Status:

very raw notes

TLDR:

Practically Speaking, DeFi Yeild is squarely in The Calculator Guys sweet spot.  If you already know what the  think this recent video on Pseudo Delta Neutral High Yeild Strategies is a great place to start if you understand what yeild vehicles are like in crypto, and just want to understand a fairly evolved yeild strategy. 

If you need a basic breakdown of the types of yeild, with a thought experiment on how to get some yeild on ETH, then this older bit below is for you:

Taxonomy:

Initial thoughts on DeFi yield based on this excellent taxonomy by Justin Bram:

1) Supply Capital on a Money Market: i.e. Compound or AAVE - take LP fees.

2) Swap Fees: put up liquidity and any time a transaction is made against it, you get a swap fee: ex: Uniswap

3) Proof of Stake Staking: Stake a currency on a PoS chain - ex: Lido offers liquid staking.

4) Inflationary Rewards: Rewards paid out by the underlying project in the token of the project - Curve pays a little bit of it's own governance token (CRV) in addition to some small swap fees - there is some dollar value to CRV at this time as well (Iron Finance - counter example - inflation killed native token - common problem)

5) Protocol Fees: Liquity - get a loan on your eth, and get an incentive reward in LQTY, which, when staked, provides a percentage of the site fees as a staking reward, issued in stablecoins and ETH.

6) Options Contracts: Ribbon finance - sell covered call or covered put options that you feel are very unlikely to hit, and get some yeild on that.  Also Hegic - pool ETH and get some rewards.

7) Insurance fees: Unslashed finance - pool your tokens as capital used to insure various DeFi projects.

8) Arbitrage transactions: Stabilize - pool your crypto - pool gets used to arbitrage between a bunch of assets that should be pegged to that crypto, but fluctuate.  Rewards are split between the pool.

Research:

DeFi Llama is a great site to get started finding products.

Justin Bram and The Calculator Guy are great resources.

Notes:

A few thought experiments on risk.  Lets say you have some ETH.  You don't want to lock it into the ETH2 contract for several months, so straight PoS is out.

Note that it can be difficult to evaluate risk - and yeild/risk are not correlating the way i think they should in a rational market - so take this as some initial ideas.  A big component of risk is contract risk - and related to that is team risk, if the contract is not verifiably decentralized enough and has admin capabilities - that's quite time consuming to evaluate.  Also, do you need to use smart contracts to get your asset from here to there?  - there is bridge contract risk in many cases.  So that's all kind of TBD - stuff I should dig into a bit more.

It happens a lot that people want a little extra yeild on a very specific asset - they don't want to, for example, convert their ETH to USDC.  In that case, we do a little research like so:

Low Risk:

There may not be a low enough risk way to get any kind of reasonable yeild in DeFi for most people.  At least, it feels to me like this low-risk category is a misnomer, or unconventionally labeled.  As a rule of thumb, low-risk strategies should have no historic issues with contract or team risk, and a long track record of relatively fixed returns (probably below 5% APR).

First think you might try is to drop your ETH into the Spartan Bucket on Unslashed.  Pretty diversified insurance for validators, exchanges and dapps, gets you 11% or so APY.  You have some contract risk with Unslashed and maybe a really low probability super crypto event that causes a large number of the insured to get rekt.  

If you don't have to have things denominated in ETH, then there are all kinds of optoins - the Calculator Guy recommends USDT/Anchor for some low-risk high-yeild USD equivalent crytpo exposure - but that's not the stated problem.

Medium Risk:

Medium risk comes in when you are dealing with a newer project, or you start chaining strategies.   I would target something like 10%+ ROI on principle here.

You have some ETH that you would like to put to work, but don't want to lock it into the ETH2 staking contract for a year.  Stake on Lido.fi, 4% percent APY, (they take 10% of your 4.5% staking rewards), and then you hold stETH - that stETH can be used with their partners on liquidity pools like yearn to earn 3% APY, giving you 7%.  However, when it comes time to sell your stETH, you might get 1% less than you got for ETH, but...your staking rewards are compounding - so if you had 100 ETH going in at the start of the year, you'll have more than 104 ETH from staking, and probably more than 3 additional ETH from yearn, probably giving you about 7% on the year. (O.k. there should probably be a higher yeilding example for this level of risk).

Risk is mostly contract risk with Lido, as it is a decentralized protocol run by a DAO, and the contract risk of yearn finance.

High Risk:

I want to target 20% plus APY for high risk (could go to zero).  Yeild on unconverted ETH is not really going to do it, unless maybe you can do some risky options contracts.  DeFi Dad has a nice tutorial on that.  I assume this is because everyone wants to hold on to their ETH and get yield, so there are a lot of folks on your side of these trades.

I haven't done this, but to get high yeild, you would probably need to invest in a pair with ETH and go to someplace like pancakeswap to provide liquidity in ETH and the other token.  You would look up potential yeild producing vehicles on coinmarketcap here.  It's really hard to determine how well that works without trying it.  There are also a slew of other fixed-yeild products that were not mentioned in the video and that I haven't tried (element finance using curve tricrypto pool is one).

In general, you want to maximize returns here, so you could be better off with treasury services like Olympus DAO that offer inflationary tokens primarily, but trade with high liquidity on exchanges, especially if you get in early to a promising new project.  Notes on olympus here.

Risk is primarily the contract risk of Olympus contracts. 

As with most of these projects, I probably should note that the contracts are managed by a multi-sig made of the DAO administrators, and there is TradFi VC money behind them, but AFAICT no corp, so it's really going to be hard to just get to know those folks and evaluate the risk of collusion there - you just have to interact with the project and get a feel for it.

A rigorous calculation of likely payout on Olympus has never been done to my knowledge and would require a good bit of computation.  But a guess at potential payout is probably at least 10X on Olympus, if you got in today and held for a year, or 1/10th if it all goes to heck and the treasury gets divided up between stakers, or zero if you crap out on contract or key management risk.