Architecting DeFi’s Yield Curve | DAS New York

Michael Apolito, co-founder of BlockWorks, emphasizes the need for transparency and professionalism in institutional capital markets, particularly in the context of crypto. He presents BlockWorks Investor Relations as a solution that integrates real-time analytics and advisory support.

Luke Laeser, Head of Research at BlockWorks, discusses the emergence of DeFi's yield curve, which now mirrors traditional market structures. He explains that foundational elements for an on-chain yield curve have been established, with assets being created, traded, and priced entirely on-chain. Laeser introduces Athena, a platform that deploys user deposits into various strategies, capturing carry yields for SUSDE holders, historically ranging from 5% to 25%.

Laeser elaborates on Pendle's role in trading yield-bearing assets by separating principal and yield components, allowing for trading based on future yield expectations. He illustrates how multiple maturities contribute to an on-chain yield curve that reflects market expectations, using backwardation and contango to indicate future yield predictions. The concept of rolling term spread is introduced to track the yield curve's slope over time, suggesting potential market insights.

The relationship between the term spread and Bitcoin's forward returns is discussed, noting that steep backwardation correlates with negative returns, while contango is associated with positive returns. Laeser points out that the yield curve's shape is influenced by the underlying yield regime, with contango prevalent in low yield environments and backwardation in high yield ones. The term spread serves as an indicator of mean reversion and signals changes in yield and carry costs.

Laeser highlights that implied yields on Pendle often command a premium, similar to equity options pricing, and that bond buyers on Pendle require a premium for exposure to the right tail of the yield distribution. He notes high demand for Aave-listed bonds during high yield regimes, with SUSDE principal tokens showing the highest collateral utilization rates among crypto instruments in major on-chain money markets. Ultimately, DeFi now possesses an on-chain yield curve that offers insights into the cost of carry and future Bitcoin price levels.