As a DeFi-focused hedge fund, MEV Capital has grown comfy with shifting funds round on-chain in pursuit of upper returns, a method generally known as yield farming.
However in the previous few months, the agency has added a brand new trick to its arsenal: Accruing factors, or rewards for interacting with a protocol that will result in payouts in a future token, on behalf of purchasers.
MEV Capital is farming these factors particularly with a view to acquire publicity to EigenLayer and a raft of different Ethereum restaking initiatives providing off-chain factors to on-chain customers. It’s a testomony to renewed animal spirits in crypto and the joy surrounding restaking that hedge funds like MEV Capital are actually buying participation tallies for purchasers.
All of it factors to restaking
EigenLayer is a restaking protocol that enables the staked ether securing the Ethereum blockchain to be restaked, or used to safe different Ethereum-based blockchains and companies. Liquid restaking tokens (LRTs), like ether.fi’s eETH or comparable choices from KelpDAO and Renzo, create a tokenized model of restaked ether that can be utilized in DeFi purposes.
Learn extra: Ether.fi pronounces $23M Sequence A spherical as restaking curiosity grows
EigenLayer at present rewards customers with factors for restaking their ether, and several other LRT protocols have factors programs for customers of the tokens.
Pendle Finance, a DeFi platform that gives tokenized variations of an asset’s APY dubbed yield tokens, has grow to be standard for accruing factors.
By Pendle and its yield tokens, factors farmers can use an LRT to earn EigenLayer factors and factors from the LRT protocols concurrently. These yield tokens give traders leveraged publicity to EigenLayer and LRT factors, as they’re basically shopping for the rights to the factors accrual from holders of Pendle’s principal tokens.
Factors have been a really efficient software for bringing belongings to the restaking sector. EigenLayer’s whole worth locked (TVL) was roughly $250 million on Dec. 18, in keeping with DeFiLlama. That determine is over $9 billion in the present day.
Unsure returns
Some funds are sitting out the factors mania, however there’s nonetheless cash to be produced from the sidelines.
Valentin Mihov, who co-founded the DeFi funding fund Finexify, instructed Blockworks that the fund has been utilizing Pendle to realize elevated ether yield attributable to factors hypothesis.
Pendle’s fixed-yield merchandise have the next APY when the implied yield, or the market’s future estimate for yield, goes up.
Mihov stated that whereas the points-induced larger APY is “fairly good,” his agency finds factors farming too dangerous as a result of the longer term worth of the IOUs continues to be principally unclear.
In some circumstances, factors farming will be fairly profitable. When Solana-based liquid staking protocol Jito executed a points-based airdrop in December, for instance, one researcher remarked that shifting $40-worth in tokens round on-chain may have netted a person $10,000 in JTO tokens.
In consequence, factors are buying and selling in anticipation of future airdrops. Roughly $2.7 million-worth of EigenLayer factors have modified palms on the web site Whales Marketplace for a median worth of round $0.18. A Messari researcher tried his hand at discovering an estimate and guessed LRT factors to be price roughly $0.14 apiece.
Factors farming is ‘extra artwork than science’
Since factors reside off-chain, how they’ll convert to token allocations will be opaque — typically to the drawback of larger traders.
A associate at a crypto-native funding agency instructed Blockworks that factors are supposed to bootstrap group curiosity in crypto initiatives so the tokenomic construction often favors smaller allocations.
“The way in which the factors sometimes convert [is] such that bigger factors farmers are often rewarded lower than smaller individuals, so it’s not price placing the capital in danger in a local protocol for a really low payoff,” they stated.
Chase Mayeux, managing associate at funding agency Coral, stated determining returns on factors is extra “artwork than science.” Coral is accumulating factors on EigenLayer and a lot of different DeFi protocols, Mayeux stated.
“There are secondary markets for factors (Whale Market / Pendle) however finally we try to accrue both tokens or factors on protocols that we expect will admire in worth. Typically you received’t know till months or years down the road whether or not you had been right in your theses,” Mayeux stated in a Telegram message.
Purchasers of those funding companies could not perceive the ins and outs of factors farming, however factors’ potential upside nonetheless tends to be enticing. MEV Capital basic associate
Laurent Bourquin gave the upshot of a hypothetical dialog with a consumer about factors farming:
“‘Will we make more cash? Sure, no?’
‘Sure.’
Increase then it’s good.”
