As a DeFi-focused hedge fund, MEV Capital has grown snug with transferring funds round on-chain in pursuit of upper returns, a method often 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 which will result in payouts in a future token, on behalf of purchasers.
MEV Capital is farming these factors particularly so as to acquire publicity to EigenLayer and a raft of different Ethereum restaking tasks providing off-chain factors to on-chain customers. It’s a testomony to renewed animal spirits in crypto and the thrill surrounding restaking that hedge funds like MEV Capital at the moment are buying participation tallies for purchasers.
All of it factors to restaking
EigenLayer is a restaking protocol that permits 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 related choices from KelpDAO and Renzo, create a tokenized model of restaked ether that can be utilized in DeFi purposes.
Learn extra: Ether.fi broadcasts $23M Collection A spherical as restaking curiosity grows
EigenLayer at the moment rewards customers with factors for restaking their ether, and a number of other LRT protocols have factors methods 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 common for accruing factors.
By means of 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 buyers leveraged publicity to EigenLayer and LRT factors, as they’re primarily shopping for the rights to the factors accrual from holders of Pendle’s principal tokens.
Factors have been a really efficient device for bringing belongings to the restaking sector. EigenLayer’s complete worth locked (TVL) was roughly $250 million on Dec. 18, in line with DeFiLlama. That determine is over $9 billion as we speak.
Unsure returns
Some funds are sitting out the factors mania, however there’s nonetheless cash to be constructed from the sidelines.
Valentin Mihov, who co-founded the DeFi funding fund Finexify, advised Blockworks that the fund has been utilizing Pendle to achieve elevated ether yield brought on by factors hypothesis.
Pendle’s fixed-yield merchandise have a better APY when the implied yield, or the market’s future estimate for yield, goes up.
Mihov mentioned that whereas the points-induced greater APY is “fairly good,” his agency finds factors farming too dangerous as a result of the longer term worth of the IOUs remains to be largely unclear.
In some instances, factors farming may be fairly profitable. When Solana-based liquid staking protocol Jito executed a points-based airdrop in December, for instance, one researcher remarked that transferring $40-worth in tokens round on-chain may have netted a consumer $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 arms on the web site Whales Marketplace for a mean worth of round $0.18. A Messari researcher tried his hand at discovering an estimate and guessed LRT factors to be value roughly $0.14 apiece.
Factors farming is ‘extra artwork than science’
Since factors stay off-chain, how they’ll convert to token allocations may be opaque — typically to the drawback of larger buyers.
A accomplice at a crypto-native funding agency advised Blockworks that factors are supposed to bootstrap neighborhood curiosity in crypto tasks 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 folks, so it’s not value placing the capital in danger in a local protocol for a really low payoff,” they mentioned.
Chase Mayeux, managing accomplice at funding agency Coral, mentioned determining returns on factors is extra “artwork than science.” Coral is accumulating factors on EigenLayer and quite a few different DeFi protocols, Mayeux mentioned.
“There are secondary markets for factors (Whale Market / Pendle) however in the end we are attempting to accrue both tokens or factors on protocols that we predict will recognize in worth. Usually you received’t know till months or years down the road whether or not you had been appropriate in your theses,” Mayeux mentioned 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 common accomplice
Laurent Bourquin gave the upshot of a hypothetical dialog with a shopper about factors farming:
“‘Can we make more cash? Sure, no?’
‘Sure.’
Growth then it’s good.”