Introduction

Compound’s annual percentage yields (APYs) are composed of two factors: the underlying APY (or the raw interest rate), and the distribution APY (the rate at which Compound rewards are distributed to users for interacting with the platform. These two rates, in summation, produce the net APY for a given market, the relevant interest rate borrowers and depositors should consider when making capital allocation decisions. These rates also are not static, but rather change dynamically based on a variety of factors including borrowing demand and capital supply.

Generally, depositors seek the highest net APYs to maximize returns on capital lent, while borrowers look for the lowest net APYs to minimize their cost of borrowing.

This dashboard examines changes in Compound APYs in both borrowing and depositing markets, finding that:

• The lowest borrowing rates are in COMP, BAT, and UNI. The net APY for borrowing these assets is actually negative, meaning that borrowers are paid to borrow these assets. However, it is important to note that these assets also have relatively higher liquidation probabilities. Thus, this option is only suitable for investors that have either a very high-risk tolerance or a very low collateralization factor they are willing to borrow at.
• The highest depositing rates are in USDC and USDT. This is because borrowing rates on these stablecoins are high due to their relative price stability.

Borrow APYs

Borrowing rates for all tokens are highly variable. However, borrowing rates on two stablecoins, USDT (Tether) and USDC (managed by Circle) are typically higher than the rest. Borrowing rates for these coins are likely higher due to higher demand, driven by the fact that their prices are relatively stable and thus, loans denominated in these currencies are unlikely to be liquidated. The cheapest rates to borrow in are COMP, BAT, and WBTC, all highly volatile currencies with high probabilities of liquidation, and also assets with a relatively large amount of deposits to borrowing demand.

However, for borrowers with a high-risk tolerance or low collateralization factor, it may be preferable to borrow these assets since the net borrow rate (inclusive of Compound distributions) is actually negative. This means that as a borrower, you are getting paid to borrow that asset.

Supply APYs

Deposit or ‘supply’ rates are based upon borrowing rates – the higher interest borrowers are willing to pay, the higher interest rate gets paid out to lenders. Its thus unsurprising that the highest interest rates for depositors are found in the pools with the highest borrowing rates as well – USDC and USDT.