Welcome to Mid-Week Market Check!
Every Wednesday, I’ll show you what I’m seeing in the crypto market as well as opportunities to earn yield using various onchain strategies.
Each Mid-Week Market Check will include 3 sections:
Market Pulse — trends and observations in the current market
DeFi20 Tracker — measuring the DeFi20 Index performance against the broader market
Yield Spotlight — attractive onchain yields & how they work
Since our most recent Market Pulse update, the crypto market has seen its strongest stretch in quite a while.
As of Tuesday evening, the total market cap is up ~8.5%.
And altcoins are up ~8.2% (based on TradingView’s “OTHERS” index).
When it comes to analyzing crypto markets, BTC is still by far the most influential asset. In order to have a sustained market-wide rally, BTC has to be strong – this has always been the case, and will continue to be until altcoins show that they can sustain multi-month uptrends while BTC isn’t.
Personally, I prefer to trade purely based on price action. I rarely ever take short-term trades based on news or narratives – I’ve found that when they matter, it will show up in the price action. And from a purely technical standpoint, BTC is definitively not out of the woods yet – but it’s slowly getting there.
The following chart shows BTC’s journey from a dying uptrend to a choppy market to a sustained downtrend:
Last July marked the last time BTC was in an undisputed uptrend. This is shown by the moving averages being in order – the most short-term MA is at the top (orange line), followed by yellow → green → blue → purple → black (this series of MAs was inspired by Simon Ree’s technical indicators in the Tao of Trading, which I can’t recommend reading enough if you want to learn to trade).
That uptrend had done a complete 180 by mid-November, shortly after the infamous 10/10 flash crash sucked billions of dollars’ worth of liquidity out of the market.
After a brief attempt at reversing back into an uptrend in early January, BTC succumbed to another leg down. Something notable to me at the time was just how long it stayed below the yellow MA, which is, in my opinion (as well as Ree’s), the most important of the “rainbow” MAs. You can even see how price began to accelerate once BTC broke above it the second time (after the too-steep first breakout).
With price suppression that severe, a bounce like this was inevitable. However, as you can see, BTC is by no means in an uptrend yet.
The black line (hard to see, but it’s the 200d MA) is sitting around 93k right now; if we see a true breakout, that will be a major point of resistance. Keep in mind that this MA is moving down every day, which means the theoretical upside is shrinking.
A silver lining here is the fact that an increasing number of altcoins, including some DeFi20 tokens, are in a solid uptrend. We’ll get to those in just a moment!
For a more comprehensive overview of catalysts (beyond just technical indicators) that could push BTC higher in the short/mid-term, check out our recent post: The Case For BTC At $67,000.
Slowly but surely, the DeFi20 Index is transitioning from the idea stage to reality. Since our last update, we put together this market map to show all 20 projects and their respective categories. And we have more coming in the near future!
Leaders & Laggards
Just like the broader crypto market, these tokens had themselves quite the week; as a whole, the index was up over 9.6% as of yesterday evening – outperforming the broader market.
Within the index, here are the tokens that performed the best and worst since last Monday:
Zooming in on MORPHO and ZRO
It’s notable that Morpho was among the worst performers during this period of market strength, especially considering it was among the top performers in mid and late February, while the market was flat/down.
In fact, MORPHO was up 55% during the month of February, while the crypto market as a whole was down over 13%.
Ultimately, the MORPHO token had two big tailwinds to keep demand high during that market stress:
Its biggest competitor, Aave, was going through an internal battle between tokenholders and shareholders
Apollo, a global asset manager with $840B in AUM, announced their commitment to buy MORPHO tokens
While MORPHO’s strength in a down market shouldn’t go unnoticed, it’s equally important to see price hold up during a broader market rebound. I don’t expect it to be a direct inverse correlation to the market; but frequently, the assets that appear strong (like consumer staples in the stock market) during a weak market do not take part as much in the rebound.
With that being said, it’s still in a clear uptrend, with short term moving averages definitively above long term moving averages.
Another notable member of the DeFi20 is LayerZero (ZRO).
While many crypto assets made new lows in February, ZRO has stayed above its December bottom all year:
It’s been a choppy ride, but the fact that it remained positive in February (up ~3% for the month) and has also been rallying with the rest of the market is encouraging. Like MORPHO, ZRO benefitted from institutional recognition when Citadel Securities – the world’s largest market maker – announced their intention to purchase ZRO tokens after the LayerZero team revealed their “Zero” blockchain last month.
Every week, I look through 50+ DeFi apps for yield opportunities. With DeFi’s move towards a more sophisticated, institutional userbase, the variety of yields is growing larger by the day. Some examples are:
Plain lending/staking yields
Leveraged versions of those same lending yields
Multi-strategy vaults (like an onchain fund-of-funds)
AI agent-driven strategies
Highly-active, professionally-managed strategies such as funding rate arbitrage and option spreads
In this section, I’ll cover a few opportunities that I’ve recently come across — for both stablecoins and volatile assets (non-stablecoins)
Stablecoins
App: Strata
Blockchain: Ethereum
Primary Asset: NUSD
Deposits: $6.8M
APY: 10.4%
As demand for DeFi yields continues to grow, there’s been a rise in popularity around tranched credit. In its simplest form, this allows depositors to pick between senior and junior level credit:
Senior credit – low risk, low yield; protected by junior lenders
Junior credit – higher risk, higher yield; if the borrower defaults, the junior tranche absorbs the losses before the senior tranche
While Strata wasn’t the first project to bring tranched credit to DeFi, it’s been a leader in recent months. Right now, its offers junior and senior credit vaults for two yield-bearing stablecoins: Ethena’s USDe and Neutrl’s NUSD.
Strata’s junior NUSD vault is currently offering a ~10.4% APY, which is almost 2% more than you’d get if you were to simply stake your NUSD to earn from Neutrl’s arbitrage strategies. Again, this involves extra risk, but it’s a great example of how DeFi is evolving to meet various risk appetites.
App: Main Street Finance
Blockchain: Ethereum
Primary Asset: msUSD
Deposits: $35.7M
APY: 12%
I actually covered Main Street back in this issue of Building The Future; the project stuck out to me because they’re the only one I’ve come across that uses options to generate yield on a stablecoin (most other yield-generating stablecoins use funding rate arbitrage and staking yield).
That yield from offchain options can be transferred onchain via the msY token, which is what you get when you deposit msUSD into the vault.
The msY token uses box spreads (essentially the option-equivalent of the perps-based delta neutral spread) to generate income from factors like time premium and option mispricing. It also uses CME markets for option trades, which are among the deepest in the world in terms of liquidity.
Since I covered them in that Building The Future issue, their growth has been impressive: msY’s market cap has grown from $8.7M to over $35M, and its APY has stayed consistent in the 10-12% range.
Volatile Assets
App: Fluid
Blockchain: Ethereum
Primary asset: ETH/stETH
Deposits: $180M+
APR: 4.74%
Right now, if you were to stake your ETH on an app like Coinbase, you’d make somewhere around 2%. But with “looping” strategies like this one, you can substantially increase your yield.
Looping is a way to lever up on staking – here’s how this Fluid vault works:
You deposit stETH or ETH
Fluid converts them to wstETH (wrapped staked ETH)
Fluid lends the wstETH on major apps like Aave, Morpho, or even Fluid itself (depending on which one has the highest yield)
Fluid borrows ETH against the wstETH
Then swaps the borrowed ETH for more wstETH
Then lends that wstETH out
Then borrows ETH against it
The pattern continues until it reaches its target loan-to-value (LTV) ratio to leave a safety buffer
Since wstETH is just a version of ETH that earns staking rewards over time, its value is always higher than ETH, and always increasing relative to ETH – like a stock that automatically reinvests its dividends.
Since wstETH and ETH are fully correlated, the main risk within the stETH/ETH looping strategy is that the borrow rate for ETH becomes too high relative to the lending rate for wstETH – but the reward is twice the yield that you’d get by staking ETH yourself.
App: Ipor
Blockchain: Ethereum
Primary Asset: stETH
Deposits: ~$6.2M
APY: 7.2%
This vault uses the same looping strategy as the Fluid vault, only with higher leverage; despite having 2,682 stETH in deposits, it’s currently managing 26,519 in stETH, which means it’s about 10x levered. The higher leverage brings more risk but also higher potential for returns:
Risk: less room for ETH borrow rates to move higher than wstETH lending rates
Reward: over 3x the yield of “vanilla” ETH staking
App: Yearn Finance
Blockchain: Ethereum
Primary asset: CRV
Deposits: $7.35M
APY: ~27%
One of the oldest vaults on Yearn Finance, yCRV takes advantage of the governance features inherent in the CRV token.
Specifically, any CRV holders can lock their tokens in the Curve app for up to 4 years (or as little as 1 week). Locking up the tokens for longer gives you two main benefits:
You’ll earn a higher yield on your CRV tokens
You’ll have more influence on how the Curve app distributes its CRV incentives. With enough influence, you can essentially direct CRV incentives to yourself.
Yearn takes the CRV that’s been deposited into the yCRV vault and locks it to gain those benefits. In return, depositors get the highest possible yield on CRV tokens. Essentially, the yCRV vault is designed to achieve two goals:
Maximize Yearn’s governance power on Curve
Maximize depositors’ CRV yield
App: Kamino
Blockchain: Solana
Primary Asset: JITOSOL
Deposits: $25.2M
APY: 17.6% (at max leverage of 12.5x)
This vault uses the same strategy as the above Fluid stETH/ETH strategy: looping.
Just like stETH represents staked ETH, JITOSOL is the most popular liquid staked form of SOL with a market cap of ~$1.2B.
Instead of staking SOL traditionally for a ~6% annual yield, Kamino lends JITOSOL deposits and borrows SOL against them, then repeats the process to lever up the position. Depositors can specify their leverage amount up to 12.5x.
Using higher leverage creates a larger return, but a tighter TVL at the same time – if the borrowing cost of SOL moves up too much relative to the lending income of JITOSOL, the higher leverage positions will be the first to get liquidated.
App: Rysk
Blockchain: Hyperliquid
Primary Asset: UETH
Deposits: ~$40K
APY: ~5.5% minimum
Rysk is quickly becoming one of the first breakout option trading apps in DeFi. Their vaults manage various option strategies that can be time consuming and confusing, and optimize for the best possible return.
This specific vault manages covered call positions (buy the underlying asset, sell an out-of-the-money call option) on UETH, which is a version of staked ETH on the Hyperliquid blockchain. It’s a short term strategy – the call options have an expiration date of April 24th – but depositors can specify the price they want to sell at, as well as see their estimated return if they were to sell at that price.
Since DeFi options are still very illiquid, big trades can easily distort their prices. So, these vaults limit deposits at low amounts – this one has a cap of 50 UETH, or ~$120K. However, the yield is upfront and the maximum loss (in this case, minimum gain) is known in advance, making these simplified option vaults a potential breakthrough product as DeFi continues to grow.
That’s all for this week’s Mid-Week Market Check!
Would love to hear your thoughts on the markets, DeFi20, or yield opportunities down in the comments below. Or, feel free to email me at [email protected].
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