Harvest Finance - My Portfolio

07/04/2024

As I wrote about in Part I of this article on Harvest Finance, having an overall allocation strategy helped me to figure out my goals.

Although Harvest takes care of the manual process of auto-compounding, there's still decisions that need to be made on what pools to allocate into.

Here's my currently kludgy and manual way of breaking down positions in Harvest into a portfolio strategy.

I'll share how I've been building this.

The above is taking the positions, filtered them by Protocols, and each position I took I assigned to a core strategy.

For now, I have a kludgy way to place my targets and actuals side by side. This is something I'll need to work on. (If you know how to do this, please post a comment below!)

How I come up with this allocation is something in flux, and I'll share a little bit of my reasoning (as of July 4, 2024!)

But with the current state of the market, which looks like it could hit a recession soon, but my overall long-term bullishness on core crypto assets like BTC, ETH and SOL, I want to have dry powder available, while also generating cash flow.

Lending (as I've started to realize after putting non stable coin assets into lending) probably best makes sense for stable coins. This is probably because those who are taking out loans don't want the volatility in their liability.

However, I'm sure there are sophisticated traders who take loans of ETH or other assets and do things with them. I'm hoping to learn how to do that, but not today.

So Stable Coins and Lending should be mostly stable coins, which will generate some yield but likely not alot, but should allow me to have dry powder.

Similarly, the Liquidity Pairs that tend to have lower yields are like-like stable. Because I am right now trying to figure out how to better manage impermanent loss, I'm taking that approach.

I have my core assets like ETH, BTC, and SOL outside of these protocols, so I want to limit my additional exposure to them (I didn't do a particularly good job at this time, as you'll see, though).

Why aren't all those assets also placed into protocols, like lending and liquidity pools?

For BTC at least, because of its scarcity, I'm putting those into cold storage.

For ETH, I'm realizing that I need to stake these to offset inflation of the protocol, but I'm still wading into this, so only allocated a portion of my ETH into staking for now.

My Allocations Within Harvest

Alright, now that I have an allocation strategy in place, I would normally then begin to evaluate options within a protocol, a chain, and a strategy.

I did this a little bit backwards so will write out what I did and how I will try to course correct.

So far, the best wallet and portfolio management tool I've found has been Zerion.

Here's how they break down my holdings in Harvest:

Right now we are seeing a sell-off in all of crypto, and I entered the DeFi while things were going up and up just a week ago so...lots of red.

This view is good because I can see easily the pools at a glance and the value.

Because I have been building the pivot table by hand (painful, so working on an automated solution) this is also helpful to do the data entry.

Here is how it starts to look in the pivot table:

This doesn't look nearly as nice as how Zerion displays it, but this is also more technically an accurate picture of what it means when I deposit into the Harvest farms.

the f tokens represent receipts of for the underlying assets that are locked in the Farm contracts.

So, for example, flodestarHodl_USDCe is in on the Arbitrum chain on a lending protocol called Lodestar. And the asset I deposited was USDCe, a USD-pegged stable coin.

What I'm missing from the picture can be found in Harvest's own UI:

Here I can see the Live APY , yield and rewards.

Because my primary goal is to generate yield while either extending exposure to long-term assets or building up dry powder, being able to see the cash flow is valuable.

However, as nice as the Harvest table is, it's still not giving me the view that I want, so the search and hacking continues.

But using Harvest's dashboard, Zerion, and my own Google Sheet I'm starting to get a better picture.

Drilling Into Harvest's Dashboard

You may be wondering what the APY is, and using the "Expand All" option at the bottom of the dashboard results in this view:

From the Harvest docs:

The Rate is a forward-looking projection based on good faith belief of how to reasonably project results over the relevant period, but such belief is subject to numerous assumptions, risks and uncertainties (including smart contract security risks and third-party actions) which could result in a materially different (lower or higher) token-denominated APR]/[Y.

Let's look at the first Farm wstETH of 17.10%.

That's unusually high and is likely going to revert to a much lower percentage.

As a lending protocol, the returns must be lower than the borrowing rate. And because it is wrapped staked ETH, it is likely less attractive than a stable coin with less volatility.

However, there is probably a combination of lending yield, incentive rewards, and maybe staking returns (I don't know if those are collected or captured, need to find out).

The rewards as you see are $0.94 for the $iFARM reward, and $3.38 for the $LODE token, resulting in a $4.32.

These rewards remain locked in the pool till claimed:

However, the value of the Rewards at this point in time and over the duration are then projected out over a year to give the APY.

Lots of assumptions here:

That the value will remain the same through the year
The rate of issuance for the rewards remains the same
The value of the underlying asset wstETH also remains the same (since the rewards are likely based on a percentage of value in the pool)
The percentage of the pool of your deposit remains the same (if it become smaller, then the percentage of allocated rewards also goes down)

In other words, this number largely needs to be taken with a grain of salt and used directionally on some broader assumptions:

$iFARM as a receipt for $FARM is good to accrue (I believe this to be true)
$fLODE as a receipt for $LODE is good -- hard to tell -- could go to zero

Lots to unpack with this.

So as you can see, coming up with a single view to have a real decision-dashboard isn't easy.

Which is why I think the best approach is to just start with solid allocation.

Repeating myself:

David Swensen (Chief Investment Officer of Yale University):

Asset allocation determines the risk-reward ratio of a portfolio more than any other decision an investor makes.”