The Crypto Jungle 3 - Some protocols to reach a 26% per year ROI
This is my third post about crypto, I won’t post only about crypto and switch topics soon, but I have been very interested in it recently. This newsletter discusses how to increase your return from 19% to 25%+ with the same initial investment, but it gets a bit more complicated.
Ignore this newsletter if it’s too complicated!
Last week I wrote about MIDAS Stable Coins funds providing a 4-20+% return and a conversation with Fabrice Grinda who co-founded it. The video passed 1000 views, 54 hours of watch time, and 10,000+ views on the newsletter, showing how understanding crypto is of interest these days.
Investing in Midas mMEV and Midas mEDGE yield as I write this 19% and 9% returns. The returns fluctuate regularly, oscillating between 7% and 25% with an average above 10%.
There is a way to increase those returns to about 20% for both of them, here is how.
The PENDLE protocol can turn the mMEV 19% into 28.24% yield
I wrote about PRYZM, a new protocol that splits yield-generating tokens into a principal token (pT) and a yield token (yT). Since Pryzm doesn’t support mMEV and mEDGE yet, I tried the PENDLE protocol, which achieves the same functionality on Ethereum and other blockchains.
PENDLE is the largest protocol of this kind with an impressive, almost $1 billion market cap and $6.4 billion TVL (total value locked = the assets inside the protocol). PENDLE has been available for years, and such a value locked inspires trust. Trusting a protocol feels a bit like giving your wallet to a stranger next door to manage, so years in operation and TVL are good indicators of how successful and trustworthy it is, even though there is always some risk, of course. The other way is to meet the founder, which is what I did with Pryzm but that isn’t always an option!
If you want to learn about yield trading, PENDLE has very good “education” resources and videos, I will let those interested have a look rather than starting to explain here how it works. You can also ask ChatGPT, it knows everything about these protocols and yield trading.
The mMEV Liquidity Pool provides up to 28% as I write this
If you deposit your mMEV tokens into the PENDLE liquidity pool, your return can go from 19% provided by MEV to 28.24% currently (it also changes regularly) without needing to worry about or learn yield management.
It does this by adding two additional yield sources to the mMEV APY:
transaction and pool fees generated from users swapping mMEV to the P tokens of mMEV (I will explain below)
point multiplier rewards that you can get by locking the PENDLE tokens, but there is a way to avoid doing this.
PENDLE and PRYZM split the mMEV tokens into two: a PT and a YT.
I like the image of a building and rent to explain it.
If you buy a building, you can rent it. The PT is the ownership of the building itself, and the YT is the right to receive the rent.
If you buy the PT, you can secure a fixed rate instead of risking the fluctuations of the yield. Suppose you don’t want to take the risk that the returns on your investment will decline. In that case, you can swap your mMEV for P mMEV and receive a guaranteed annual return of approximately 12% until maturity (October 29, 2025, for this pool). You could also only buy the right to get the yield (the “rent”) by buying the Y Tokens, but that is way more volatile and risky; it can bring you 45X your returns, though, as you are buying the right to receive the yield without having to own the building…
Let’s stay simple for now.
If you add, say $ 1,000 of mMEV to the PENDLE pool, you can achieve a yield of over 25% without having to worry about yield trading.
Pools can be hazardous with Impermanent Loss, but in this case, there is none at maturity as the pool is composed only of the original token and the P token based on the same token. The P token becomes the full token at maturity, so they’re very similar. Coming in and out of the pool before maturity has some impermanent loss created by the difference in yield (fixed vs variable), but it remains small and is compensated by the additional returns.
PENDLE gives the option of keeping the YT or selling it for PT to keep things simple. I like to keep the YT this way, I get the yield from mMEV and the additional returns from the pool itself. In other words, if you do that, you get the 12% average yield of mMEV + the revenues generated by the pool (right now a nice 28% return!).
To achieve the maximum 28% return, PENDLE made it compulsory to own (either earn or buy) their PENDLE token and lock it for up to two years, which I don’t like, as one never knows what will happen over such a long period of time.
Fortunately, two protocols have accumulated PENDLE, so you don’t have to. You can simply deposit your LP Tokens to either Equilibria or Penpie. In the case of an mMEV LP position, you can get 25.85% right now on Penpie.
This is where the level of risk you want to accept is important, as you are now piling up three protocols!
You own USDC invested at 19% on mMEV, which you then deposit on PENDLE LP, and that LP you transfer it to Penpie or Equilibria to maximize the returns. Each time your money is at risk of another protocol being hacked, for example. Penpie was hacked in September 2024 and lost $27m of user funds… Penpie wrote a post-mortem post and added many security audits and measures.
Crypto is a jungle; if you don’t want to deal with that, you can get 3 or 4% at your favorite bank instead of nearly 26% with the associated risks… You can choose the magic of crypto or the safety of your bank.
It’s fun to see the rewards coming daily, paid in mMEV rewards and also PENDLE tokens, which can be sold or reinvested into mMEV, which isn’t so volatile and not supposed to go negative; it never did so far, as their strategy is supposed to be independent from markets going up or down.
The above strategy has risk, but there is much more risky than that, adding leverage by borrowing against your assets or even “looping”, borrowing USDC against the asset and reinvesting it, and then borrowing again. That way, some can reach 50% APR or more, but I don’t play that risky game, I like to sleep well at night. If mMEV goes down, which is not the plan but you never know, you get liquidated (your tokens are automatically sold). The borrowing rate can also go sharply higher very fast…
Have you read this far? Are you also playing with DeFi and crypto? If so, let me know in the comments what you think, even if you understood nothing!