DeFi on Tezos: Where the Risks Are the Lowest

DeFi on Tezos: Where the Risks Are the Lowest

Disclaimer: This material is not investment advice or trading advice. Tezos Ukraine is not responsible for your investment decisions. Don't invest more than you can afford to lose.

Any way to make money with DeFi is risky. A project can close, profitability can change, and the price of tokens can fall. So when choosing a DeFi, you need to consider not only the APR but also the risks.

Let’s talk about the least risky ways to make money on Tezos with yields in stabelcoins or tez.

uUSD Saving Pool on youves: Earn in uUSD

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What is it? You have to pay a commission of 7.17% for mining the algorithmic uUSD stablecoin. A part of the commission goes to the YOU management token pool, and the rest goes to the uUSD Saving Pool.

The user invests uUSD in the Saving Pool and receives the reward in uUSD. The current yield is 15.64% per annum. The only condition is that the deposit cannot be withdrawn in the first six weeks.

What are the risks? The main risk is the drop in the tez price and the loss of the uUSD to the USD peg. Yet, at the beginning of 2022, we experienced a 75% drop in tez price, and the peg of algorithmic uUSD and kUSD stablecoins was not affected.

Delegation: Earn in tez

What is it? Bakers can increase their chance of mining and endorsing blocks by delegating, i.e. bringing in extra money from regular users. Bakers share their earnings with them, although they do deduct a 5-10% commission.

According to TzStats, the estimated return on baking is 6.04%. That is, with a 10% baker’s commission, a delegator will earn 5.44% per annum.

The easiest way to delegate tez is with Temple Wallet, so follow the instructions by MadFish Solutions.

What are the risks? The bakers themselves are in charge of distributing the rewards. They can delay payouts or miss their slots and earn less. So it’s worth going to Baking Bad first and finding bakers who pay on time.

QuipuSwap Dividends: Earn in Stablecoins

What is it? After the launch of USDt, QuipuSwap added stableswaps, which are Flat Curve pools for exchanging stablecoins and wrapped bitcoins:

  • kUSD/uUSD/USDt;
  • USDC.e/uUSD;
  • kUSD/uUSD/USDtz;
  • tzBTC/uBTC.

The standard way to make money on DEX is to put liquidity into the pool and receive commissions. Thanks to the Flat Curve and equal asset values, liquidity providers are protected from impermanent losses, but their annual returns cannot be predicted.

QuipuSwap has also launched dividends for these pools. A user locks in QUIPU governance tokens and receives a percentage of trading commissions in stabelcoins. The yield depends on trader activity and is now 13% for the kUSD/uUSD/USDt pool.

What are the risks? First, the price of QUIPU can drop, and, in fiat currency, the investor will lose more than earn in crypto. Second, the yield depends on the activity of users in a particular pool.

Buy ctez: Earn in tez

What is it? ctez is a synthetic tez. Users put a tez into an oven as collateral and mint ctez. The tez in the oven is delegated to a selected baker, and the supply of each ctez is constantly growing.

The main feature of ctez is the algorithm of supply and demand regulation using tez/ctez AMM and the checker algorithm. We explained it in detail in the ctez guide.

In general, if the current annual drift on the ctez.app page is higher than the current yield of baking, then it’s more profitable to buy and hold ctez than to delegate. And if the drift is lower, it is more profitable to delegate tez. Right now the drift is 6.65% per annum versus 6.04% for baking and 5.44% for delegating.

What are the risks? With a certain combination of supply and demand for ctez, its price may go down instead of up.

Deposit in Kord.fi: Earn in tez

What is it? Kord.fi is a protocol for making money from leveraged liquidity baking. Users deposit tez and tzBTC into lending pools and farmers lend them at interest and increase their profits with Sirius DEX up to four times.

Returns on deposits depend on the use of funds in the lending pools. For example, the tzBTC pool is 98.34% used and yields 38% per annum, while the tez pool is 85.49% used and yields 8.49% per annum. The maximum possible yield of the banding is 50% when all funds are used in the pool.

What are the risks? If the pool’s utilization rate goes down, the yield will also go down. In addition, if farmers are liquidated, the original collateral may not be enough to pay the debts, in which case, the deposit holders will be affected.

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