Disclaimer: Midas Investments closed down due to a $63.3 million deficit in its decentralized finance (DeFi) portfolio.
Midas Investments is a custodial crypto-investment platform that is testing the waters and proving itself to be a reliable asset manager for investors looking to make money in DeFi
without putting a lot of mind into it. It has successfully added $200M to its assets under management (AUM) and has grown to over 35K investors (with 8,000 investors having a significant amount of investment) within a period of less than four years.
Midas Investments is a yield aggregator that aims to maximize the yield for its users by utilizing a plethora of different strategies across DeFi. These strategies include yield farming
(liquidity providing) and using yield-bearing assets to compound the net yield. The platform’s funds are managed by a non-custodial
wallet infrastructure on Fireblocks.
Midas Investments generates yield for its users and accomplishes its goal in the most transparent manner. But before we dive into how exactly it generates the yield, it is helpful to understand how exactly an investor can make profits in DeFi and whether it makes sense to invest the incredible amount of time and effort that goes into it.
Ever since the DeFi summer of 2020, investors across the ecosystem have been looking for ways to compound their yield. At the time, a common strategy of earning yield in DeFi was by investing in base-layer protocols such as Compound, Maker, and Synthetix. An investor would lend their idle crypto assets to these platforms, who would in turn give them the percentage of interest they would charge from fellow users borrowing on the platform. That was the high of DeFi. A new financial system was just being created at the time and people were more interested in hedging against a falling stock market. And there are three main entities that this ecosystem was aiming to support:
In a traditional market, a trader will trade against a counterparty where the former is willing to sell/buy their asset at an agreed-upon price. In the absence of a centralized intermediary in the case of DeFi, this needs to be done against a smart contract
. And for that smart contract to enable such processes, it needs to have assets. Thus, the entire liquidity can be put in a smart contract (or a pool) which the users can trade against.
The base-layer protocols have become much more resilient and have gained a lot of respect within the community. Both Compound and Maker make up more than $23B worth of TVL
in the market. Naturally, as Ethereum has grown and gained wider acceptance, these protocols have received extensive limelight. And the millions of lenders and borrowers on these platforms have also made lucrative profits.
If you lend your assets to these platforms, not only do you get a certain percentage of interest that the protocols charge from borrowers but you are also entitled to the governance tokens
. These governance tokens are not only financially lucrative but they also give you the power to participate in crucial decisions made by these protocols.
Now, most of the lending protocols in crypto often issue derivative tokens that accrue interest from the deposited capital. An example of these tokens is the cToken that Compound issues for every capital that you deposit. And where can you use these tokens?
Thanks to the various DeFi protocols that exist on top of the base-layer protocols today, these value-accruing tokens can be put to use to generate more yield. For instance, these tokens can be supplied to a yield aggregator that can then utilize them to generate more yield from users’ capital by putting it on farms or even using it as collateral to borrow loans. The loaned amount can be put to supply more liquidity to the lending protocols and the whole process can be repeated all over again.
As you can imagine, this gives investors diverse exposure to different functional assets and helps compound their yield. However, this is where the problems start creeping in.
One of the biggest risks that exist today in the DeFi environment is that of Impermanent Loss (IL), which is easily defined as the loss of capital when an investor decides to lend their capital to a lending protocol in return for interest as opposed to simply holding it in their wallet.
Because the crypto market is extremely volatile, users can find both the phases where trading/borrowing volume goes too high or too low. When the market is in an uptrend, more users would be enticed to borrow capital along with trading their existing capital. This positively influences the interest rates for lenders - the more the number of borrowers, the higher the interest rate on borrowing and the higher the APYs for the lender.
But, when the market starts showing bearish signs, most of these borrowers/traders repay the loan and get their collateral or get liquidated in the market and destroy the interest opportunities of their lenders.
These traders are also likely to close their positions, leading to an influx of capital back into the liquidity pools
of these protocols - where the borrowers/traders had initially taken the capital from/were trading against. This negatively impacts the interest rates that the investors (lenders/liquidity providers) get.
Thus, in a dynamic and highly volatile market such as that of crypto assets, the APYs can go up and down depending on how the market performs at an instance.
This means that any investor who wishes to generate yield in DeFi has to be super involved in the market and actively hunt for the highest yields, close old positions, and open new positions to ensure that they are in profit and that the risks associated with IL are minimized.
This requires both a technical understanding of how various protocols work (more specifically, how users respond to the changing market conditions) and keeping a track of the evolving market. As you can imagine, this requires a lot of investment in terms of time and focus from the investor. And on top of that keeping up with how these protocols develop and evolve is another task.
In the world of traditional finance, investors would rely on investment/asset managers.
And in the world of decentralized finance, they rely on custodial services like Midas Investments.
Midas Investments is a custodial yield aggregator that aims to look for the most lucrative yields within DeFi and keep compounding the net profit for its investors. It does that by utilizing a combination of different strategies for generating interest within the DeFi universe. Perhaps one of the most popular strategies that Midas (and other yield aggregators) rely on heavily is using yield-bearing assets across DeFi to compound the yield.
This makes it possible for investors to generate more interest on their capital than they were getting initially because of a lack of understanding of DeFi. Midas Investments aims to abstract away the complicated processes of identifying the best yields within DeFi by actively participating in the market. Wondering how Midas Investments offer such APYs? Let’s check it out!
For any asset management firm, one of the most crucial things to manage for their investors is “risk”. And as most of us are already aware, crypto has time and again proven itself to be one of the most riskiest and highly volatile markets, which has both made millionaires and have even cost people millions of dollars. Midas Investments seems to have a resilient team that is constantly looking through the market to understand the best available strategies and then using the investors’ capital to make sure that they are netting the highest profits. Here are some ground-level strategies that it employs.
Uniswap is one of the biggest AMMs
(Automated Market Makers
) within DeFi at the moment. And with the recent V3 release, it has diversified its lending pools and introduced three new fee tiers. In addition to this, they have also introduced the concept of concentrated liquidity which implies that a liquidity provider
) now does not need to provide the liquidity to the entire pool across an infinite price range (LPs provided their liquidity across the entire pool in V2). In fact, now they can decide to concentrate their liquidity within a specified price range, say (x,y).
How does concentrated liquidity help? It gives more freedom to the LP as the pool needs to ensure that for the specified price range, the LP has indeed provided liquidity. If it has, then it pays out rewards in the form of trading fees while the trading is happening within that price range. However, the moment the trading crosses that price range (a,b) then the LPs don’t accrue any rewards. And since their funds are not being used within the pool for that price range, they don’t suffer from IL. Midas promises that the APR generated from liquidity providing ranges between 20% and 60%.
In addition to this, they also provide liquidity to pools where a volatile crypto asset (such as SOL) is paired with a stablecoin
(such as USDC). This ensures that there is enough yield for investors to generate even when the market is going down. This happens because, in any market, the pairing of a volatile asset along with a stablecoin is the most utilized by traders.
They also rely on leveraged liquidity farming by borrowing more stablecoins and the corresponding volatile crypto asset to deposit into LP pools in an attempt to increase their share of the trading fees that they earn. This increased share can then help offset the interest rate on the borrowed capital.
is unsurprisingly famous for being one of the most reliable decentralized hedge fund/yield aggregator that is consistently looking for ways to maximize yields for users. As such, it also accepts yield-bearing assets and aims to put them to use to generate more yield. The protocol is considered one of the most reliable yield generating protocols by Midas Investments and they are constantly on the lookout for the best yields that come out of Yearn’s vaults.
Just like with other Ethereum-based products, transacting with the protocol can be difficult due to the high gas fees.
Midas Investments combines a number of these strategies to create a plethora of different products. Let’s explore some of Midas’ products below.
The Yield Automated Portfolio offered by Midas Investments is a pre-selected collection of cryptocurrencies that are selected based on their market capitalization
. Since these are a collection of cryptocurrencies, they help in diversifying the risk that investors take while investing in this product. Instead of having direct exposure to just one coin, investors now get to have exposure to have a diverse collection of cryptocurrencies, thereby, diversifying their risk.
It is a low-risk, medium-return strategy that involves weighting the portfolio like below.
Having both Bitcoin and Ethereum in the YAP with 35%
weightage each ensures that the investors are able to make good returns over a long period of time. However, a crucial thing to note here is that investors can only access this YAP via their token, SYAP. This token is issued by the protocol and is backed by all the assets mentioned here. The protocol does monthly rebalancing to ensure that the portfolio has an increasing APY.
Midas Investments’ DeFi YAP is a unique offering as it is a fully automated investment portfolio that aims to invest in a selection of assets across the DeFi ecosystem. These assets are selected after careful research of their current presence within the ecosystem and their historical performance. As shown below, these consist of a variety of highly successful DeFi projects including Aave and Uniswap.
As we have already understood above, the protocol does recurring rebalancing of these portfolios according to the prevailing market conditions to ensure that each YAP is able to deliver on its promised APY.
Now that we have explored what Midas Investments is and how it works, the question that arises is should we invest in the yield aggregator? Well, before we arrive at our own analysis, let’s explore the features that they have to offer and the potential risks of using the protocol.
Perhaps one of the biggest features of the protocol is that it utilizes Fireblocks’ wallet infrastructure to secure its investors’ funds. All transactions require a multisig
process, making the process of transacting on-chain very secure.
In addition to this, the team has been actively investing and looking for ways to generate passive income in crypto since 2018. This implies that not only does the team have enough experience to understand how investments in crypto work and how portfolios
should be managed, but they also have offered their service to do so to millions of other investors who are looking to make money in the market. While the team has been actively working since 2018, it was only in 2020 that they managed to release their first YAP and haven’t looked back ever since.
The protocol also offers an affiliate program that encourages investors to invite their friends and family. As part of the program, whenever an investor joins through a referral link, the referee gets a certain percentage of the yield that they get on their deposits.
In addition to this, from an asset manager’s standpoint, they have managed to compile portfolios that may seem volatile in the short term but are incredibly profitable in the long term. Their DeFi YAP is weighted with successful projects that have established themselves in the space. As such, they are more likely to succeed in the long run than going back to zero.
One of the biggest risks of using Midas Investments is that associated with the fundamental strategies that they use - liquidity providing. While liquidity providing (or yield farming) is considered one of the most useful ways of generating yield in DeFi, it has been found to be slightly unsustainable in the long run as the returns are market-dependent and the risks of IL can be too high. In a highly volatile market (even with Uniswap V3), it has been found
that IL risks are nowhere near to be solved.
While some AMMs like Bancor claim to have solved this problem, there are several that still bleed IL for investors putting their capital in liquidity pools. This is a highly talked-about problem and both developers and researchers are looking for solutions for this. Thus, as you can imagine the yield coming from these strategies is a bit riskier albeit very lucrative. That said, the risks of IL can be offset by active participation in the market. And since the team at Midas Investments is super involved in the market, they can anticipate a falling market easily and find ways to mitigate that loss.
In addition to this, the YAPs that the protocol offers are a collection of highly-successful but extremely less risky protocols. And the lower the risk, the lesser the reward. These protocols have already had their phases of bull runs where they have 10xed the investors’ income. As a result, they don’t seem to offer incredible gains in short term. Sure, they are likely to give good returns over a long term, but if an investor is looking to make a small short-term bet, then this isn’t the strategy that will help them achieve their goals. That said, the fact that more reliable assets are a part of their portfolio implies that investors’ capital is always increasing in value over the long run.
We must remember, however, that all the risks mentioned here are not specific to Midas Protocol. In fact, the risks around IL are industry-wide.
The Midas token
is used to accrue yield and is thus a utility token
for its holders. The token is based on the Fantom network and has a total supply of 5 million. The Midas protocol is responsible for analyzing the profits that are given to investors across different markets and strategies, and 10% of that is sent back to the Midas market.
Most of the funds split like this are used across a variety of different strategies which involve the growth of protocols and also giving an APY boost to investors by providing liquidity. In addition to this, some of these tokens are also burned to ensure that there is adequate supply available within the market.
The project has recently introduced its MIDAS Boost
feature that accelerates the APYs of offered assets to maximize returns for investors. Currently, the rate has been set at a multiplier of 0.2, a figure that will fluctuate in accordance with the fluctuations in market demand.
Yield aggregators have been attempting to time the market in a way to compound the yield for their investors. Most of them have been successful in their own regard and even if some have failed, they have only failed because of the existing problems in DeFi. IL, for example, is a huge limiting factor to DeFi and has hurt millions of investors over the past two years. That said, liquidity providing is also one of the most lucrative ways of earning huge returns in a bull market
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