.

• Arch Finance – a protocol for comprehensive indices that provide access to differentiated sources of market risk.
• Concentrator – an app for boosting Curve LP yields by harvesting and auto-compounding rewards earned via Convex.
• DeFi Saver – a one-stop dashboard for creating, managing and tracking DeFi positions across Aave, Compound, Maker, Liquity, and Reflexer
• Francium – leveraged yield farming similar to Alpha Homora but on Solana, one can choose to simply lend single assets or hold leveraged LPs to potentially earn an airdrop here
• Jupiter – The leading DEX aggregator by trading volume on Solana
• LI.FI – A cross-chain bridge and DEX aggregator protocol
• Liquality – A cross-chain, non-custodial browser extension wallet, similar to MetaMask but with more integrations for swapping cross-chain.
• Magic Eden – The leading NFT marketplace by trading volume on Solana
• Nested – a crypto social trading platform built on Ethereum and other chains
• Opyn – one of the OG decentralized options protocols on Ethereum, with major investors that signal a token has to be in their future. Buy/sell puts or call options to earn a possible future airdrop.
• Polymarket – one of the strongest players in the DeFi prediction market vertical, bet on an outcome related to crypto, politics, sports and more or add liquidity
• Polynomial – A newer DeFi derivatives vault creator, built on Optimism
• Sense Protocol – A decentralized fixed-income protocol on Ethereum, allowing users to manage risk through fixed rates and future yield trading on existing yield bearing-assets
• Set Protocol – one of the earliest DeFi protocols yet to launch a token for DeFi asset management, popular for TokenSets and known for powering IndexCoop indexes
• Socket (formerly Movr) – their bridge aggregator Bungee moves assets between chains, finding the cheapest, fastest route
• StarkNet – Layer 2 scaling solution for Ethereum using zero-knowledge (ZK) proofs. Testnet guide here. Bridge some assets using StarkGate.
• Volmex – Volmex is a tokenized volatility protocol, similar to the VIX but ETHV
• Wormhole – a cross-chain messaging protocol known for bridging between Solana, Terra, Polygon, BSC, Avalanche, Fantom, and Oasis
• Yield Protocol – a newer protocol for fixed-term, fixed-rate lending in DeFi, backed by Paradigm, one might earn a future airdrop by lending DAI or USDC
• Zapper – participate in Zapper trading, lending, providing liquidity, or yield farming; given the Zapper Quests and NFT Rewards program, it can be surmised that if Zapper ever releases a token, this is one way they might do a retro airdrop
• Zerion – same can be said speculated about Zerion; if they ever release a token, they’re likely to reward those who interacted with their smart contracts swapping, lending, providing liquidity, or borrowing
• ZigZag – a DEX on zkSync that’s recently announced an upcoming airdrop.
• zkSync is a Layer 2 scaling solution for Ethereum that uses zero-knowledge proofs to enable scalable low-cost payments. Bridge some assets and do some swaps for a potential airdrop. Guide here.

👨‍🎓 Defiant Starter Tutorial

An Introduction to Private DeFi on Ethereum with Aztec Connect

When you think about Web3, a few buzzwords come to mind: permissionless, transparency, and privacy. But the truth is a majority of blockchains offer zero privacy. Privacy is a component of cryptoasset networks yet to be fully realized. A few early cryptoassets focused only on privacy (ie Monero, Zcash) but have arguably failed to offer other types of utility found in competing L1s.

With smart contract L1s such as Ethereum acting as a foundational consensus layer, we now have enough of a thriving digital economy thanks to DeFi, Web3 gaming, and Web3 media to to see an emerging demand for privacy.

Aztec is one of a few promising technologies to solve blockchain privacy. Aztec invented Plonk, the industry-standard zk-SNARK that enables fast privacy while securing billions of dollars of on-chain value. Aztec aims to be the new “privacy layer for Web3” having just released its next iteration of zk.money.

Aztec Connect enables anyone to add privacy to Ethereum applications such as DeFi protocols on Ethereum Mainnet like Lido and Element. Aztec Connect brings new paradigms to DeFi and Web3 including:

1. Private DeFi when staking, lending, swapping, yield farming, etc
2. Significant gas cost reductions, akin to what we’ve enjoyed on early Ethereum L2s
3. Private treasury management, on-chain DAO governance, and NFT purchasing and trading

Here’s how it all works:

• When you deposit to Aztec, you’re transferring funds to an Aztec smart contract on Ethereum, which issues you an encrypted note within the system. It is similar to a receipt for your deposit.
• When you do a DeFi transaction, you tell the Aztec Private Rollup to do what you want, and like a VPN, it executes on your behalf whether it’s a Curve swap or Element fixed yield vault entry, without compromising your privacy.
• Transactions are cheap because Aztec batches DeFi transactions before sending them to Ethereum Mainnet, splitting fees along the way.
• Meanwhile, all the liquidity and contracts remain on Ethereum Mainnet. For example, if I run a Curve swap via Aztec, it swaps using Curve’s deep liquidity and battle-tested contracts on Ethereum Mainnet. This is an improvement (and tradeoff given the potentially longer wait time) compared with the liquidity fragmentation and redeployment risk of protocols launching continuously across Ethereum L2s and EVM-compatible L1s.

Aztec launched an earlier version of zk.money in March 2021 where users could simply “shield” their ETH or DAI and then transfer zkETH or zkDAI privately. This latest release brings new and improved functionality including swapping ETH for stETH on Curve to earn 4.42% APR or earning a fixed interest of 4.08% APR on DAI with an Element vault through September 16, 2022.

I’ll demonstrate how I deposited DAI to the Aztec Private Rollup (aka shielding DAI) and then privately deposited my new zkDAI into a vault earning fixed yield with Element.

Before we get started, please be aware of these risks.

• Smart contract risk with Aztec Private Rollup or Curve and Element on Ethereum L1
• Systemic risk in DeFi composability given the use of interconnected money legos with shared liquidity
• Pegged assets such as stablecoins can potentially depeg and stETH can trade at a larger discount depending on trading activity between ETH<>stETH
• Yield can go up or down depending on the amount of liquidity in Element

Step 1: First, assuming I’m totally new to zk.money and never used the old beta, I will go here to sign up under Create new account, with my MetaMask or WalletConnect compatible wallet for Ethereum to derive private keys, which are used to encrypt my data and sign private transactions.

I just follow the prompts with MetaMask, signing a few transactions with no gas.

Step 2: Next, I arrive on a dashboard for zk.money and I am ready to decide whether I’ll i) simply deposit some ETH or DAI to hold in the Aztec Private Rollup, ii) swap ETH to stETH via Curve or iii) deposit DAI into a fixed interest vault with Element maturing on September 16, 2022. Let’s assume I’d like to privately earn some fixed interest on DAI using Element on Aztec Connect.

• I click Shield additional funds from L1 on the Wallet tab.
• I specify how much DAI to deposit, which will give me zkDAI.
• I specify the Transaction Fee which determines how fast my DAI will arrive and also my fee. The longer I’m willing to wait, the more transactions in the batch, the lower the cost of my fee.
• I click Next -> I understand the risks as experimental software -> Confirm Transaction, and then confirm it on MetaMask.

Step 3: Given the Slow transaction fee I opted for, after about 30+ mins, my wallet shows a new balance of 107.9 zkDAI available so I’m now ready to deposit into the Earn tab under Element to enter a vault earning a fixed yield of 4.1% APR on DAI, maturing by September 16, 2022.

• I specify how much DAI to deposit.
• I specify the Transaction Fee which determines how fast my DAI will arrive in Element and my fee. The longer I’m willing to wait, the more transactions in the batch, the lower the cost of my fee.
• I click Next -> I understand the risks as experimental software -> Confirm Transaction, and then confirm it on MetaMask. My transaction fee is paid using a portion of my zkDAI so I don’t need ETH to pay any fees. Once my transaction is confirmed, I’m done!

🦍 Defiant Degen Tutorial

A Primer On Delta-Neutral Yield Farming

2022 has been brutal for crypto markets with most tokens down 75% or more from their all-time highs.

For yield farmers, the volatility presents a challenge as impermanent loss is extremely high and falling yields are inadequate compensation. A 1000% APR means nothing when the underlying token price crashes by 90% in a matter of days or weeks.

At the same time, stablecoin yields on major lending protocols like Aave and Compound have fallen to a point where traditional bank savings accounts offer higher rates with far less risk.

So, what’s a degen to do? Single-digit yields just don’t cut it, but we also want to safeguard ourselves from market volatility during this bearish phase.

In short, we want to capture yield while remaining delta-neutral. This means that despite holding volatile tokens, we aim to eliminate price risk by hedging our LP positions.

To implement such a strategy:

1. The underlying token must be shortable on derivatives exchanges in order to hedge.
2. Funding rates must be lower than the farm yield for the strategy to make sense. In normal market conditions, funding rates are generally positive, making the short hedge an additional source of yield.

Let’s look at Bitcoin as an example.

BTC funding rates at the time of writing are positive on major exchanges.

This means that a BTC short position on Binance would earn close to 11% annualized in funding fees. Note that these funding rates are extremely volatile and must be monitored closely.

In the Yield Alpha section above, we covered the pBTC Convex vault that’s currently yielding 17%.

Here’s what we can do to deploy some stablecoins:

1. Swap stablecoins for WBTC or renBTC and add liquidity to the Convex farm to earn 17% APR.
2. Open a BTC short position of equivalent size on Binance or any perpetual exchange of your choice to hedge price risk and potentially earn funding fees.

If the price of Bitcoin goes down, the profits on your short position will offset the losses incurred on your LP position.

If the price goes up, however, you will need to ensure that your margin account is adequately funded to carry the losses on the short position. Again, these losses will be offset by the gains on your long LP position.

By utilizing such strategies, yield farmers can capture lucrative opportunities while minimizing their exposure to market risk.

When the LooksRare NFT marketplace launched with a 4-digit LOOKS staking yield paid in ETH, many users took advantage of the yield while hedging with short perpetuals on FTX, which listed the token very quickly.

So, the next time you find some juicy yield on a major altcoin, check out the funding rates to see if a hedged strategy can work for you.

The information contained in this newsletter is not intended as, and shall not be understood or construed as, financial advice. The authors are not financial advisors and the information contained here is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. We have done our best to ensure that the information provided is accurate but neither The Defiant nor any of its contributors shall be held liable or responsible for any errors or omissions or for any damage readers may suffer as a result of failing to seek financial advice from a professional.