USDC Yield Optimizer
USDC Yield Optimizer strategy description.
Overview
The USDC Yield Optimizer is a low-risk yield strategy designed for US-dollar denominated stablecoins. The strategy achieves consistent returns by lending stablecoins to the battle-tested protocol Aave and optimizing between different lending pools tomaximize returns while benefitting from Aave‘s flexibility and high security.
Blockchain: Arbitrum One
Deposit Currency: USDC
Tokens used: USDC, USDT, DAI
Protocols used: Aave
fija Safety Score: 8.7/10
Strategy Description
The USDC Yield Optimizer is a strategy based on the decentralized lending platform Aave, which operates on all major blockchain networks. The platform is one of the most established protocols in the DeFi space, ranks 2nd in total value locked (>$14bn), and was founded in 2017.
Liquidity Providing on Aave:
To generate a return, the strategy provides liquidity to different US-dollar-denominated lending pools on the Arbitrum network. Providing liquidity to a lending pool generates returns from borrowers who take capital out of the pools and pay a borrowing fee for it. The annual return generated by the lending pools is dynamic and dependent on the demand for the provided stablecoins.
The strategy allocates the investment to the available lending pools according to an allocation logic that factors in the current yield of each pool and the respective utilization rates. The utilization rate of a pool is the ratio of total assets supplied to a pool and the assets borrowed from that pool. A high utilization rate leads to a lower allocation of investment to that specific pool. In addition to the ideal allocation, each pool also has a defined minimum and maximum allocation to avoid concentration in one pool.
The pools used in the strategy are:
USDC: USD stablecoin of the Circle platform. USDC is backed 1:1 by US-dollar-denominated assets in Circle’s reserves.
USDT: USD stablecoin of the Tether platform. USDT is backed 1:1 by US-dollar-denominated assets in Tether’s reserve.
DAI: USD stablecoin issued by the MakerDAO platform. Unlike USDC and USDT, DAI is decentralized and backed by a mix of crypto assets held in smart contracts, with collateralization managed by the Maker protocol. DAI maintains its 1:1 peg to the US dollar through an overcollateralization model, ensuring stability while avoiding reliance on a centralized reserve.
Rebalancing:
The strategy is equipped with an automated rebalancing mechanism that ensures optimized allocation to each of the pools. The rebalancing can trigger once every 7 days if the allocation to the pools deviates >5% from the ideal balance (according to yield and utilization rate). The rebalancing will then restore the ideal balance for each pool.
Risk Management:
The strategy also contains an automated risk management function that withdraws funds from all pools if a pool hits a defined maximum allocation. The “Emergency Mode” then swaps all tokens back to the deposit currency.
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