Analyzing the Recent Introduction of Huobi's 'DeFi Addendum' to the DeFi "Movement"


4 min read

This was announced via CoinDesk and a few other entities as well - but Huobi will be acting as a bank (directly) and granting users favorable interest rates (APR) on Bitcoin / USDT deposits

https://www.coindesk.com/huobi-launches-crypto-saving-products-to-compete-with-defi-yield-farming

This obviously is most similar to the the 'Dai Savings Rate' / 'Stability Fee' implemented on the Maker protocol. These are "controls" to manage the economy of DeFi around them (Huobi), which tells us that it has a significant impact on them (good short term for bulls ; bad long-term and will explain why soon)

Leads me to believe that this market downturn also hurt them in various ways too.

Specifically for the following reasons:

  • Huobi is the #1 wallet (last time I checked) for $BTC ; they're practically a sister exchange w Binance too, so their USDT coffers are filled to the brim as well
  • Offering these interest rates on the market should intuitively lock in some sense of future bullish value for Bitcoin or USDT. One or the other. Perhaps to account for the super bear out there that things that even a +8% APR on Bitcoin will still lead to them taking a net loss in the grand scheme. Hard to argue the same for USDT, which is a separate problem for all USDT holders (mainly the two largest ones - Huobi + Binance)
  • Sub-theory of what I wrote in #2 is that it is the goal of these larger entities (Huobi + Binance) to not have Tether on-hand, but rather clean Tether out for something that can eventually be converted into liquid (i.e., Bitcoin may work - but ultimately a direct liquid transfer is best). I think that's why we see so much volume between USDC / USDT pairings.
  • MakerDAO being part of this orchestration makes sense too. This is the same sort of 'program' that they have over there as well (DAI Savings Rate ; essentially a floating interest rate % return for Dai designed to incentivize buying / selling of Dai — increase in the % = increased demand / decrease = vice versa). As of right now the rate has to be at 0% since Maker has been "struggling" to get the price down to parity at $1.00 (they definitely haven't but that's another story that I'm going to crack into today as well while I'm shelling out iearn.finance & their recent "governance" decisions.

Quick Look at the 'DAI Savings Rate'

Keep in mind that the information & graphics that you're going to see in this section come directly from the MakerDAO website itself (so the proverbial "horse's mouth", to speak). Thus, if there are any inaccuracies here, then their documentation is not up to date and I have too many different moving pieces that I need to account for in this space to keep an external up to date with their own project (especially if that's the only one that they need to be concerned + up-to-date with).

How DAI Savings Rate Works in a Nutshell

More or less

link = https://blog.makerdao.com/an-update-on-the-dai-savings-rate-in-multi-collateral-dai/

As explained the prior, the purpose of this system is to provide some sort of control for the price of $DAI. Specifically, this is a means of economic control that functions in a manner opposite of the 'Stability Fee' (which is adjusted to increase / decrease supply more so than demand since available supply on the markets is hindered by the Stability Fee at any given point in time).

However, if the demand is high enough for DAI (for whatever reason), then this could actually lead to the unexpected consequence of the Stability Fee pegging $DAI at a higher price (i.e, there's an unmitigated baseline of demand that has established a 'basement' >$1.00 based on the other relaive market factors).

That's a different conversation to be had in the future. Seems more complex than what it really is, but it is a bit convoluted from the outset; especially when the general discourse surrounding the issue is relatively 'low level' in publications such as CoinTelegraph / CoinDesk)

Converse Influence of the DAI Savings Rate

The savings rate is something that directly impacts the demand side of $DAI (either there is either greater interest or it remains at its baseline).

Take a look at the explanation from MakerDAO below:

Recent Bullish Emergence of 'Yearn Finance' Has Undermined the Effectiveness of This

This is something that will be discused in a separate piece because the reasons for why this is the case are a bit more 'involved' than what's being described in this article, specifically (i.e., there is a LOT more that must be broken down in order to clearly estbalish the consequences for the entire market - especially in various market conditions [i.e., Ethereum is dumping / pumping ; a project like YFI drops that has a massive impact on the demand on Maker/$DAI]).

Of course, the governance decisions made on each protocol have a palpable impact on things as well.

Wrap-Up

No information in the CoinDesk article that covers this situation (per usual ; classic 'DeFI'style, they don't want people to really parse what the fuck is going on to connect the dots & come to a realization that there are some major entities in this space that are in trouble financially & legally). [reference = https://www.coindesk.com/huobi-launches-crypto-saving-products-to-compete-with-defi-yield-farming?amp=1]

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