DeFi Portfolio Update 3Q2021

Holdings are now HNT, CELO, AAVE, UNI, CRV, MKR, FLX, YFI — on a roughly even split.

Summary:

• Holdings are now HNT, CELO, AAVE, UNI, CRV, MKR, FLX, YFI — on a roughly even split.
• I sold all FARM that I had been holding for six months, and instead took a position in Yearn Finance (YFI).
• I’m earning HNT from a hotspot I have and taking profits to reinvest in other tokens.
• My CRV holdings are lower than all others because I think that Uniswap v3 is starting to dominate over Curve.
• FLX and MKR are my new additions as stablecoin governance tokens.

Helium — HNT (Helium.com)

Helium is a decentralised network that provides long-distance wifi coverage to low power devices. Members of the public can set up a hotspot in their home and are paid in HNT tokens for providing coverage to their area. HNT is the governance token for the protocol.

I have had a Helium hotspot for about one year and have made significant earnings. I started to liquidate those earnings this quarter to reinvest in other tokens.

Celo — CELO (Celo.org)

Celo is a competing blockchain to Ethereum. Celo has optimised for speed and UX design, and has a focus of providing financial services to emerging economies, such as Uganda. Celo is the protocol governance token. There are a range of Dapps that mirror those on Ethereum:

• Uniswap.org > Ubeswap.org
• app.aave.com > app.moola.market

Celo also has its own native stablecoins including cUSD and cEUR.

I am involved in Celo governance on a volunteer basis. I also do a small amount of yield farming on the Celo blockchain using Ubeswap.org . You can find my last article on yield farming here (and there’ll be another one published soon).

Aave — AAVE (app.Aave.com)

Aave is a lending platform on Ethereum and AAVE is the governance token.

I own Aave instead of Compound (see compound.finance) because Aave seems more decentralised to me in terms of token ownership.

One change I made this quarter is that I unstaked my Aave from the safety module. This means that I am no longer at risk of up to 30% slashing if the platform has liquidity issues. I deemed that the ~7% APY that is payable for staking in the safety module is not worth the risk of slashing.

Uniswap — UNI (app.uniswap.org)

Uniswap is the main exchange on Ethereum. The platform recently upgraded to v3, which uses an algorithm that greatly reduces the slippage in price for larger trades.

I like Uniswap particularly because the founder Hayden Adams is committed to strong decentralisation.

Curve — CRV, (curve.fi)

Curve is an Ethereum exchange specifically focused on stablecoins. It arose because Uniswap v1 and v2 was inefficient in trading tokens that are relatively steady in price (i.e. stablecoins). The reason Uniswap was inefficient is because it used an x * y = constant type curve for all assets. Curve overcame this issue by using a flatter curve and focusing only on stablecoins. With Uniswap v3, Uniswap have solved their inefficiency that allowed Curve an opportunity (Read here: Uniswap v3 is a big deal).

My lower holding (about half) of CRV relative to other tokens is because I am concerned that stablecoin trading is moving to Uniswap v3. You can see that there is already over $100M in liquidity on USDC<>USDT and USDC<>DAI pools on Uniswap v3:

Meanwhile, the pools on Curve.finance (such as USDC<>USDT<>DAI) have less than $50M, although the sUSD pool does have over $100M in it:

That said, Curve governance is very long term oriented — with rewards offered for locking CRV tokens for up to four years. I am keeping a close eye and will consider re-upping my stake in CRV in the future if and as new ideas come out.

Note on CRV: I have staked my CRV for 4 years as veCRV, which means that I can’t sell it even if I wanted to.

Maker — MKR (makerdao.com)

Maker is a stablecoin protocol, and MKR (the governance token) is a new addition to my portfolio.

I like Maker because it is very decentralised. In short, it allows stablecoins (DAI, a US dollar stablecoin) to be minted by providing any other crypto as collateral.

This isn’t very capital efficient, because you have to overcollateralise to mint (e.g. put down $2 worth of ETH to get $1 worth of DAI). However, it is a very decentralised way of creating stablecoins.

I don’t know which stablecoin protocol will win out, so I’m betting on a few protocols (MKR, FLEX, CELO).

Reflexer Finance — FLX (Reflexer.Finance)

Reflexer finance created another stablecoin called RAI. Rai is not tied to any one currency but floats freely. Rai can be minted by providing Ethereum as collateral. By adjusting the collateralisation rate, the protocol is able to use an automated controller to stabilise the price of Rai.

FLX is the “ungovernance” token for the protocol. The team behind Rai is very focused on decentralisation and good governance, which makes me a fan.

Yearn Finance — YFI (yearn.finance)

Yearn finance is an investing platform that allows users to invest in a wide variety of interest (or yield) bearing tokens. Yearn provides information on the returns of the tokens, and automates the reinvestment of interest/yield in return for a 5% profit sharing fee to the protocol.

I had previously invested in harvest.finance (FARM), which is a competing platform. However, I have sold all of my FARM holdings since the recent drop in the token price. The main challenges I see with FARM (although the protocol may still do well in the future and there are some good people involved) are:

1. Poor user interface, with a low quality appearance/design.
2. Overly complicated token economics, with both FARM and iFARM governance tokens.
3. A lack of transparency as to who are the major vote/ownership holders.

Ultimately, I think YFI is probably expensive, but it has a founder (Andrej) behind it with a good reputation in crypto. I think reputation matters a lot in altcoins and realise now that I should maybe have backed a founder over the more obscure harvest.finance platform.

Relative Holdings:

I’m holding all of these altcoins in roughly an even split, with a slightly higher holding of Celo than average and a slightly lower holding of CRV than average.

Next update:

I’ll write my next portfolio update in October 2021.

Disclaimers:

1. I only invest in the above coins what I can afford to lose. This is risky.
2. The above represent only my altcoin holdings. I hold significantly larger amounts of BTC and ETH.