Before we get started, a reminder that this is not a recommendation or endorsement to buy any tokens mentioned in this tutorial.
Over the last few years, DeFi has been defined by opportunities dealing in variable rates. One of the new applications in DeFi (but old in terms of TradFi) that we’re hopeful to see grow is fixed rate yield. In this DeFi vertical, you’ll recall I’ve written about BarnBridge, which is one of the most promising and adopted protocols to date.
More recently, I learned about Ondo Finance, which allows DeFi investors to trade the risk and reward balance of pooled assets. The mission of Ondo is to give lenders the ability to tap into DeFi with forecastable yield and mitigated downside.
Put simply, Ondo is launching new vaults for fixed and variable yield positions, where the fixed yield tranche receives a fixed percentage over its initial investment vs the variable tranche receiving all excess returns after the fixed yield receives payout (or paying what’s necessary to make up the shortfall to fixed yield lenders).
Here’s an example of how Ondo works:
- Imagine an Ondo vault backed by the USDC-ETH liquidity pool on Uniswap, with the fixed yield depositors contributing USDC and the variable yield depositors contributing ETH.
- Fixed yield depositors are promised 10% APY over a 1 month duration
- Next, we have a subscription period where fixed yield depositors make subscription requests with USDC and variable yield depositors deposit ETH during a one week window.
- At the end of the subscription window, USDC and ETH are pooled in equal dollar value and used by Ondo to provide liquidity to the USDC-ETH liquidity pool on Uniswap v2.
- Any excess capital that cannot be pooled in the oversubscribed tranche is made available for users to reclaim.
- Lastly, upon expiration one month later, Ondo smart contracts withdraw liquidity from Uniswap for USDC and ETH.
- Fixed yield depositors are then paid back their USDC principal plus 10% annualized returns.
- Variable yield depositors receive all remaining returns. Variable yield depositors are paid back in ETH and Ondo swaps USDC and ETH for each other as needed in order to service redemptions.
- However, it is worth noting that if the yield works out to be less than projected for the fixed yield depositors, the variable yield depositors could end up with negative returns. You can read more about projected fixed yield and variable yield returns.
How to Earn 18-50% APY on Fixed Yield Positions with Ondo Finance
In today’s opportunity, I’ll show how I am preparing to join the next subscription window for a monthly period of earning fixed yield on ETH with Ondo.
Given there’s an expected 2-3 day window to deposit my ETH and get into the vault, I’ll need to follow Ondo Finance on Twitter and join their Discord to stay informed about when these next monthly vaults launch.
Please also be aware of a few major risks.
- Smart contract risk in Ondo Finance. This is a new protocol and hence is less battle tested code.
- Oracle failure could contribute to a loss of funds.
- Pegged assets can de-peg.
- The quoted APY could fluctuate depending on which new vaults/markets launch next.
- As always, this is not financial advice. You should not follow any of my writing as an investment strategy.
Here’s how I’ll earned fixed yield with Ondo:
Hi! My name is Lark Davis!
I’m a cryptocurrency investor with years of experience and I’ve been making consistent profits in the crypto space.
I’m passionate about helping others do the same, so I run multiple educational channels on crypto investing.
