ynETHx Enhanced Yield Farming Strategy

MAX LRT Strategies
1

ynETHx Enhanced Yield Farming Strategy

This strategy leverages ynETHx to generate sustainable yields above 15% through a combination of restaking, liquidity provision, and optimized DeFi integrations.

ynETH MAX (ynETHx): Ethereum-based strategies

Strategy Description:

  1. Liquidity Provision: Deploy ynETHx into the ynETHx/wstETH pool on Curve Finance to earn trading fees and CRV rewards, which can be staked for additional yield.
  2. Leveraged Yield Optimization: Use Morpho Labs’ lending markets to borrow against ynETHx collateral, amplifying exposure to the ynETHx/WETH pool (7.83% APY).
  3. Reward Reinvestment: Automatically compound governance tokens $CRV, $MORPHO (minimal rewards), and $YND to enhance overall returns.
    This strategy targets a blended APY of 15–20% by balancing restaking rewards, trading fees, and leveraged lending while prioritizing protocols with deep liquidity and audited contracts. Regular rebalancing ensures optimal yield capture across market conditions.

Protocol Risks:

  • Smart Contract Risks:

    • Morpho’s peer-to-peer lending introduces counterparty risk if vault curators misprice assets.
    • YieldNest, Curve, and Morpho rely on complex smart contracts. Historical exploits, like Curve’s $70M Vyper vulnerability in 2023, highlight reentrancy risks. YieldNest’s contracts are audited, but bugs in AVS integrations and recent upgrades to EigenLayer slashing could expose funds.

  • Market Risks:

    • ynETHx is tied to ETH’s price, so a sharp ETH decline (e.g., 20%+) could erode yields or trigger liquidations in leveraged positions.
    • Governance token rewards ($CRV, $MORPHO, $YND) are volatile; a bear market could reduce their USD value, impacting total APY.

  • Operational Risks:

    • Morpho’s reliance on third-party vaults introduces operational dependency on curator competence.

Protocol’s Liquidity History:

  • Current Liquidity Depth and Health Status:
    • YieldNest’s ynETHx pool shows growing TVL (estimated $13.5M+ based on recent trends), with Curve’s ynETHx/wstETH pool offering deep liquidity and low slippage (<0.5% for $1M trades). Morpho’s ynETHx markets have sufficient borrowable assets, ensuring stable leverage.
  • Historical Performance and Stability:
    • YieldNest has a rising TVL throughout it’s 1-year history. Curve’s pools weathered 2023’s DeFi stress tests (e.g., USDC depeg) with minimal disruptions. Morpho’s newer vaults have avoided major liquidations since launch.
  • Past Liquidity Disruptions:
    • Curve faced temporary imbalances during 2023 exploits but no imbalances in ynETHx/wstETH pools to this date. It must be noted that this pool is less than 1-year old. No recorded YieldNest liquidity crises, though EigenLayer has recently introduced slashing

Redemption Flows:

  • Detailed Flow:
    1. Withdraw ynETHx from Morpho lending vaults, repaying any borrowed assets (1–2 txs, ~5 mins on Ethereum).
    2. Exit Curve pool positions, redeeming ynETHx and paired assets (e.g., wstETH) via Curve’s UI (~3 mins).
    3. Unstake ynETHx, if brain dead.
    4. Swap redeemed assets to desired currency (e.g., ynETHx) via Curve’s QuickSwap or YieldNest Swap.
  • Potential Issues:
    1. High Ethereum gas fees ($20–$200+ during high activity periods) could erode profits for small positions.
    2. Curve pool imbalances may cause slippage (>1%) during mass exits.
  • Best-case Scenario:
    1. Redemption completes in <10 minutes with low gas fees ($5–$10), minimal slippage (<0.2%), and instant ynETHx unstaking (not recommended). Assets are swapped to desired currency (e.g. ynETHx) at market rates, preserving 99%+ of value.
  • Worst-case Scenario:
    1. High gas fees ($200+) and pool imbalances cause >5% slippage. Partial liquidations in Morpho vaults could occur. Slashing from EigenLayer is possible.

Conclusion - Why Add This Strategy:

This strategy delivers sustainable 15%+ yields by combining YieldNest’s restaking with battle-tested DeFi protocols like Curve and Morpho. It adds value through:

  • High Yield Potential: Blends restaking rewards with amplified DeFi returns, outperforming traditional staking (3–5% APY).
  • Risk Mitigation: Diversifies across stablecoin pools and audited protocols, reducing exposure to single-point failures.
  • Scalability: Leverages deep liquidity to support large positions without significant slippage.
  • Long-term Benefits: Sub DAOs may choose to compound governance token rewards, $YND and $CRV to enhance protocol returns over time.
    This approach aligns with YieldNest’s mission to pioneer restaking innovation while offering accessible, high-yield DeFi strategies. It balances risk and reward, making it ideal for users seeking sustainable growth in a maturing DeFi landscape.

Submitted by: Msojumper

Date: April 12, 2025

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  • Risk Mitigation: Diversifies across pools and audited protocols, reducing exposure to single-point failures. - EDIT
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