Author: Nian Qing, ChainCatcher
Editor: TB, ChainCatcher
A new consensus is growing stronger: the PvP era has temporarily come to an end.
Pump.fun's revenue over the past 24 hours has fallen by more than 90% from its all-time high of $15.38 million on January 25. The celebrity token craze has become the last push of the meme coin racing car before it loses control. The Libra incident may mark the end of the Memecoin era, and the key is that the players' mentality has changed, and the P-players have finally stopped "P-ing".
As a result, Bitcoin has returned to the 800 range, and Altcoins have collectively plummeted. As the saying goes, lofty ambitions have temporarily receded, and preserving one's own safety has become the top priority. This saying is perfectly suited to the current investment strategy in the cryptocurrency market. If you say that in the bull market uptrend, the market chases hot money, in the downward market, investors prefer relatively stable yield products and prudent hedging strategies.
Although DeFi veteran Andre Cronje believes that the group participating in Meme coins is completely unconcerned with DeFi or even blockchain, so Meme coins have not taken away any attention. But after the end of PvP, capital is indeed looking for other high-yield opportunities, and DeFi is starting to show signs of recovery.
Sonic went live at the end of last December and in just two months, its on-chain TVL has realized a rapid growth from 0 to about $700 million. Its ecosystem DEX project Shadow Exchange has achieved rapid capital inflows due to high-yield mining, with the token price soaring from a few dollars to hundreds of dollars.
Launching high-APY DeFi arbitrage has almost become one of the strategies of new public chains recently. According to Defillama data, in addition to Sonic, emerging high-performance public chains focused on DeFi such as Berachain, Sei, and Soneium have seen an increase in TVL in the overall market downturn, which is inseparable from the high-yield attraction strategy.
Shadow Exchange: The "Gold Shovel" of the Sonic Ecosystem
The success of Shadow, in addition to Sonic's ecosystem incentives and subsidies, is largely due to the innovative gameplay it has introduced. During the last DeFi Summer, AC had proposed the ve(3,3) model, and this time, Shadow has made improvements on the basis of ve(3,3) and proposed x(3,3).
Simply put, (3,3) is a pact to work together to grow stronger:
- You buy and lock up tokens to help the platform, such as providing liquidity and supporting development;
- The longer you lock up, the more rewards you get, and the more valuable the platform becomes with your support;
- In theory, if you lock up with everyone, the token price will go up and everyone will make money.
But ve(3,3) has a problem: the lock-up time is too rigid, you have to lock up for a few years to get high returns, the risk is extremely high and the rules are not flexible. So Shadow's x(3,3) is adding some new tricks to the old mechanism, the core of which is "flexibility + incentive":
- Lock-up for tickets: You take Shadow's token $SHADOW to the platform and lock it up, and get $xSHADOW in return. $xSHADOW is like a "membership card", with it you can share the platform's profits (such as trading fees), and you can also vote on how the platform is played.
- You can leave anytime, but at a cost: The old mechanism required locking up for a few years before unlocking, x(3,3) is different, you can take back your $SHADOW whenever you want. The cost is that if you don't lock up for a certain period of time, there will be a fine, and these fines will be distributed to the "honest people" who continue to lock up.
- The longer you lock up, the more you earn: The longer you lock up, the higher the "value" of your $xSHADOW, and the more rewards you get.
- "Re-basing" incentivizes long-term thinkers: The fines paid by those who run away will make those who stay earn more, this is called "re-basing", which gives more incentive to those who stay.
So far, Shadow has validated the explosive power of the x(3,3) model in the liquidity race, with the platform's trading volume exceeding $1.4 billion and TVL exceeding $130 million in the past week. The liquidity pool is approaching 2,000, and some of the early pools have APRs that are ridiculously high.
So how are the high APYs of Shadow's staking pools achieved?
Shadow's high-APY pools mainly rely on the distribution of reward tokens xSHADOW to attract users. In the beginning, in order to incentivize more people to mine, the rewards were in a "high emission" phase, and the calculated annual yield naturally became very high, possibly reaching hundreds or even thousands of basis points. In addition, Shadow uses the concentrated liquidity mechanism of Uniswap V3. The narrower the range of liquidity provided, the more concentrated the rewards, and the higher the APY looks. But as more people participate and the stakes increase, the rewards will be gradually diluted, and the APY will naturally decrease.
And there is a lot of "water" behind the high APY. The staking rewards in xSHADOW are actually subject to unlocking restrictions, and some of the rewards need to be locked up for 6 months before they can be fully withdrawn. In addition, you also need to bear the risk of Impermanent Loss. If the pool price fluctuates greatly, and large holders sell off, they also face the risk of losses. In addition, there are also users who complain that the APY displayed on the Shadow front-end is calculated based on the narrowest price range, and many investors can't figure out the real returns, and are easily deceived by the "inflated" APY.
Shadow has been online for less than two months, and is still in the early stage, plus the ecosystem subsidies and airdrop expectations from Sonic, so the high APY is very difficult to sustain in the long run. As the locked-up amount (TVL) increases and more participants join, the rewards will be diluted. In addition, investors also need to consider the discount on unlocking, Impermanent Loss and price fluctuation risks. Therefore, the stablecoin trading pairs on Shadow are more popular due to the lower Impermanent Loss, but the APY is also relatively lower.
It is worth mentioning that the DeFi protocol Solidly, which initially applied the ve(3,3) model, failed to sustain due to release mechanism and liquidity management issues, and although its model has been improved by protocols like Velodrome, the sustainability issues of the (3,3) economic model still exist.
Infrared: The "Liquidity Engine" of the Bear Chain
Before introducing Stride, it is necessary to first mention the overall situation of the current DeFi ecosystem on the BeraChain. BeraChain went live on February 6, and in just 20 days, its DeFi ecosystem has risen rapidly, with the current ecosystem TVL exceeding $30 billion, surpassing Base, Arbitrum, Sui and other public chains. Multiple DeFi protocols on BeraChain, such as Infrared, Stride, BEX (Berachain Exchange), Bend, Berps, and Honeypot, have launched high-APY liquidity staking pools.
In addition, BeraChain has designed a BGT (Bera Governance Token) incentive system around its core PoL consensus mechanism, aiming to incentivize users, validators and project parties to participate together. When the mainnet first went live, only a few pools on the official DEX BeraHub could get BGT, such as WBERA/HONEY and USDC.e/HONEY. These are the "default treasury", providing a foundation for the ecosystem. It is still in the first stage of governance, with PoL fully open, and any project can apply to have their pool get $BGT. The voting rights are in the hands of BGT holders. Currently, it is still in the early participation stage, and the returns and subsidies will be relatively high. As more pools are added, the distribution of BGT will gradually be diluted.
Currently, the leading liquidity staking protocol on BeraChain is Infrared, with over $1.4 billion in on-chain TVL, and the highest-yielding liquidity pool has an APY of 120%.
Infrared's explosive growth and high APY are inseparable from the "gold-attracting effect" of the bear chain mainnet dividend period. Berachain's governance token BGT is "soul-bound" and cannot be bought and sold, only earned by providing liquidity. Infrared is like the ticket office of the bear chain, where you can deposit liquidity (such as BEX's LP tokens) into the treasury and exchange it for iBGT, and also earn $BGT rewards. In addition, Infrared collaborates with multiple DeFi protocols within the ecosystem, ensuring the liquidity and nesting returns of iBGT across the entire ecosystem.
In addition, Infrared is a Build-a-Bera incubation project supported by the Berachain Foundation, and received investment from YZi Labs (Binance Labs) last June.
Currently, Infrared is still growing through official airdrops, validator dividends, and leveraged gameplay. However, all high-APY projects carry risks, and Infrared's users face the same high risks of interest dilution, impermanent loss, and price volatility as Shadow.
Yei Finance: The "Stablecoin Mining Powerhouse" of the Sei Ecosystem
Although the APY is not particularly high compared to the previous protocols, Yei Finance's conservative investment still attracts a number of conservative investors to mine.
Yei is the leading lending protocol in the Sei ecosystem, focusing on USDC mining and offering WSEI (wrapped SEI) rewards. It is positioned as Sei's "yield aggregator". Recently, Yei has also launched the SolvBTC pool, providing bitcoin yield opportunities, which is relatively rare in DeFi.
The APY of the USDC pool on Yei exceeds 20% (of which about 5.7% is stablecoin yield and 14.9% is WSEI), which is the largest pool on the platform currently. The "stable + high yield" attracts a large number of conservative investors.
In December last year, Yei Finance completed a $2 million seed round, led by Manifold, with participation from DWF Ventures, Kronos Research, Outlier Ventures, Side Door Ventures, and WOO.
Sonex: The DeFi Hub on the Soneium Chain
Soneium, the Ethereum Layer-2 blockchain developed by Sony's Sony Block Solutions Labs and Startale, is built on Optimism's OP Stack. According to L2Beat data, Soneium's TVS (Total Value Secured) has exceeded $70 million (with SolvBTC assets double-counted).
Similar to the bear chain, as an early-launched ecosystem, Soneium has a rich set of incentives and subsidies for its ecosystem. For example, Soneium launched the Soneium OG Badge in early February, where users can receive a soul-bound badge by completing 45 transactions on Soneium (why 45? Because Soneium was launched on January 14, and the activity will end at 12:00 noon Beijing time on February 27, which is exactly 45 days).
Sonex is the leading DeFi project in the Soneium ecosystem, supported by Sony Block Solutions Labs and Startale. Positioned as an AI-driven DEX and all-in-one DeFi platform, it was one of the first projects incubated on the Soneium mainnet, launching just last month. Last month, Sonex also announced that it had successfully raised $1 million in seed funding in less than 60 days, led by Outliers Fund, with participation from Baboon VC, Taisu Ventures, Nonagon Capital, Flow Traders, Gate Ventures, and Lootex.
Sonex's staking pools currently have a number of high-APY liquidity pools, mainly in stablecoins and ETH. Recently, Sonex has launched the Astar Contribution Score (ACS) activity, where users can earn token and score dual rewards by participating in ASTR staking on Sonex from February 20 to May 30.
As the Soneium mainnet has only been online for a month, it is still in the dividend period, so the APY and score rewards are the highest. Choose popular staking pools and avoid those with low depth. Currently, Sonex has a score reward program, and the scores may be directly related to airdrops.
Morpho: The "Smart Fund" of Multi-Chain DeFi
On February 27, Coinbase announced the listing of MORPHO. Morpho was initially a lending protocol on the Ethereum network, with the core being "optimized lending pools", adding a layer of "smart matching" on top of traditional protocols like Aave and Compound. In simple terms, it tries to match lenders and borrowers as directly (P2P) as possible to reduce idle capital and improve yields. However, as a relatively older DeFi protocol, its visibility is far behind Aave, Compound, and others due to being built on top of other protocols.
In early 2024, Morpho took a new turn, launching the decentralized lending base layer Morpho Blue, transitioning from a DeFi protocol to DeFi infrastructure. Morpho Blue's lending markets are independent. Unlike multi-asset pools, the liquidation parameters of each market can be set without considering the highest-risk asset in the basket. This allows suppliers to lend at higher LTVs while bearing the same market risk as when supplying to lower-LTV multi-asset pools. Collateral assets are not lent to borrowers, reducing the liquidity requirements for normal operation of the current lending platforms and allowing Morpho Blue to provide higher capital utilization.
In addition, Morpho Blue is fully autonomous, so there is no need to introduce fees to pay for platform maintenance, risk management, or code security experts. Notably, Morpho Blue has a permissionless asset listing feature, allowing anyone to create custom lending markets with their own assets, interest rates, and liquidation rules, making its financial efficiency simple and efficient. Blue also supports permissioned markets, enabling broader use cases including RWA and institutional markets.
The Morpho Stack has been deployed on multiple new chains, including Polygon POS, Arbitrum, Optimism, Scroll, Ink, World Chain, Fraxtal, Unichain, Mode, Hemi, Corn, and Sonic (note that the multi-chain deployment is limited to the infrastructure, and these new chains have not yet launched the Morpho App, nor will they receive MORPHO rewards).
Currently, Morpho's total deposits exceed $5.3 billion, and according to DefiLlama data, the TVL of Morpho Blue has been rapidly increasing in recent months, now approaching $3 billion. Morpho Blue currently has multiple asset pools, with the popular ones still mainly in stablecoins.
Pendle: The Bond Market of DeFi
Pendle is a DeFi protocol that allows users to tokenize and trade the future yield of yield-generating assets. By separating the principal and yield components of an asset, Pendle employs more advanced yield management strategies, including fixed-income, speculation on future yield changes, and unlocking liquidity from staked assets, bringing traditional financial concepts (such as interest rate derivatives) into the DeFi realm.
In simple terms, compared to other exchanges that mainly trade token prices, Pendle trades "APY", i.e., "taking the future yield and playing with it now". It allows users to split yield-generating assets into "Principal Tokens" (PT) and "Yield Tokens" (YT), which can then be traded separately. For example, you can have stETH (Lido's staked ETH), and use Pendle to split it into PT (to get back the principal) and YT (to earn future yield), and then trade them freely. This flexibility allows users to lock in fixed income while also speculating on yield expectations.
Pendle established a fixed-income market last year, and its TVL has grown 20-fold, now approaching $5 billion.
There are currently many arbitrage opportunities on Pendle, such as arbitrage through discounted PT. In the market, the trading price of PT is often lower than its maturity value (traded at a discount). You can buy PT at a low price, hold it to maturity, and earn the difference in the middle; YT is a yield token, and the earnings are the future earnings of the underlying asset. If the market expects the yield to rise, you can buy YT at a low price and gamble to earn a high yield; in addition, there is also the arbitrage space of the PT-YT price spread. Relatively more stable is staking mining, you can also participate in the U-based PT pool arbitrage, the APY is usually over 10%. But all arbitrage needs to consider the risks of impermanent loss, long lock-up period, and price fluctuations.
(Investing has risks, please readers view it cautiously and rationally, this article does not make any investment recommendations.)
