IIP-78: Launch The Yield Hunter Index ($YHI)

Governance Proposal
21

Sounds to be a good and needed extension of INDEX products. I am certainly helping to spread the word. I am also available for other tasks if needed.

22

Realised I missed something in my original response that I believe is worth sharing pertaining to the money market aspects within this proposal. From my tradfi days of collateralised securities lending and money markets a typical market dynamic existed thus:

Borrowing costs (/lending fees) would typically rise when the market sentiment was bearish on a particular stock and therefore borrowing to short it. (And/or liquidity was generally tight.)

Conversely, bullish market sentiment means less shorting ā†’ meaning less borrow demand ā†’ meaning lower borrowing costs ā†’ lower lending feesā€¦

These of course will not be the only reasons that affect borrowing demand but they will be one.

Typically in an investment strategy with a long term investment horizon, short term market movements are not a concern and lending out the assets for short term traders to short offers a way of making assets productive and the yield from doing so often contributes to the portfolioā€™s long term performance.

However, YHI is not a fixed objective, long term investment strategyā€¦ The frequent rebalancing into higher returns could theoretically mean continually rotating into assets that are undergoing price suppression. Of course, at this point, this is hypothetical, but I believe there is a potential scenario here where capital is at risk in the hunt for yield leading to an overall negative return.

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23

Hi @MrMadila

Yeh, Iā€™ve certainly seen some tokens with incomes mainly based on short demand. Those are the ones Iā€™m trying to avoid with my selection criteria.

Iā€™m using two main criteria to try and remove such unwanted behaviours:

  • using a 28 day average yield to try and exclude short term borrowing to short. On the lending platforms there is 28 day historical data int he UI, and Iā€™ll sort dune dashboards to get better data,
  • Understanding where the yield is coming from. Iā€™m seeing three routes:
  1. Protocol liquidity mining, aBAL is earning ~10% in AAVE rewards. These will be sustained for as long as AAVE want to farm them. Similarly cLINK is really just a COMP farm.
  2. Liquid staking rewards from the protocol (e.g. xSUSHI or bBadger).
  3. Long term use cases for tokens. This is typically a protocol token that has staking, but isnā€™t liquid. So, by lending it, we have liquidity in return for reduced yields.

E.g.

  • BNT staking earns ~ 50%, but pays 4% on Cream.
  • SNX staking has 12 months vesting, but lending captures 3%
  • Lending CRV can earn 10%, which is less than the 4 year lock up benefits.
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