Ethereum Traders Dumping But DeFi Farmers Hungry For ETH Yields

Ethereum prices have dumped almost 15% over the past 24 hours as traders hit the sell button, but liquidity in high yield ETH vaults has increased over 44% in the roughly same period.

Ethereum prices have retreated almost $100, or 20%, since their 2020 and two year high on Tuesday, September 1. At the time of writing, prices had settled at just over $385 where August support levels were holding.

The market dump has been largely induced by big brother Bitcoin which slumped below five figures recently after failing to break the $12k resistance barrier again.

As day traders take profits and the correction continues, the opposite appears to be happening to Ethereum yield farmers who are flocking to Yearn Finance’s recently launch yETH vaults.

yETH Vaults Survive The Slump

Dealing in DeFi is not without risk and the highest risk on Yearn’s yETH vaults is liquidation should the collateralization ratio on the MakerDAO contract that uses the ETH deposits drop below 150% following an Ethereum price slump.

Well, Ethereum prices have certainly slumped over the past day and the vault has survived due to rebalancing and the ability to pay down the debt.

Digital asset trader Andrew Kang gave a big thumbs up to the innovative strategy as a number of rebalances resulted in 2.7 million Dai being used to pay back the collateralized debt position.

The new @iearnfinance yETH vault absorbed 378k ETH since launching 2 days ago

It also just successfully managed risk during a 25% crash

3 Rebalances were called in the past hour leading to 2.7M DAI paid back to its CDP

Cool validation for the product pic.twitter.com/x32At0P8tq

— Andrew Kang (@Rewkang) September 4, 2020

Yearn Finance posted that it had paused deposits after 70 million Dai had been minted.

“Deposits to yETH have been paused. ~70m DAI minted. Withdrawals unaffected. We will allow deposits again in the future. For now this is a high enough cap to balance between best profits and best risk adjustment.”

As reported by CoinGape yesterday, liquidity in the yETH vault reached $100 million, or 230,000 ETH on the first day. A day later that liquidity has surged by 62% in terms of Ethereum and is now at 374,000 ETH according to Yearn stats. In terms of USD value, it is up 44%, and that is taking into account the price drop over the past 24 hours.

Cronje Clears up The Confusion

Yearn Finance founder Andre Cronje has recently posted an article explaining how the yETH vault mechanism works in order to clear up some of the confusion surrounding the protocol.

I see its tinfoil hat time again. Surprising how these theories seem to correlate with red markets. Published a quick article on how the vaults actually work. https://t.co/3PR2LRXhQw

— Andre Cronje (@AndreCronjeTech) September 4, 2020

In it, he explains how the yield is accrued, and associated risks such as the debts that normal vaults do not have. Despite these risks, it appears that Ethereum yield farming is growing in popularity regardless of what day traders are doing with the asset.