One of the main goals for Homebrew is to make it easy for non-technical users to participate in the cryptoassets ecosystem. Phase one of that process is onboarding as many of our friends and family into the space. The concept of a USD stablecoin, such as USDC, is simple to understand, and deposit yields such as those offered by BlockFi and others are an attractive alternative to low yield, traditional savings accounts. However, there are concerns about counterparty risk that these firms undertake, as well as restrictions and fees that they impose. An non-custodial solution is preferable, and by taking advantage of more efficient on-chain algorithmic platforms, we will be able to outperform these lending platforms.
At the same time, the current macro financial environment is both very bullish for bitcoin, and bearish for the US dollar. Quantitative easing is inflating the monetary supply at a rate of 15% annum, and institutional investment in bitcoin already underway as a hedge, thus driving the price higher. Grayscale Bitcoin Investment Trust, a publicly traded fund on the OTC market, which provides equities investors with exposure to bitcoin, is already buying more than 4x the amount of mined bitcoin daily. Due to these macroeconomic factors and onchain metrics such as stock to flow, we expect to see a BTC price of at least $100,000, with a spike to three to five times that at some point.
At the same time, we are very bullish on the strength of the Ethereum ecosystem, and decentralized finance (DeFi) in general. As the recent controversy over WallStreetBets traders and short squeeze on stocks like Gamestop have shown, the current financial infrastructure is gamed toward the monetary elites, and decentralized finance systems allow participants to exit these structures and build them anew. The total value locked in DeFi currently stands at some $32B USD and is climbing daily. Projects are being launched in the space with unheard of APY for early capital investors, in some cases, upwards of 1000%. Even moderate yields of mature DeFi projects (defined as more than 6mos. old) are upwards of 30% for some assets, something unheard of in the TradFi world.
Still, the success of DeFi and Ethereum threatens to price out investors with lower capital funds. Since every action on Ethereum costs gas (paid in ETH) to execute, and the amount of gas that can be spent in a block is limited, a bidding war ensues among participants. During times of high activity, this gas cost can skyrocket, and as the USD of ETH rises, these operations will become more and more costly. Anyone with experience in DeFi the last six month can attest to the difference between a transaction that costs 40 gwei with ETH at $300 USD, versus the same transaction at 150 gwei with ETH at $1400. Participation in farming pools might require half a dozen or more approvals as funds are swapped, contract spends are approved, and LP is staked. $60 or $300 to move in and out of a position is not unusual with some pools. Performing such actions within a TokenSet allows the Set Controller to pay the gas costs directly, instead of requiring entrants to pay to implement the strategy for the entire pool, as is the case with Yearn Vaults, for example.
The initial strategy for the BREW Set will be a conservative mix of wBTC, wETH, USDC, and the DeFi Pulse Token, a broad index of DeFi blue chip projects. Participants will be able to deposit funds to the pool using wETH and USDC, and a percentage of these will be held in reserve (10% of the fund) to allow withdraws without rebalancing the pool. USDC funds in excess of this reserve will be staked on Maker for cUSD, which is currently yielding around 8% APY. When the total holding of USDC/cUSD exceeds 25% of the total pool, these funds will be rebalanced into the rest of the pool's holdings, which will be split 40/40/20 among wBTC, ETH, and DPI.
This should suffice for the initial launch of the Set and will be implemented seven days after the contract is launched and deposits are available. The Set's Brewmaster will monitor the total value locked in the fund, as well as the balance, and determine when to trigger a rebalance.
Thirty days after launch, active management of the fund will begin. This may involve changing the allocation of wBTC/ETH/DPI, adding new tokens into the mix, or wrapping and lending positions via Aave, Compound, or Sushi. We expect details on this phase to evolve as the Homebrew garners interest from additional participants, and will update details accordingly.