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DeFi Summer 2020: COMP, Yearn and the AMM Explosion

How liquidity mining turned DeFi from niche to multi-billion dollar ecosystem.

COMP distribution begins

On June 15, 2020, Compound began distributing about 2,880 COMP per day to suppliers and borrowers. Because rewards exceeded interest costs, users borrowed simply to earn COMP, and Compound's deposits jumped from about $100 million to over $600 million within days.

Yearn and the fair launch

Andre Cronje launched YFI on July 17, 2020, with 30,000 tokens and no premine; all supply went to liquidity providers. YFI rose above $40,000 within two months, and vaults that automatically moved deposits between lenders popularized the term yield aggregator.

Uniswap v2 and the vampire attack

Uniswap v2 launched in May 2020 with arbitrary ERC-20 pairs and a 0.30 percent fee. In late August, SushiSwap offered SUSHI rewards to Uniswap LP token stakers and migrated about $800 million of liquidity on September 9, 2020.

TVL and APYs

DeFi TVL rose from about $1 billion in June to more than $10 billion by September 2020. Advertised APYs above 1,000 percent were usually token emissions; converting APR to APY with compounding n times per year uses (1 + APR/n)^n − 1.

What lasted

Liquidity mining became the default distribution method, and Uniswap responded with its UNI airdrop on September 16, 2020. Many food-named forks such as YAM and Hotdog collapsed within days, illustrating the risk of unaudited code.

By the numbers

For DeFi Summer 2020, the reference figures are comp distribution start of June 15, 2020, defi tvl start of june of ~$1 billion, defi tvl by september of ~$9-11 billion, yfi launch of July 17, 2020. The comparison table below lines up protocol, launch, notable metric — COMP mining: Jun 15, 2020 / ~2,880 COMP/day; YFI: Jul 17, 2020 / 30,000 supply, no premine; SushiSwap migration: Sep 9, 2020 / ~$800M moved; DeFi TVL: Sep 2020 / >$10B.

Modeling DeFi Summer 2020 with the APR To Daily Compounded APY Converter

The APR To Daily Compounded APY Converter takes three inputs — APR (%), Compounds per year, Principal ($). APY = (1 + APR/n)^n − 1. With its default inputs (APR (%) = 20; Compounds per year = 365; Principal ($) = 1000) it returns 22.13 %; swap in the figures from DeFi Summer 2020 above to reproduce the scenario yourself.

Modeling DeFi Summer 2020 with the AMM Impermanent Loss Calculator

The AMM Impermanent Loss Calculator takes three inputs — Price ratio change (x), Deposit ($), Fee APR (%). IL = 2√r ÷ (1 + r) − 1. With its default inputs (Price ratio change (x) = 2; Deposit ($) = 10000; Fee APR (%) = 20) it returns -5.72 %; swap in the figures from DeFi Summer 2020 above to reproduce the scenario yourself.

Data Table

For educational and informational purposes only. Not financial, investment, tax or legal advice. Figures are approximate and historical; crypto assets are volatile and you may lose capital. Do your own research.