Coinchange Asset Allocation Report November 2022

This report covers the deployed assets over broad categories of protocol types, blockchains and client invested currencies.
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Hello Coinchangers,

Welcome to Coinchange’s Asset Allocation Report where we provide information on how Coinchange deploys client's assets and diversifies the investments while minimizing risks and maximizing potential earnings. The Asset Allocation Report will be published on a monthly basis to ensure we provide up to date and relevant key metrics related to the state of the client assets. 

This report covers the deployed assets over broad categories of protocol types, blockchains and client invested currencies. Within those categories, the deployed assets are allocated to specific strategies,  which undergo continuous optimization and re-allocations based on the evolution of the market, DeFi protocols, and the technology landscape.

We welcome community feedback to evolve this report to suit your specific needs. Feedback can be provided by sending a message to ccf.research.support@coinchange.io.

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Market Outlook

November saw a dramatic decrease in DeFi TVL in dollar terms, with a drop from ~$55B to ~$42B over the month. However, if looking at TVL in native currency (ETH), it held the 20M ETH mark the whole month with short lived ups and downs caused by FTX/Alameda blowing up.  Borrowing demand remained slow with slight increase, leading to stagnant interest rates across Money Market protocols. DEX volume saw a significant uptick at the beginning of the month which then decreased from nearly $15B USD weekly volume to $4B USD. MakerDAO topped the list, but saw a decline in TVL to ~$6.7 Billion over the past 30 days. Lido Finance took the second spot with $6.2 Billion, followed by AAVE at $3.89 Billion and Curve at $3.7 Billion. Uniswap dropped to the number 5 spot with only $3.5 Billion.

Hence, opportunities mentioned in October’s Asset Allocation report (guided by our internal risk framework and thresholds) have been improved with a new strategy in the work. On the other hand, the depressed prices across the board continues to have an impact on some of our strategies with exposure to protocol-based liquidity incentives.

Aforementioned strategies have been improved across a wider set of eligible pools while still maintaining the portfolio non-correlated. These strategies already stabilized our stablecoin rates and new strategies will further improve it, thus showing the strategies capability to capitalize on different market outlook. 

For more information on the state of the market and DeFi, read our DeFi Research News November 2022. 

Strategy Concepts and Investment Philosophies

Coinchange is a technology platform that allows users to earn crypto on their holdings by facilitating yield generation through DeFi strategies. Coinchange strategies are based on proprietary financial models and represent automated systems that rebalance funds in the DeFi ecosystem in accordance with the models and in response to changing market conditions. Strategies developed by Coinchange fall into the following areas of the DeFi ecosystem.

Liquidity Provisioning (LP) Strategies

LP strategies are based on participation in DEX protocols (Decentralized Exchange). LP plays an important role in Coinchange yield generation vision as it generally provides stable and uncorrelated returns agnostic to the direction of the market. DeFi protocols involved in Coinchange LP strategies include Uniswap, PancakeSwap, TraderJoe and others.

Coinchange LP strategies aim to maximize yield while keeping the strategy market-neutral.  Complex hedging and proprietary algorithms are used to maintain a market-neutral position and eliminate the risks associated with LP pools that involve non-stable coin currencies such as Ethereum. In addition, Coinchange strategies take full advantage of the additional staking of reward tokens provided by associated AMM protocols.

Lend/Borrow and Arbitrage Strategies

DeFi lending protocols such as AAVE, Venus and others are at the core of this family of strategies. Coinchange strategies are able to maximize earnings using proprietary financial models to maintain optimum collateral levels (with respect to liquidations), stack multiple borrow/lend cycles, and include reward tokens into the yield cycle.

Coinchange also utilizes complex strategies that earn on arbitrage opportunities in the lend/borrow protocols. These strategies benefit from faster markets with higher levels of activity and volatility.

Staking Strategies

Staking strategies take advantage of specialized opportunities where staking is the primary mechanism for yield generation. One such strategy takes advantage of the pegged nature of staked Ethereum and uses it to boost the returns of regular Proof-of-Stake Ethereum staking.

Coinchange only deploys assets on quality, widely used, and time-tested DeFi protocols. Below is a list of protocols used in Coinchange strategies:

  • AAVE v2-3
  • Uniswap
  • TraderJoe
  • Pancakeswap
  • Curve
  • Venus
  • BenQi
  • 1Inch
  • Platypus
  • Lido

Stablecoin Assets under Management Breakdown

Managed Asset Mix

Below is the distribution of client stablecoin assets managed on the Coinchange platform as of November 30th. Coinchange accepts USDC, USDT and Dai on the Ethereum network. The distribution clearly shows a high bias towards usage of the USDC asset.


Stablecoin Asset Breakdown - As of November 30th, 2022

Stablecoin Asset Allocation Breakdown per DeFi Protocol Type and Blockchain

Coinchange strategies accept and deploy client assets to various DeFi protocols, where each strategy has an algorithm and a set of currencies that it works with. The strategy is able to convert and deploy the assets, and later return them to the original asset upon withdrawal. The analysis below highlights Coinchange’s portfolio structure and the diversification to market mechanisms in the portfolio.

DeFi Protocol Type Groups

DEX: Decentralized Exchange Protocols (aka AMM and LP)
  • Uniswap v2
  • Uniswap v3
  • TraderJoe
  • Pancakeswap
  • Platypus
MMP: Money Market Protocols (lending and borrowing)
  • Aave v2
  • Aave v3
  • Compound
  • Venus
Staking: Staking Protocols for Governance and Blockchain Tokens
  • BenQi
  • Lido

The chart below shows strategy asset distribution among the DeFi protocol types. The current portfolio breakdown per protocol type highlights the portfolio's diversification to market mechanisms while taking the current market environment into account. This protocol distribution is the direct result of the models and algorithms operating behind each strategy.

It can be seen that 81.8% of stablecoin deployments are in MMP protocols. MMP protocols provide a relatively constant and stable yield given current market environments.

0% of stablecoin deployment is allocated on the DEX protocols on November 30th. The reason being that our DEX strategy has been stopped near the end of the month because our algo determined that the set of pools available for deployment did not provide sufficiently high APY to motivate a continued deployment of assets.

18.2% of stablecoin deployment is allocated to staking protocols. Coinchange strategies based on these protocols have an attractive risk/reward ratio in the current market environment. There are, however, higher transaction costs to consider, and this is reflected in the proportionate allocation percentages.

Stablecoin Asset Allocation per Protocol Type - As of November 30th, 2022

The chart below shows the resultant strategy asset distribution among blockchains. The blockchain distribution directly reflects the protocols being used by the strategies. Currently, each Coinchange strategy operates on one blockchain only. It is valuable to note that Coinchange strategy portfolio is well diversified across blockchains as another important risk mitigating factor in the risk profile of the portfolio.

Stablecoin asset allocation per blockchain - As of November 30th, 2022

Volatile Asset under Management Breakdown

Managed Asset Mix

The chart below shows the asset mix of Bitcoin and Ethereum managed on Coinchange platform as of November 30th. Ethereum yields have historically been much stronger than Bitcon yields, which may explain a clear preference to invest in Ethereum. 

Volatile Asset asset mix

Volatile Asset Allocation Strategy

Currently, allocation for both currencies (ETH and BTC) is 100% in MMP (Money Market Protocols).  MMP type protocols are preferred in the current market environment as they provide a fairly constant and stable yield for volatile assets.

MMP protocols, which host 100% of Coinchange ETH and BTC assets, are running on the Avalanche blockchain.

What Coinchange Team is Working on Next

Coinchange DeFi R&D team developed a Framework for Algorithmic Yield Strategies (FAYS) in the DeFi ecosystem and is continuously working on the next iteration. FAYS consists of a set of tools, frameworks, and processes with the objective of quickly creating and managing effective, secure, and fully automated strategies for yield generation. The goal is to have portfolios of diversified strategies across chains, protocols, and market mechanisms. As we navigate the shifting landscape of DeFi yield, we continue to enhance our tools and internal processes to optimize performance and security. Below are a few points that the Coinchange DeFi R&D team is working on:

Areas of Research:

  • Universal backtester/Data grabbing: Update and improve the data grabbing code to hedging strategy requirements to have better decision making when selecting pools. This leverages the improvement that the universal backtester brings. 
  • Research: Strategy & Concept to convert Coinchange execution (off-chain and on-chain part) into a decentralized non-custodial protocol. This project leverages the security improvement from the new security framework put in place in October.    
  • Risk report: documenting all Coinchange related risk for publication in quarterly report

New Protocols and Strategies:

  • Half stablecoin and non stablecoin pools hedging strategies improvement
  • Improvement to staking strategies
  • Carry trade sequence algorithm has been updated to use assets deployed more efficiently.
  • Alpaca finance hedging strategy development
  • Internal services and strategies have been standardized and simplified allowing better management while enabling more strategies to be deployed in the portfolio.

Please let us know if there is anything more you would like to see in our future reports by getting in touch with our support team here

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