TLDR
→ DeFi yield investors are subject to numerous position risks and yield shortcomings.
→ Steadefi aims to address these issues through careful risk management, real yields that align with our APYs, and an automated user experience that provides clear market views and historical data.
The Risk and Unpredictability of DeFi
Since summer 2020, DeFi has attracted millions of new users through the promotion of staggeringly-high yields. Unsatisfied with “meager” 10-100% APYs, these same new users (aka ”yield farmers”) continued taking on increasingly riskier investments in order to “maximize their gains” in the shortest time possible. However, while doing so they remained unaware of the extreme risks involved through advanced DeFi concepts such as impermanent loss, market exposure, liquidations, yield volatility, code exploits, or insolvency.
Then in spring 2022, with worsening market conditions and sudden downward volatility, this yield farming boom came to an abrupt end as yield farmers soon discovered that the only thing they had truly yielded was “disappointment.” Adding on to this sense of disappointment was that many users began to realize they were chasing those yields without an informed and actionable market view—most assumed it would all be “up only.”
The Steadefi team observed (and participated) in this yield farming boom, and soon used this market experience as a catalyst for the core of our protocol: offering institutional-level risk management and automation for individual DeFi users, while providing them with something they had not found over the previous two years—predictable real yields.
The Position Risks
Sensitivity to Market Movements
Investors suffer losses (sometimes extreme) due to the high volatility of the crypto markets, especially when they set themselves in leveraged long OR short positions.
Impermanent Loss (IL)
An infamous term in the DeFi yield farming space, Impermanent Loss occurs when one asset in a liquidity pair fluctuates relative to the other asset, leading to an overall loss of equity. This type of loss is amplified in leverage yield farming positions as market movements may move the liquidity pair’s volatile asset (AVAX, ETH, BTC) more dramatically when leveraged.
Liquidation
When investors seek higher yields through leveraged positions, significant market movements against their position can lead to liquidation, which usually entails a 10-20% loss on the principal assets.
Yield Shortcomings
Unpredictable returns and misleading APYs
In order to secure TVL, many leveraged yield farm protocols advertise high rates of return (APYs), which inevitably fall short of their investors' expectations. This means that investors are unable to predict what their yields may be in the long term, in addition to feeling "misled" by returns that end up below the original target.
Requires excessive position management
Most leveraged yield farming protocols require their investors to manually set up their own market-neutral positions and then also manually rebalance them to ward off liquidation or bad debt ratios. This can result in being both time-consuming and overly-complicated for the majority of users.
Mismatch of risk vs reward
Conservative lenders looking for safe (albeit slightly lower) yields on an asset may suffer exposure to the risks involved with highly-leveraged borrowing.
Aggressive lenders seeking higher yields may receive lower "risk-reward" gains as they are forced to share those yields with the more conservative lenders.
Our Approach
Risk Management
Our strategy vaults are designed to provide institutional-grade risk management for individual DeFi users (and institutions, of course!). Our Strategy vaults undergo rigorous testing for handling almost any market movement by effectively balancing both long and short positions. These “rebalances” are performed at multiple parameters for ensuring minimal issues with impermanent loss.
Real Yields
Our strategy vaults provide real yields, which means our rebalancing mechanisms have been carefully designed and tested in order to provide investors with predictable returns that align closely with our advertised APYs. See our backtesting data here.
Automated Positioning
For our strategy vaults, we have automated all of the processes, including the initial market-neutral setup when depositing assets. Yields gained over time will be automatically compounded into the principal, allowing our investors to simply deposit and relax.
Offering an Informed Market View
With the help of clear guidance and an intuitive UI, our users can use historical data and vault analytics to craft and implement a fully-informed market view. After forming their strategies based on their market outlook, the user’s only responsibility is to deposit the correct asset and enjoy their steady returns.
Optimizing Risk-Reward Profiles
By creating isolated lending pools dedicated to the risk profile of the lender, we can offer yields that better align with the user’s risk threshold. In this system, for example, a conservative lender's assets will only be used for more low-risk vault leveraging, while a more aggressive lender's assets will only be used for higher-risk vault leveraging. The yield rewards will then match with the use and risk profile of the funds.
Steadefi Official Twitter: https://twitter.com/steadefi
Steadefi Official Discord: discord.gg/steadefi
