Compound: APY Spread

    How has the borrow APY changed over time?

    Borrow

    Net borrow APY takes into consideration the COMP distribution as well.

    Stablecoin borrowers are required to pay interest on their loans. On the other hand, the additional COMP borrow APY offsets the token's respective borrow APYs.

    Supply

    Net supply APY takes into consideration the COMP APY as well.

    Based on the graph below, it is most advantageous to use stablecoins as collateral. The stablecoin APYs have been more volatile than the non-stables. COMP is the best token to supply after the three stablecoins (USDT, USDC, and DAI).

    Summary

    • Borrowers earn interest when they borrow tokens that are not stablecoins
    • Supply APY for non-stables are relatively constant (even after the May 18th crash) compared to USDC and USDT, both fiat-backed tokens.
    • As supply APY trends downwards in stablecoins, borrow APY trends upwards.

    Introduction

    Supplying ETH or BTC (or other volatile coins) are riskier positions than supplying stables due to the price volatility and risk of liquidation. This was seen on May 18th, 2021 when prices dropped 30-40%. Using stables as collateral would be the safest option with no volatility in price. However, if the other tokens keep their value or even appreciate, it is more beneficial. The more your collateral is worth, the more you can borrow.

    On the borrowing side, the stables have a negative net APY (meaning you pay) whereas the other tokens have a positive net APY. Stables, again are safest whereas the other tokens are riskier due to price volatility.

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