How We’re Earning Outsized Yield With Strata

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.  

Make sure to read to the end to see the action(s) we took based on today’s content!

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Each Mid-Week Market Check will include 4 sections:

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In last week’s newsletter, I noted that BTC had been stuck in a range for most of the past couple months. That range – roughly $63K to $73K – is defined by a single daily candle from February 5th, when BTC’s price fell by almost 14%.

The midpoint of that range, ~$68K, is equally relevant, as it’s been used as support/resistance several times. It was once against used as support yesterday, and now BTC is back up at the top of the range.

This is right in line with my expectations from last week, where I said:

“If price breaks back above $68K (which it’s attempting to do as I write this), confirms it as support, and then rallies back up towards the top of the range, that would be a very strong sign that demand is outweighing supply.”

Of course, the recent rally came after the news that the situation in Iran is potentially calming. Nevertheless, it’s interesting how frequently technicals can align with news-driven price action.

BTC’s next move is going to be very important. When there’s a sudden spike like the one we saw last night, especially into resistance, it’s common to see a retracement before the breakout. So, my base case is that we’ll once again test the $68K midpoint, or at least come close. But there’s certainly a chance that we finally have enough momentum to break out without a retest.

Another observation I made last week was that we may be seeing early signs of a BTC reversal based on its monthly chart. 

Personally, I’ve had the most success trading stocks/crypto based on monthly chart trends, so even though we don’t have confirmation that this trend is set in stone yet, I believe it’s worth bringing up.

Here’s the current chart:

I’m seeing two encouraging signs here:

Historically, the purple MA has served as strong support – most recently, it was a key launching point for the ~200% rally in late 2023/early 2024.

The MACD trends like the one that could unfold this month are extremely rare. As I pointed out last week, there have only been 3 times in BTC’s history that this has happened – leading to 2-year returns of 250% to 1500%+.

So, while it hasn’t been confirmed yet, it’s definitely worth watching!

Considering that CFG is a relatively illiquid token, the price action the past couple weeks has been surprisingly smooth. 

CFG initially gave me a “buy signal” on March 25th, when its price made a clean bounce off the bottom of the MA range during an existing uptrend, combined with a positive MACD trend flip (dark red to light red).

Since then, it’s up almost 30% in 2 weeks (during a time where BTC has been flat), which is far higher than many altcoins. The past week has been a smooth continuation of the uptrend, and CFG continues to look like the DeFi20’s strongest component.

Here’s what I noted last week for HYPE:

“I’m watching the MACD as a flip in momentum (from dark red to light red) will be a very good sign that we see another leg up to the prior $42 high.”

So far, we’re on the right track! 

HYPE officially gave a buy signal last Friday and had bounced ~14% from $35 to its recent peak of $40 before slightly retracing. My base case remains that this uptrend will ultimately lead to a breakout above $42.

While SKY has had choppier price action than CFG and HYPE, it remains one of the strongest DeFi20 components. 

While it’s up ~13% in 11 days since its buy signal flashed on March 28th, the choppy price action suggests that it may retrace a bit (potentially to the yellow MA at $0.075-0.076) before it’s ready to test the ~$0.085 high. 

While MORPHO’s chart remains in limbo, it was the top DeFi20 performer over the past week and I wanted to make sense of the recent rally.

In short, it will take a significant amount of momentum for this rally to avoid simply putting in a lower high. The consolidation and bounce off the $1.45 range makes it a more promising setup than a V-shaped bounce, but the MA’s are clearly no longer in an uptrend and the MACD levels remain in negative territory (however, the MACD is green because the short term MA is above the long term MA). 

Right now, CC is demonstrating a textbook transition from uptrend to downtrend. At the beginning of the year, the MAs were consistently showing an uptrend – short-term MAs above long-term MAs.

During March, CC had some failed breakout attempts and has ultimately continued its downtrend, which is now confirmed by the MA levels. Yesterday and today, the price failed to break above the long-term (purple) MA, and the MACD trend is about to flip negative (dark green to light green). So, we could see some unfavorable price action from CC, at least in the short term.

In many “vanilla” DeFi lending markets, such as Aave, Morpho, Kamino, and Euler, the base yields offered to stablecoin holders are extremely low – typically ranging from 1-2%.

Common methods to increase yields thus far include looping, LP management, and mixed-strategy management by vault curators, which typically include delta-neutral hedges that earn funding rates and OTC arbitrage strategies which earn yield from discounted asset prices. While these have been successful in boosting yields, they all come with their own sets of added risk.

Tranched markets allow these strategies to earn outperforming returns while also distributing those added risk to participants who don’t mind taking them on.

By splitting yield into tranches, these apps fulfill a key requirement for institutional asset managers and retail investors alike by adding built-in risk management to yield generation 

Today, our focus will be on Strata: a DeFi app that uses a two-tranche architecture to manage over $100M in deposits. 

Strata takes yield-bearing assets like Ethena’s sUSDe and distributes the yield between junior and senior holders.

Each senior tranche has a benchmark yield, which serves as a minimum rate of return.

Once that minimum return has been reached, the senior tranche transfers a majority of the asset’s underlying yield to the junior tranche. So, when the underlying asset’s yield is relatively high, the junior tranche will pay out a higher yield than the senior tranche.

In return, junior holders take on extra risks. If the underlying asset becomes unable to pay yield for any reason, the senior holders will earn the benchmark rate and no yield will flow through to junior holders. And if the underlying asset experiences a negative event such as insolvency or depegging, the junior tranche absorbs all losses before senior holders are affected.

Right now, Strata offers tranched vaults for 3 assets: 

Ethena’s USDe

Even after passing a yield premium to junior holders, the senior tranche (srUSDe) currently delivers a very similar yield to the underlying sUSDe.

For users willing to take on extra risk, the junior tranche (jrUSDe) offers almost twice the yield as srUSDe. Since its inception last October, jrUSDe has consistently paid out an APY of 6-7% or higher in exchange for the risks inherited from the senior tranche.

Neutrl’s NUSD

Just as Neutrl’s sNUSD tends to offer a higher yield than sUSDe, the Neutrl vault offers a higher benchmark yield than its Ethena counterpart. Excluding incentives, srNUSD’s yield is sitting right at the benchmark.

Another thing to note about this vault is that jrNUSD’s yield excluding incentives is negative. Ultimately, this is to discourage deposits into the junior tranche; however, the current incentives still make the junior APY higher than the senior APY.

Per the chart below, the only scenario in which this happens is:

Hyperithm’s mHYPER: 

Hyperithm’s mHYPER vault – which focuses on optimizing stablecoin yields – has been a major success on the Midas app, attracting over $50M in deposits and generating a competitive yield. Strata became the first to tranche it when they launched the srmHYPER and jrmHYPER vaults on April 3rd – the app’s most recent additions.

While the deposits in this vault are very low (~0.2% of Strata’s total deposits), the above yields deserve a deeper look.

Currently, the senior tranche is offering essentially the benchmark yield, which isn’t good for junior holders. In fact, the junior tranche is in a similar position to jrNUSD.

It’s worth noting that the 6.53% base yield in jrmHYPER is a 7-day average; the actual yield went negative yesterday (-1.83%) and is currently at just 0.02%. So, if the underlying yield of mHYPER doesn’t move up soon, the junior tranche may remain in negative territory before incentives are added in.

Aave is DeFi’s largest app, servicing over $1T in loans since its inception – and last week, they launched their most recent product: Aave v4.

Aave v4 brings a different type of structure to DeFi lending. Unlike pooled liquidity (as seen in previous versions of Aave), loans are risk-adjusted based on their collateral. And unlike vaults (as seen on Morpho, Kamino, etc.), liquidity is more freely contained within various tranches rather than isolated, pre-defined markets.

Naturally, this launch has created lots of chatter throughout the industry, and one of its largest effects has been drawing attention to the growing presence of tranched markets in DeFi.

Aave v4 uses a “Hub and Spoke” model, where Hubs represent different tranches, and Spokes represent different lending markets within each Hub. This structure allows for more flexibility than junior and senior tranches; instead of risk being transferred between Hubs in exchange for higher potential returns, each Hub is built to accommodate a certain level of risk. Additionally, risk is priced into borrowing rates based on the loan’s collateral type. 

Initially, Aave v4 contains 3 hubs:

Over time, Aave v4 can accommodate Hub and Spoke expansion, even providing dedicated Hubs/Spokes for institutional capital. 

With the most borrowing opportunities and higher lending rates/LTVs than Prime, the Core Hub serves as the main source of liquidity in Aave v4:

Each asset’s dashboard shows the various Hubs/Spokes it’s available in, as well as the interest rate, collateral types, and more. 

For example, here’s a look at the current borrow markets for USDC, one of the most popular assets on Aave v4 (and DeFi in general):

While Aave v4’s markets are still very new, some trends are beginning to emerge for USDC:

Another example is Ethena’s USDe, which can be borrowed in the Plus Hub. Specifically, it’s available to borrow in two Spokes: the Ethena Correlated Spoke and the Ethena Ecosystem Spoke. 

Again, the Plus Hub is the most risky of the 3, but it also has the highest yields to offer. Right now, lending USDe in Plus yields ~2.7%. Alternatively, sUSDe and its respective Principle Tokens (PTs) from Pendle, which are naturally yield-bearing, can be used as collateral for USDe loans here. Those PTs yield almost 4%, bringing the loan’s net cost under 1%.

While Aave v4 is very unique, it still uses a form of tranched yield markets, and I’m very interested to see how it evolves over time.

Aside from Strata and Aave, I’m watching several projects that are currently building other venues for tranched yields. 

Royco Protocol recently launched Dawn, an app similar to Strata which splits yields and risks into junior and senior tranches. However, a key difference is that their flagship product – the Senior Royco USDC Vault – derives its yield from the senior tranches of 6 different stablecoin markets, each with their own junior and senior tranches, coverage ratios, and more. 

So far, Dawn’s growth has been impressive, accumulating nearly $13M in deposits in just 2 months despite limited public access. The team is also planning to add tranched vaults for ETH and other major assets as well, each with their own unique markets and properties.

Lotus and Mezzanine are building 3-tranche markets (junior, mezzanine, and senior) which will bring new methods of distributing the tradeoffs of onchain yields and risk. While neither one of them has a public product yet, these are certainly projects worth keeping an eye on.