Editor's note – this article was written in January 2024, before the proposal to simplify and strengthen OETH. Origin Ether now operates as a true LST.
Origin Ether is a next-generation yield aggregator for Ethereum, fully backed by ether and ETH LSTs. One of the liquidity provision strategies used by OETH to earn yield is providing liquidity to the OETH/ETH Curve Pool and staking the LP tokens on Convex. An OETH holder can do what the strategy does (by providing liquidity to that Curve Pool directly) to earn rewards.
And we have had people ask us about it. So, we did an analysis to scrutinize the question: Is it more lucrative to hold OETH or actively engage in the Curve Pool for liquidity provision?
We’ve prepared a set of on-chain and off-chain data to supply us with the proper information to analyze APYs for holding OETH and providing OETH liquidity via Curve and Convex. Our process and findings are highlighted below.
To lay the groundwork for our exploration, we built a simulation model using information from various data sources. Liquidity provision events on the OETH/ETH Curve Pool and Reward Payout data from the OETH Convex Booster contracts were some of the on-chain data we relied on.
These are the contract addresses and the events we used in the analysis:
We also needed data from centralized data sources, like Curve OETH/ETH Pool's APY as well as OETH's APY, to use it with the simulation model. We used DeFiLlama as a data source for getting the Curve OETH/ETH Pool's APY, and our own analytics endpoint came in handy to get data on OETH yield.
Calculating yields for OETH is pretty straightforward; we sum all the yield accumulated over a specified period of time. However, it can be very tricky with Convex/Curve pools because the yield is generated by fee swaps and rewards tokens. To simplify things, we decided to compute the APY from the pools as we do for OETH.
OETH is a rebasing token – your balance compounds and increases over time as you earn more yields without have to do anything to "claim" or "restake" it. However, when providing liquidity to Curve pools, you have to claim the reward tokens, liquidate them, and change your liquidity position; each of these transactions is going to have some gas cost associated with it. So, to get a more accurate insight, we also include the gas costs for transactions of all the events we are interested in.
For the Convex pool, the transaction cost is taken into account when the Liquidity Provider stakes, withdraws, or claims their rewards.
For the Curve pool, the transaction cost is considered for all liquidity position changes.
For the Rewards tokens swaps, we didn’t add any cost.
There was a very substantial episode happening at the end of July where Curve was being attacked, and the OETH AMO removed all the liquidity from its Curve strategies. This caused the Convex Pool to yield 114% on the 31st of July. After the curve issues were solved, the AMO added the liquidity back, normalizing the situation.
A detailed examination was conducted to compare earnings between holding OETH and providing liquidity to the Convex Pool. In the dataset we used, there were 47 liquidity providers (excluding OETH's Curve AMO Strategy).
Out of the 47 liquidity providers, only 12 made more money by providing liquidity to the pool directly. The remaining 40 would've earned more if they had just held OETH in their wallet. Note that, of the 12 liquidity providers, only 5 still have their liquidity position active. Should they decide to close their position, they'll incur a bit more cost in the form of gas for removing the liquidity.
Since we know the APY spiked a lot during the day when Curve was under attack, we decided to see what would happen if we removed that period of rewards from the data. And it turns out that only 6 out of 47 people actually made more money from their liquidity positions, as compared to just holding OETH. Of the 6 users, 4 of them have their liquidity position active.
Going through the data, we wanted to find liquidity providers who have the biggest gap with the OETH yields. Here are the top 5 addresses that could've earned more with OETH:
There were 11 people who tried to beat OETH's yield but ended up losing money (excluding the days of the Curve pool attack). Here are the top 5 losses:
OETH and similar aggregators facilitate achieving a genuine yield, sparing users from the intricacies of individual strategies. While providing liquidity on Convex may make sense in specific scenarios, a cost analysis shows that most people are better off holding OETH than independently engaging with Convex pools. The main takeaways you can take from this analysis are:
