Peer-to-peer vs. peer-to-pool: Yield generating opportunities in this bear market
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September 7th, 2022

First things first: This is the continuation of PWN’s bear market deep dive. Read up on the first post for a backgrounder on the points discussed below!

Today, we’re here to talk about all things peer-to-peer and peer-to-pool. In this bear market, peer-to-peer presents so many new and different opportunities for people wanting to accumulate and leverage opportunities, so it’s important to understand the significance of both of these lending protocols. Let’s start things off by clarifying the differences between peer-to-peer and peer-to-pool protocols.

In a peer-to-peer lending protocol, borrowers and lenders are able to enter a loan agreement without the need for an intermediary. Self-executing smart contracts enable trustless transactions. Loan terms, including term length, APR, and the amount of collateral provided are determined by the borrower and lender.

EthLend was one of the first peer-to-peer lending protocols on the blockchain. Today, it’s known as Aave and currently has $6.1B TLV. When it launched in 2017, the overall adoption and trust in blockchain was different to what it is now. We’re in a new era in which DeFi has proven that it solves a bigger problem than we ever imagined.

Peer-to-pool, on the other hand, is a system in which lenders supply liquidity to an asset pool. So instead of interacting with a peer, you’re interacting with a communal pool in which price is defined by a pricing oracle of some sort.

Calling all cryptonatives and DeFi degens

Times are tough at the moment, and by the looks of it, we may see deeper bear markets coming in (check out our last blog post for more details about the current conditions of this bear market). This means that NFT floor prices might continue to drop, people could become more desperate and remove their positions to try to keep at least some of their money, as some may need more cash to save some of their DeFi positions and avoid potential liquidations.

In general, it's chaos out there, which is why we've put together a few real scenarios where PWN absolutely makes sense. Keep reading to learn about PWN’s role in these tough market conditions.

These are the 4 use cases we will cover today:

  1. DAOs raising money just like Nation3 did

  2. DCA into longer term investments

  3. Generating higher yields on your stablecoins

  4. Saving a DeFi position

We’d like to mention that none of the below should be taken as financial advice – as a rule of thumb, it’s always wise to do your own research.

Use case 1: DAOs raising money just like Nation3 did

Say you have a DAO or manage a DAO treasury and the DAO’s plan was to raise capital this year. You didn’t expect these market conditions, but something needs to be done because raising capital at the moment is tough and selling part of your own token or your treasury just doesn't currently make sense.

In July 2022, Luis Cuende from Nation3 saw things getting worse, so he came up with a plan to sell a bond with the following terms:

  • Amount to raise: 50K USDC

  • Maturity date: 90 days

  • Collateral: 150K $NATION (roughly 300% collateralization ratio)

  • Platform: PWN

Image credit: Nation3

Cuende's proposal was accepted by the Nation3 DAO. The goal, now that it is published, is that buyers (i.e. investors) will be able to publish their counteroffers stating their desired interest rate. The Meta Guild multisig will be responsible for receiving the collateral, creating the offer on PWN (which is now live and has its first offer!) and accepting the best counteroffer.

Nation3's loan on PWN!
Nation3's loan on PWN!

Once the DAO has USDC to pay back the bond, a new governance proposal will be needed for the DAO to send funds to the Meta Guild multisig for the amount to be paid back.

PWN recently interviewed Luis Cuende of Nation3 as part of our Cryptonatives series:

Let's summarize the advantages of this use case:

  1. You avoid selling your native token for liquidity when market conditions are not favorable

  2. You review multiple offers of multiple lenders and pick the one that best suits the DAO’s plans

  3. You can use your native token as collateral; there is no need to exchange to ETH or BTC

It’s worth noting that this is a tried and tested use case, not just with PWN, but also on the Solana blockchain.

As explained in the thread above, DAOs can park idle $SOL funds in their collection's lending pool, bringing down the interest rate for borrowers and often printing 2X-4X higher yield than staking.

Use case 2: DCA into longer term investments

Alex is a long-term investor in crypto. The fungible portfolio split is 70% HODL and 30% GEMS but also holds some valuable NFTs, which are currently dropping in floor price but will recover as there's a long-term plan with the metaverse land owned. With the current downward trend of multiple Layer 1 protocols, this is the opportunity that Alex sees:

  • By investing +⅓ from the total amount that's already been invested into $NEAR, Alex could reduce the price paid per coin ($NEAR) by almost 70%

  • With NearCon coming up next week and the hard work and great fundamentals of the protocol, there is definitely profits to be made during this bear market

  • The issue is this: From where does Alex get the liquidity? Alex could potentially close some positions, sell some NFTs, or lose exposure to great assets

  • Alternatively, he can use PWN to use fungible and/or non-fungible tokens as collateral and borrow at a 20-30% LTV against these

  • When deciding to use PWN (which has no liquidations until the loan expires and within the next day or so), Alex has already DCA’d into $NEAR

Let's summarize the advantages of this use case:

  1. Alex can use both fungible and non-fungible tokens as collateral. Follow PWN on Twitter to stay up to date on announcements as we prepare to launch a bundler feature in the next few weeks!

  2. You don’t have to exit your positions across other DeFi protocols if you need that additional liquidity

  3. Even in a bear market, getting a 20-30% LTV could be a great opportunity to build generational wealth!

Use case 3: Generating higher yields on your stablecoins

When there’s blood in the markets, people want to hold cash. In the case for cryptonatives, it’s stablecoins, BTC, and ETH. At PWN, we’ve spoken to many lenders over the past months and one use case we hear all the time is stablecoin farming. We now know that Anchor’s (Terra/Luna) 20% APY on UST was unsustainable; however, generally stablecoin farming could yield between 5-10% returns and +15% returns if you use a more complex strategy.

Ash has been an investor in stablecoin liquidity pools (LPs) for some time now on Uniswap and Maker. They’ve worked well and allow a good night's sleep (so important these days!).

From the current 50% portfolio in stablecoin farms, Ash is looking for a protocol that will help yield higher returns. This may require more work, so it’s harder, but a medium-risk protocol would be good to generate more yield to re-invest into use case 2 and DCA into some of the favorite L1 investments.

  1. Ash takes out 10% of the current position on Uniswap and goes to PWN

  2. On PWN, Ash finds a few loan requests, both on fungible and non-fungible assets as collateral, which yield around 10% interest rate for a 30-day loan

  3. Ash decides to back a 7 wETH loan request that has 7.82 rETH (Rocket Pool ETH) for 90 days on PWN at an interest rate of 10%

  4. If Ash was to re-invest in a loan after the 90 days and repeat this process 4 times a year, the ROI on the 7ETH would be circa 40%!

Let's summarize the advantages of this use case:

  1. This strategy may require some more research into what sort of collateral you want to back in case of a default; however, the ROI of 40% could definitely be worth it!

  2. Based on the assets that Ash feels comfortable with, the collateral backed could be on fungible or non-fungible assets

  3. Ash could post multiple offers on one offer, so if the loan is for a longer period of time, the interest rate could be higher and vice versa

Use case 4: Saving a DeFi position

We’ve heard a narrative around DeFi 1.0 and DeFi 2.0. Not sure about these two? In a nutshell, DeFi 2.0 aims to improve on the previous efforts of DeFi 1.0. Improvements include more liquidity, better scalability, governance, and security of course.

Let's take Ariel's example – Ariel is a cryptonative and is in crypto for the long term. Ariel has gone through waves of using different DeFi protocols and a few months ago, he opened a position on one of the Layer 1 protocols. Unfortunately, the protocol has a liquidation scheme, and with the current market conditions, things are not looking good for Ariel.

Ariel wants to keep the position open but needs some liquidity to stay. Ariel is reluctant to put fresh capital in at the moment and therefore thinks of PWN as the perfect solution to borrow against a combination of his fungible and non-fungible assets to save his DeFi position.

Let's summarize the advantages of this use case:

  1. Ariel gets to choose what term length suits him best based on the DeFi strategy - 90 days or less may work best in this scenario

  2. Ariel didn’t have to put any fresh capital into crypto but instead optimized for the current financial protocols available in web3 today

  3. Ariel wouldn’t be liquidated on PWN until the loan expires, which would make this a much more reliable way to extract liquidity for a different position.

What do you think of these opportunities? Are there any others that you can think of? Let us know by getting in touch with PWN on Twitter or by starting the conversation in the PWN Discord community.

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