DeFi on Aptos | ENG Version

This guide is designed to thoroughly explore the Decentralized Finance (DeFi) ecosystem on the Aptos blockchain, evaluate available investment tools, and identify associated risks and benefits. The primary focus is on leveraging the network to enhance the yield of existing assets such as Bitcoin, Ethereum, and stablecoins, without speculating on the native Aptos token.

Section 1: Core Principles of Investing in DeFi on Aptos

Investment Objectives: Within the DeFi context on Aptos, investments are solely focused on increasing the yield of existing assets (BTC, ETH, stablecoins, and a limited portion of altcoins), without acquiring the native APT token.

Native APT Token: A developed DeFi ecosystem offering diverse tools may negatively impact the price dynamics of the native APT token due to the distribution of free rewards.

Security and Risks: Particular attention should be given to centralization risks in new Aptos projects, where developers may retain control over smart contracts, potentially allowing fund extraction. Preference should be given to established protocols like AAVE or SushiSwap/Uniswap (as they are integrated).

Wallets: For interacting with Aptos, specialized wallets like Petra Wallet or universal options such as OKX Wallet, which offers additional benefits, are suitable. The MetaMask wallet is not compatible with the Aptos network.

Section 2: Analysis of Key DeFi Tools on Aptos

2.1. Lending Markets

Markets (leading lending market):
In the past, the looping strategy with stablecoins was effective, yielding 40–60% APR with low (near-zero or negative) borrowing rates and high deposit rates.
Currently, the looping strategy for stablecoins has lost relevance due to rate adjustments. Key details: a low borrowing rate (1.86%) is available only when using OKX Wallet and pledging XBTC; for USDT/USDC loans, the borrowing rate equals the deposit rate (8.36%).

Supported Assets:

XBTC (wrapped Bitcoin from OKX/Coinbase): enables earning rewards in APT.
SUSDE (staked stablecoin from SN): yields 11% APR, though more attractive alternatives exist in other networks.
Wrapped Bitcoin: 5% APR on deposits, with the possibility of earning free APT when holding Bitcoin.

Bridges: To transfer assets to the Aptos network, the official Aptos Bridge (powered by LayerZero) is used, featuring low fees and support for various assets. Wrapped Ethereum (Wormhole) and Z-Ethereum (LayerZero) are also available but lack additional rewards, reducing their appeal.

AAVE (recently integrated):
Limitations: Currently, deposit limits apply (e.g., $25,000 for USDT/USDC/APT). This is an initial version of the protocol, not yet fully scaled.
Potential: Removal of limits and introduction of additional APT rewards for stablecoin deposits are expected. Looping strategies, particularly using Staked USDE (stUSDE) as collateral in efficient mode, are likely to emerge.
Recommendation: Monitor AAVE and Aptos accounts on Twitter. Placing stablecoins is advisable even before rewards are activated to secure a position.

Echelon Market:
Volume: $329 million in deposits, with the majority ($86 million) in SBTC (Stacks BTC).
SBTC: Not recommended due to low LTV, lack of rewards, and its origin from another network (Stacks).
Liquidity Pools as Collateral: An innovative approach to using LP tokens (liquidity provider tokens) from decentralized exchanges (e.g., Tala Finance) as collateral.
USDC/USDT Pools: Yield around 10% APR, including pool fees and additional rewards in APT/USDC. LTV up to 93% in efficient mode.
Economic Viability: Currently, borrowing rates are too high, making the strategy unprofitable.
SUSDE: Yield of 15% (10.86% base from SUSDE, dependent on market funding rates; 4% in APT). Transfer possible via Aptos Bridge.

2.2. Liquid Staking Protocols

Amnis Finance:
Enables staking APT to receive stAPT. The stAPT token gradually increases in value relative to APT due to built-in yield. Care must be taken regarding how lending market oracles assess stAPT pricing (based on liquidity pools or collateral) to avoid liquidation due to temporary price deviations.

COFI:
Similar to Amnis Finance, but offers slightly higher yield through investments in market share capture. Staking APT yields kAPT, which is then converted to stAPT for generating income.

Tala Finance:
Includes a decentralized exchange and liquid staking (APT → tAPT → Staked Tala APT). Yield is lower than COFI.
Tala Stablecoin (Borg): An unsuccessful attempt to create a stablecoin backed by lending market assets. Extreme caution is advised with new stablecoins.

2.3. Decentralized Exchanges (DEX)

Tala Finance (as a DEX):
Stablecoin Pools (USDC/USDT, SUSDE/USDC): Yield around 10%, with the option to use LP tokens as collateral in lending markets.
Bitcoin/USDC Pool (version 2): Low impermanent loss and high yield (46% APR in APT). This is a non-range pool, minimizing risks.
Risk: Low TVL ($326,000) implies rapid yield reduction with capital inflows. Nevertheless, even at 20–25% yield, it remains attractive.
Version 2 vs. Version 3 Comparison: For BTC/USDC or ETH/USDC pairs, version 2 pools with yields above 20–25% are preferable due to low impermanent loss, unlike version 3 pools (with ranges), where high APR is only realized in a narrow range, with significantly higher impermanent loss.

Thala Finance:
Includes lending functions, the THOR stablecoin, and liquidity pools.
THOR: A stablecoin backed by APT, considered a risky asset.
Liquidity: Ability to deposit into pairs, receive LP tokens, and use them as collateral.
Strategy: Borrowing in THOR against LP tokens, swapping THOR for APT, and staking APT in Tala Finance to earn income in tAPT/stAPT. The goal is to amplify yield through the difference between borrowing and staking rates.
Limitations: The strategy’s viability depends on current borrowing and staking rates.

Homerion (standard range-based exchange):
USDT/USDC: Claimed high APR (22–42%) is misleading, as it is only achieved in an extremely narrow range where liquidity rarely resides. Real yield is significantly lower.
APT/USDC: Version 2 pool with 35% APR in APT and minimal impermanent loss is preferable to version 3 pools (claimed 122% APR), which have higher losses and a narrow range.
Bitcoin/USDC: Version 2 pool (46% APR) outperforms version 3 (claimed 115% APR, but realistically around 23% in a practical range) due to significantly lower impermanent loss.
Wrapped Bitcoin/XBTC: Claimed 10% APR (fees) + 15.45% (APT) is overstated; actual yield is 7–8% APR.
Conclusion: Range-based exchanges often display inflated APR that does not reflect real yield across wide price ranges. Version 2 pools are often more suitable.

2.4. Tab Exchange (Recently Introduced DEX)

Security: Raises concerns due to centralization risks identified by MOBIT audit (specializing in the Move language).
Centralization Risk: Developers retain control over smart contracts, enabling rapid bug fixes but also potentially allowing fund extraction. This is a common issue for early projects on Aptos and similar blockchains.
Audit: MOBIT identified 5 critical vulnerabilities, of which 3 were resolved, and 2 were acknowledged.
Advantages: Non-range stablecoin pools (e.g., USDT/USDC with 20% APR in APT) can deliver claimed yield at low TVL, but yield will decrease rapidly with TVL growth.
Recommendation: Due to security concerns, capital allocation is not recommended.

Section 3: Comparison of DeFi in Aptos and SUI

DeFi in Aptos: Considered a relatively weak ecosystem with limited opportunities and modest rewards, particularly for relevant asset pairs.
DeFi in SUI: Appears more attractive, offering broader universal tools for working with Bitcoin, stablecoins, and Ethereum

Glossary of Key Terms

Aptos (APT): The native token of the Aptos blockchain.
Aptos Bridge: The official bridge for transferring assets between blockchains and the Aptos network, powered by LayerZero.
AAVE: A major decentralized lending and borrowing protocol, recently integrated into Aptos.
Amnis Finance: A liquid staking protocol on Aptos, allowing APT staking to receive stAPT.
APR (Annual Percentage Rate): The annual percentage rate reflecting deposit yield or borrowing cost without compound interest.
Borrow APR: The annual rate paid by borrowers.
Centralization Risk: The risk associated with developers or centralized entities retaining significant control over smart contracts, potentially leading to unauthorized fund access.
COFI: A liquid staking protocol on Aptos, similar to Amnis Finance, providing stAPT via an intermediate kAPT.
DeFi (Decentralized Finance): Decentralized financial services on the blockchain without traditional intermediaries.
Deposit APR: The annual rate earned by depositors for providing assets.
Efficient Mode: A lending market mode that increases LTV for specific assets, such as stablecoins.
Homerion: A decentralized exchange on Aptos with range-based liquidity pools.
Impermanent Loss: Temporary losses from providing liquidity in multi-token pools when their prices diverge significantly.
kAPT: An intermediate token in COFI, representing staked APT without built-in yield; yield is generated by stAPT.
LayerZero: A cross-chain interoperability protocol used by Aptos Bridge.
Lending Market: A platform for lending assets and obtaining loans against collateral.
Liquid Staking: Staking cryptocurrency to receive an equivalent token (e.g., stAPT) usable in other DeFi protocols while the original asset is locked.
LP Tokens (Liquidity Provider Tokens): Tokens issued for contributing to liquidity pools on DEXs, usable as collateral.
LTV (Loan-to-Value): The ratio of a loan to the value of collateral, a key indicator of liquidation risk.
Looping Strategy: Using borrowed funds to increase deposits, which serve as collateral for new loans, to amplify yield.
Markets: One of the leading and most mature lending markets on Aptos.
MOBIT: A company auditing smart contracts in the Move language (used in Aptos and SUI).
Move: A smart contract programming language developed by Meta, used in Aptos and SUI.
OKX Wallet: A universal wallet supporting multiple networks, including Aptos and SUI.
Oracle: A service providing external data (e.g., prices) to smart contracts.
Petra Wallet: A specialized wallet for the Aptos blockchain.
SBTC (Stacks BTC): Bitcoin transferred from the Stacks network.
stAPT: A liquid staking token on Aptos, increasing in value relative to APT due to built-in yield.
SUI: A Move-based blockchain, often compared to Aptos for DeFi functionality.
SUSDE: A staked stablecoin from SN with yield dependent on market funding rates.
Tab Exchange: A recently introduced DEX on Aptos with security concerns due to centralization risks.
Tala Finance: A protocol on Aptos combining DEX and liquid staking.
THOR: A stablecoin backed by APT in the Tala Finance ecosystem.
TVL (Total Value Locked): The total value of assets locked in a DeFi protocol.
v2 Pool (Version 2 Pool): A DEX liquidity pool without ranges, offering predictability but potentially lower capital efficiency and low impermanent loss.
v3 Pool (Version 3 Pool): A DEX liquidity pool with ranges for higher capital efficiency but increased impermanent loss risk.
Wrapped Bitcoin (WBTC): Wrapped Bitcoin for use on other blockchains (e.g., Aptos).
Wrapped Ethereum (WETH): Wrapped Ethereum for other blockchains.
XBTC: Wrapped Bitcoin from OKX for networks like Aptos and SUI.
Z-Ethereum: A version of Ethereum transferable via the LayerZero bridge.