Last week began with the launch of our first SMART Alpha epoch. Three of the four deployed pools saw ~$500k in aggregate deposits split relatively evenly between their respective junior and senior sides. Here’s a look at each pool and how it performed over the course of the past epoch.
WETH (in USD terms)
ETH’s USD performance for this epoch wound up being quite volatile going into the close, as seniors found themselves underwater for most of the week until the last 24 hours. It was at that point when a rapid decline in ETH’s price resulted in the senior positions earning a yield of 7.9% on their ETH for the week. Annualized, that’s 409% — not bad.
WBTC (in USD terms)
BTC’s USD performance followed suit, though with a little less volatility to the downside. The similarly rapid decline in BTC’s price resulted in the senior positions earning a yield of 5.2% on their WBTC for the week and 269% annualized.
WBTC (in ETH terms)
Here’s where things got interesting. This pool tracks BTC’s performance in terms of ETH — because BTC dropped less than ETH for the epoch, it was actually the juniors who won this time around. As you can see below, BTC and ETH traded in lockstep for the majority of the period, with the divide between junior and senior positions not widening until the market underwent significant volatility. Junior positions earned a yield of 9.3% for the epoch, or 481% annualized.
Conditions for Epoch #2
People are bearish ETH and BTC, more so the former than the latter. Why are they bearish? Something about a new drink size at Starbucks in China or something, we don’t know.
As you’ll note, the more overweight one side of a pool becomes:
- The less attractive its terms are for its depositors
- The more attractive the terms are for the opposing side
For both pools, the seniors receive less absolute downside protection, as well as less upside participation, while the juniors get ever more leverage. This dynamic rewards contrarian depositors who are proven correct, while tempering the outcomes for crowded trades.
Depositors into the BTCETH pool are decidedly less certain of where the pair will be trading in a week, reflecting the tendency of digital assets to converge on a correlation of 1 when the going gets tough.
While it can be difficult to get a clear picture on an upcoming epoch until the hours leading up to it, the composition of each pool provides us all with market sentiment oracles for the given pair.
With the successful advancement of epoch one, we can now move forward with deploying more SMART Alpha pools.
- Polygon Deployment. You’ll be able to use SMART Alpha on Polygon in time for the next epoch.
- DeFi Token Pools. We’re looking to deploy AAVEUSD, LINKUSD, UNIUSD, and SUSHIUSD pools in time for the next epoch as well. For the AAVE and SUSHI pools, you’ll actually be depositing stkAAVE and xSUSHI so that you can earn yield while using SMART Alpha!
Moreover, if you haven’t voted yet, make sure to give it a go with the ongoing DAO vote. KPI options will allow us to bootstrap secondary liquidity for SMART Alpha assets, meaning that you will soon be able to buy and sell into or out of junior and senior positions intra-epoch.
And if this post didn’t make sense to you, check out our previous posts detailing how SMART Alpha works here.
BarnBridge is a suite of risk tokenization protocols for DeFi. Its applications allow users to select from opposing pools and take positions on risk factors like interest rates or asset prices. Its first application, SMART Yield, offers fixed and levered variable yields on stablecoins deposited into underlying lending markets like Aave, Compound, and C.R.E.A.M. Finance. Its application suite has expanded to include SMART Exposure, a position rebalancing solution, as well as SMART Alpha, which allows users to calibrate their exposure to price movements in an underlying digital asset. BarnBridge is currently live on Ethereum and the Polygon Network, with deployments on Avalanche, Arbitrum, and Optimism all on the horizon.
Keep up to date with the BarnBridge community via the following channels: