Introduction#
Starting from March 2022, the Federal Reserve will continuously raise interest rates, pushing the federal interest rate to 4.75% to 5%, which can be said to be the fastest and largest interest rate hike cycle in history. A federal interest rate of 5% means that you don't have to do anything and can enjoy a risk-free interest rate of nearly 5% by putting your money into a money market fund. At the same time, the average yield of established protocols (Curve, Aave, Compound) in the DeFi world is between 0.1% and 2%. To farm this 1% interest rate, you need to bear the risks of smart contract, oracle single point of failure, and stablecoin deviation from the peg. In reality, there have been countless hacking incidents, oracle pricing errors leading to bad debts, and significant deviations of USDT and USDC.
Being a DeFi farmer has become increasingly difficult this year. Instead of that, why not just withdraw your funds and buy government bonds? Unfortunately, the various barriers of tradfi are too high for us in mainland China. Let alone US Treasury bonds, it's difficult for many people to open a Class I account domestically and then open a US dollar account to deposit US dollars. At this time, DeFi protocols led by MakerDAO are trying to bring real-world assets (Real World Asset, RWA) onto the chain, thereby introducing non-Pareto real yield into DeFi. However, ordinary retail investors cannot benefit from this. The main contradiction in the current DeFi world is the contradiction between the increasing demand for US Treasury bonds by the Chinese people and the unequal access to US Treasury bonds. In order to compete for this DeFi holy grail and become the cornerstone of many DeFi Lego-like annualized rates, Flux Finance/T Protocol/Ribbon Finance have emerged.
Flux Finance#
Flux Finance is a decentralized lending protocol developed by the Ondo Finance team. Before talking about Flux, we must first introduce Ondo's OUSG. Ondo Finance and institutions are connected on-chain to issue OUSG, which is collateralized by US Treasury ETFs. Only institutions can mint and redeem OUSG. You might ask: Isn't this still a playground for institutions? There's no room for retail investors. This is where Flux Finance comes in. Flux allows institutions to collateralize OUSG and borrow other stablecoins, indirectly introducing the interest rate of US Treasury bonds into permissionless DeFi. As a retail investor, you can enjoy a stablecoin APY of 4% without needing an SSN, a bank account, or a securities account.
Summary#
The total supply of Flux Finance has reached $43 million, and the market value of OUSG has exceeded $100 million, making it a huge project. Flux Finance is just the first step in the OUSG DeFi Lego. The future of on-chain US Treasury bonds is very promising. Interested friends can try it out at:
https://fluxfinance.com?ref=0x082f675a803319aa434947FABF807BD12BDb416f
Advantages:
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No barriers for retail investors, no KYC, no permission required
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Flux Finance is a Compound V2 fork, so security is guaranteed to some extent
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Bad debts are highly unlikely to occur on Flux because its assets are usually very stable. As an additional security mechanism, Flux's stablecoin oracles will never set their prices above 1 USDC, reducing the risk of external oracle manipulation.
Disadvantages:
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Only available on Ethereum
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Whitelist liquidation mechanism, only addresses that have passed KYC can liquidate
T Protocol#
T Protocol is a permissionless on-chain US Treasury bond product created by the JZ team. The project itself is a Liquity fork. The protocol has three tokens: sTBT, TBT, and wTBT. sTBT is a rebasing token issued by KYC-approved institutions as collateral for TBT. At the same time, TBT is also a rebasing token that can be minted by retail investors without permission. As for what a rebasing token is, you can ask ChatGPT or refer to stETH. wTBT is a wrapped version of TBT (it does not rebase). Currently, the APY of wTBT is around 4.7%, and it can be seen as an interest-bearing stablecoin. Velodrome, which is already on the Optimism network, has liquidity for wTBT.
$2,600,000 liquidity deployed on @VelodromeFi . Optimism users can enjoy the juicy 5% real yield by swapping some wTBT. LFG!
Summary#
Real yield cornerstones like wTBT have room to maneuver in CDP stablecoins and PCV allocation. JZ said they are negotiating cooperation with MIM, so let's wait and see. Link (access cannot be from Hong Kong, the United States, or North Korea):
Advantages:
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Permissionless, no barriers
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Slightly higher APR than Flux Finance
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Currently on Ethereum, but planning to expand to Optimism and possibly BNB Chain
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Conducting $TPS token airdrop, early TBT minters have a chance to receive the airdrop
Disadvantages:
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User interface is slightly rough compared to Flux Finance, but this is a common problem for Liquity forks
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Documentation organization could be improved
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One-time minting fee of 0.1% and redemption fee of 0.3%
Ribbon#
I have a love-hate relationship with the Ribbon Finance project. They launched the Ribbon Lend uncollateralized lending product and Ribbon Earn principal-protected options product before FTX crashed. At that time, the interest rate for Ribbon Lend was as high as 13%. I lent 300k USDC to Folkvang (known as Little FTX), and the project team said there would be an airdrop for deposits made before a certain date. Unexpectedly, they changed the date, so I only earned interest and didn't receive the RBN airdrop. The basic APY of Ribbon Earn comes from lending money to market makers without collateral. After FTX crashed, their Ribbon Lend and Earn projects should be considered extinct, and I also narrowly escaped.
But recently, they collaborated with BackedFi to launch a principal-protected options product based on government bonds.
Today, we are officially re-launching Ribbon Earn USDC (V2), in partnership with @BackedFi! To start, deposit USDC here today 👇 app.ribbon.finance/earn/R-EARN
As shown in the image, BackedFi's government bond product has an annualized rate of 4.65%. Unfortunately, Ribbon Earn has a basic APY of only 2%, which is much lower than its competitors who solely focus on permissionless government bonds.
Many people don't understand these types of options products, and I don't either, so I'll just copy and paste the words from the document:
Let's explain it with an example:
Step 1: You deposit USDC into the R-Earn vault.
Step 2: The vault invests in IB01 government bonds and earns interest.
Step 3: Ribbon uses the 2% annual yield to purchase weekly at-the-money knock-out options.
Result 1: ETH rises or falls but does not break the barrier, resulting in profits for the vault.
Result 2: ETH breaks the barrier, rendering the options worthless. However, since the options were purchased with the interest earned from lending out the principal, you won't lose any funds.
In fact, OKX also provides such products called Shark Fin. However, it is unknown how they achieve such a high basic APY.
Summary#
https://app.ribbon.finance/earn/R-EARN
Advantages:
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Beautiful and user-friendly UI
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Ribbon Finance is a trustworthy established project
Disadvantages:
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Low basic APY
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Complex product, not everyone understands options
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Although Ribbon is deployed on multiple chains, Ribbon Earn is only available on Ethereum