Strategy Report November 2023
The 512M DeFi High Yield Strategy is focused on yield generation and yield farming in decentralized finance. The DeFi opportunities fund holds in principle, stable-coins, crypto assets pegged either by centralized institution with banked collateral or algorithmically operated decentralized autonomous organizations. These Stable-coins are contributed to Automated Market Makers such as Curve.fi among others, as liquidity providers to earn fees generated by these protocols. These fees accrued are represented as annual percentage yields, partially paid in base trading fees and partially in protocol tokens (E.G. CRV).
The strategy engages in active strategy on recompounding protocol tokens back to base stablecoins, or holding for market exposures to have positive market beta and generate high yields in these risky assets as a liquidity provider. Our decisions on active strategy are reviewed daily, based on algorithmic analysis of core multiples in the DeFi sector, based on our proprietary analysis techniques.
Performance Metrics
Return since inception*: 26.76%
Volatility: 4.11%
Annualised return: 24.70%
Annualised Volatility: 4.15%
Sharpe Ratio: 4.97
Alpha Observed: 20.42%
YTD Performance: 20.81%
Bitcoin Correlation: -0.00026%
*Inception Date is the 31st October 2022
Benchmark Performance
Portfolio Composition
Commentary and forward guidance
USDR experienced a severe liquidity event on the 11th and 12th of October, affecting two of our minor positions, with a total exposure of 14.1% of total fund assets, our monitoring systems gave us an advance warning when the Depeg fell outside of our typical daily price action limits, where we immediately exited the position, taking a 75BPS loss on the position in total. We have since adjusted our risk management process to work with stables over $50m in total value, and continued to concentrate positions to USDC, USDT, DAI and CRVUSD.
A recent surge in crypto prices from an announcement of the Blackrock iShares Ethereum ETF structure have caused peers to relatively outperform within the month, including CRV which has appreciated from recent lows on 12th September at $0.401 to $0.647 as of the 12th November, we continue to aggressively compound our directional assets, with more aggressive yield rates available, and total ‘unstable’ exposures still at a relatively low 3.607% by value and with volatility in the fund decreasing within the month.
With increasing volumes in DeFi adding to broader market yields, while TVL remains low, we are seeing in a number of pools an increase in effective yields. To maintain the outperformance of the product into the new market, we will increase the broad level of diversification across protocols and chains, with a focus on Solana, Hedera Hashgraph, and other chains with native USDC without bridges, to access higher yields with lower smart contract and principle asset risk.
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