DeFi & Yield

The largest markets pool all suppliers of an asset into a single reserve that any qualified borrower can draw from. Rates rise steeply as utilization approaches full, which attracts new supply and repays borrowers. The trade-off is shared risk: bad debt in one collateral type is socialized across every supplier of the borrowed asset. Exposure is sized to the protocol’s collateral mix, not just to the asset supplied.

Newer designs pair a single collateral asset with a single loan asset in its own market, with its own loan-to-value and its own oracle. A failure in one market cannot spread to another. This lets Wesvel supply against collateral it has specifically reviewed and decline the rest, at the cost of thinner liquidity in each market and more positions to monitor.

A subset of protocols split a yield-bearing asset into a principal claim and a yield claim, or match lenders and borrowers at an agreed rate for a set term. These markets let the strategy lock a rate when variable rates are elevated, or buy principal at a discount and hold to maturity. Liquidity before maturity can be limited and is treated as such.

Vault products allocate deposits across a set of isolated markets under rules published by a curator. Wesvel treats a curator as a counterparty: its mandate, its track record, its ability to change parameters, and the time-lock on those changes are reviewed before deposit. Vaults whose curators can add collateral types without delay are not used.

Undercollateralized or bilateral credit is not part of this mandate. Where Wesvel extends credit against digital assets to a named borrower, it does so under documented terms through the Lending business, with legal recourse that a smart contract cannot provide.

A yield-bearing asset is supplied as collateral. A correlated asset, typically the one the collateral is denominated in, is borrowed against it and swapped back into the collateral asset, which is supplied again. Each pass adds exposure at a diminishing rate set by the market’s loan-to-value. Several protocols now execute the full loop in a single transaction, which reduces execution risk but not position risk.

The most common structure supplies a liquid staking or restaking token and borrows the underlying asset. Because collateral and debt move together in price, the position is close to directionally neutral; what it carries is the spread between staking yield and borrow rate, and the risk that the staked token trades below its redemption value.

A yield-bearing stablecoin or tokenized Treasury is supplied and a plain stablecoin borrowed against it. The spread is the instrument’s yield less the stablecoin borrow rate. These loops have little price risk between legs but full exposure to the collateral instrument’s peg and to borrow-rate spikes when stablecoin demand rises.

Every loop is opened with a health-factor buffer well above the liquidation threshold and is monitored continuously against collateral price, borrow rate, and the liquidity available to exit. The unwind path (repay, withdraw, repeat) is tested against available depth before the position is opened, and the loop is reduced automatically when the buffer compresses.

Supplying stablecoins to lending markets earns the rate that leveraged borrowers pay to fund long positions. It is the simplest source and the most cyclical: demand for borrowed dollars rises with speculative appetite and falls with it.

A newer class of stablecoin holds a crypto asset and an equal short perpetual against it, passing through the funding that position earns. The yield is high when funding is high and can turn negative when it is not; the peg depends on the issuer’s hedge staying intact and its exchange collateral staying accessible. These are sized as a funding position, not as cash.

Providing liquidity between two dollar-pegged assets earns trading fees with minimal divergence loss, since both sides are meant to hold the same value. The risk is concentrated in a single event: if one side de-pegs, the pool fills with it. Pools are selected for the credit quality of the weaker asset, not the fee rate.

The original design spreads liquidity across every possible price. It requires no management and earns fees on all volume, but capital is thinly deployed, so fee yield on the position is low and divergence loss is fully borne. Wesvel uses full-range pools mainly for long-tail pairs where active management is not justified.

Providers choose a price range and deploy all capital within it, earning a far larger share of fees while price stays inside the range and nothing when it leaves. This turns liquidity provision into an active strategy: ranges are set from realized volatility, monitored continuously, and rebalanced when price approaches an edge. The rebalance itself crystallizes divergence loss, so it is done on a rule, not a reaction.

Protocols pay their own token to attract liquidity to a pool. The headline yield is often mostly emissions. Wesvel accounts for emissions separately from fees, realizes reward tokens on a schedule rather than holding them, and models the yield with emissions removed before deciding whether the position stands on its own.

Pools that pair an asset with its staked or wrapped version, or two assets that move together, suffer far less divergence loss than volatile pairs, at the cost of lower fee volume. These form the core of the farming book. Volatile pairs are held in smaller size and only where the fee tier compensates for the expected divergence.