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The Yield App Q3 2022 Report: Successful Earn+ launch as assets pass second Armanino audit
Digital asset market volatility and liquidity issues persisted throughout the third quarter of 2022, ensuring that the environment remained challenging for businesses active in this market segment. Despite this, we continued to focus on product development, launching our Earn+ offering, which has already seen significant interest from our customer base in the few short weeks since launch.
In today’s turbulent market, transparency and communication with customers is paramount. The quarter saw us undertake a second Armanino LLP proof of reserves audit, demonstrating to our customers that Yield App has maintained its strong liquidity position throughout the market turmoil.
The current market conditions provide us with the opportunity to focus on building out our business to take advantage of the next bull cycle. In the last three months, we have restructured our key teams and hired additional personnel to spearhead the expansion of our product range, as we work towards our aim of becoming the world’s first comprehensive digital wealth management platform.
Dear valued customer,
The events of the previous quarter have had a profound impact on the digital asset market, highlighting the importance of due diligence, risk management, and customer trust.
These are all values that have always been at the heart of the Yield App business model, which has allowed us to weather the recent storm in the crypto market and continue to provide the world-class service we have become known for. Now, it’s time for us to bring these values to a wider range of crypto products, as we build out the world’s first comprehensive digital wealth management platform.
In the coming months, our focus will be on expanding our product suite beyond crypto earn products to include a wide range of offerings suitable for different customer profiles and risk-return expectations. This diversification of our offering and revenue sources is a natural step in our evolution, as we aim to lead the transition of digital assets into the mainstream.
Over the last few months, we have been building out our teams to support this growth trajectory. I am pleased to welcome a new product development team to Yield App, as well as key additions to our marketing team, who will be introduced in due course.
The last quarter of 2022 will be full of exciting announcements. We have ambitious plans for Yield App, but we remain cognizant of the fact that we couldn’t have achieved our success without our valued customers.
Thank you again for your support and we look forward to solidifying our position as your digital wealth partner of choice in the months and years to come.
CEO of Yield App
Since the collapse of the UST stablecoin and the Terra ecosystem in May 2022, the digital asset space has remained under pressure, with subdued prices and heightened volatility. The third quarter of 2022 was characterized by multiple insolvencies of market participants that were caught out by the contagion from these unprecedented events. As such, we have witnessed uncertainty among investors and a greater focus on credit risk.
Amid this uncertainty, however, opportunities arose for those players in the market that have remained liquid and disciplined in their investment management strategies. For Yield App, these events highlighted the value of our risk management framework and the rigorous due diligence process that any prospective investments must undergo.
This process allowed us to avoid UST and other risky investments, including Three Arrows Capital and Anchor Protocol. It also ensured that we continued to honor all withdrawal requests in a timely manner throughout the worst of the market turmoil. As investor sentiment plummeted, we never deviated from our transparent asset management approach focused on capital preservation.
During Q3, our investment strategies performed better than expected, leaving us in a strong position to take advantage of the market consolidation currently taking place. The market-neutral portfolios into which we deploy assets have benefitted as digital assets and the broader risk asset space have shown tentative signs of recovery. As a result of the strong performance of our underlying strategies, we have been able to increase the yields we pay on our products.
The third quarter of 2022 saw us further increase allocations to our existing external managers, while our investment team approved three new external strategies for allocation. In addition, we have been working on institutionalizing our DeFi product to make this available for direct external investment by qualified investors. We anticipate this vehicle will be launched in the following quarter.
September saw us launch our Earn+ product range with a 30-day redemption notice period, offering customers a higher yield than the instant liquidity products. The launch of this product range was driven by customer demand and they have seen strong inflows, as outlined in the Product development section of this report. We are currently in the process of putting the finishing touches on a broader suite of crypto yield products, which we intend to make available in Q4.
During Q3, heightened volatility in the DeFi space has continued, while the set of opportunities that fall within our strict risk parameters has remained small. In addition, the underlying yields available on DeFi protocols that meet our internal thresholds have remained subdued. As such, we have continued to reduce our risk exposure in the DeFi space in favor of external strategies with third-party fund managers.
While yield-generating opportunities in the space remain hampered, our DeFi team has continued to update and enhance their proprietary risk model, as well as the in-house portfolio management system (PMS) specifically designed for a 360-degree view of yield farming analysis.
Our DeFi Portfolio Managers remain on the lookout for new attack vectors in an effort to develop an industry-leading tool which can analyze all aspects of protocol, market and governance risk.
In addition, our DeFi team has been working with partner protocols on joint projects that will allow us to build together and deploy capital into attractive opportunities.
Yield App Labs
Our DeFi Portfolio Managers have also been working on the launch of Yield App Labs – a hub for Web3-focused research, education, development, and implementation of blockchain solutions.
Yield App Labs is an arm of Yield App focused on building, incubating and strategically partnering with new and existing projects in the Web3 space that share the same vision of a decentralized and permissionless future. YAL is committed to accelerating the development and adoption of blockchain technology.
The team is looking to partner with founders and builders for a wide range of innovative projects in various areas of DeFi, including Web3 primitives, payments and trading infrastructure, metaverse, NFTs and GameFi.
The YAL team has launched their own Twitter account, which you can follow by clicking here to keep on top of the latest cutting-edge research in the DeFi space. We also plan to launch a dedicated YAL website page, blog and newsletter in due course.
Yield App generates market-neutral returns for its customers via a combination of DeFi strategies managed by our in-house team and liquid alpha market-neutral funds run by external managers. This combination provides us with access to a diversified source of yield, allowing us to deliver strong risk-adjusted returns in all market conditions.
Our external manager allocations remain heavily geared towards two strategy types: liquidity provision and systematic trading. Liquidity provision strategies create a relatively stable and uncorrelated return profile, as they are directionally agnostic. These strategies include market-making and various arbitrage strategies, which capitalize on the highly fragmented crypto market. You can learn more about arbitrage from the following blog.
Our systematic trading strategies utilize market signals to inform their positions across multiple strategies. We utilize them to generate attractive alpha, taking advantage of the inefficiency and volatility across our base assets. These strategies are mostly short-time (hours/days) and use limited or no leverage. Examples include statistical arbitrage and relative value (RV).
During the third quarter, we continued to rotate further out of DeFi towards externally managed funds, with 80% of total assets now allocated to low-risk market-neutral trading and liquidity provision strategies. This reflects the fact that the opportunity set in the DeFi space remains small as a result of market turmoil in the space, alongside heightened volatility.
We continue to see attractive opportunities in a variety of arbitrage strategies, including liquidation and triangular arbitrage, which are particularly well suited to volatile market environments. We have recently added a trend following CTA strategy to the mix.
In Q3, it was pleasing to see three of our external managers being nominated for major awards for their performance during the last 12 months, with two of them coming out winners. This achievement proves that our methodology of screening and allocating to managers is being recognized by the major hedge fund industry publications across traditional finance and crypto.
Our robust risk management framework differentiates us from our competitors and is the reason we have weathered this year’s market downturn in good health. This framework stipulated that any potential investment, be it in a DeFi protocol or in an external fund, must first pass our rigorous and lengthy due diligence process.
This involves being able to demonstrate a proven track record and passing a variety of strict thresholds, with just 6% of external managers we screen being selected for investment. This approach allowed us to identify UST as a risky investment well before its collapse.
Our DeFi team has developed an internal proprietary risk model based on four key pillars of security. This model analyzes all aspects of market exposure against 135 measured variables compiled from historical data to ensure strong risk adjusted returns over the medium and longer term. More information about our due diligence process can be found in our blog article, linked below.
When invested in external funds, we ensure that our allocation never makes up more than 20% of their total AUM if we are invested alongside other LPs. The same goes for any single protocol. This ensures our strategies remain highly diversified at all times, minimizing volatility and reducing the risk of unexpected loss to a minimum.
Following the significant sell-off in May of this year, the digital asset market is currently undergoing a period of consolidation. As such, we are cognizant of the potential risks that remain on the horizon and continue to tread carefully within our wealth management strategy.
On 15 September 2022, the cryptocurrency industry witnessed one of the most anticipated events in its history, when the Ethereum blockchain transitioned to a Proof-of-Stake (POS) mechanism from Proof-of-Work (PoW).
We were pleased to see the efficiency with which this move was executed and anticipate to begin seeing a positive impact on the value of ETH in due course. The Merge is an important step in Ethereum’s long roadmap to scale the network and improve efficiency.
We will be keeping a close eye on the proceedings and will keep our community updated through our educational materials. Please click on the link below if you would like to know more about Ethereum’s future plans.
External audit & proof of reserves
Q3 2022 saw us complete the second proof of reserves assessment with Armanino LLP, one of the top 25 largest independent accounting and audit firms in the United States, and the global leader in digital asset audit solutions. Armanino LLP is engaged by many of the leading blockchain firms, including stablecoin issuers and wealth management platforms amongst its 7,000+ clients.
This attestation was conducted for the purposes of providing additional transparency and reassuring our customers that Yield App has sufficient assets on its balance sheet to cover all of its customers’ liabilities – or in simple terms, that the business remains liquid.
Our second Armanino LLP proof of reserves crypto audit was conducted on Tuesday, 16 August 2022, using a ‘point in time’ methodology. The full report can be found by clicking here.
We intend to continue to work with reputable third-party accreditation service providers to release regular independent reports across our group business activities as we grow our business further.
During Q3 we launched a brand new yield-generating product with higher rates, added new security features to the platform, and made a wide range of improvements to our existing offering. In addition, we have ambitious future product development plans, outlined below.
On Thursday, 1 September 2022, we launched our Earn+ product suite, encompassing stablecoin and ETH portfolios with a 30-day redemption notice period paying higher rates than our original portfolio offering (which we have renamed Flexible). The assets in our existing BTC portfolio automatically transitioned to the same Earn+ model. For more information on the new offering, click the link below.
These new products have seen tremendous success in the short time since launch, demonstrating the trust that our clients have in our service and team. It is clear that a large proportion of our loyal customers are happy to sacrifice daily liquidity in exchange for an enhanced return profile.
In the 30 days between the launch of this product range and the end of the quarter, our customers had deposited 67,540,685 stablecoins and 9,527 ETH into respective Earn+ portfolios. This makes up 49% of the total stablecoin assets and 33.4% of the total ETH asset on the Yield App platform, respectively.
Smart lock feature
In July, we introduced the Smart Lock solution to allow customers to add extra security to their accounts. Smart Lock allows customers to request a temporary lock on their accounts for any period of time to ensure no unauthorized withdrawals can take place. This feature has been used by our customers 44 times during Q3.
In August 2022, we added the Address book feature to allow customers to whitelist trusted withdrawal addresses. This is an optional (though highly recommended) feature that can be turned on inside the web platform or mobile app to create a list of whitelisted addresses.
The Yield App mobile app, which was launched during the previous quarter, underwent extensive performance improvements during Q3, ensuring faster loading times for our customers.
- Customers can now tailor the platform to their needs by setting individual monthly and daily withdrawal limits.
- Minimum deposit amounts have been removed, and the minimum investment for BTC has been reduced to 0.005 BTC.
- BTC can now be bought with fiat currencies via our OnRamper solution.
- The KYC process has been streamlined into one flow for all required documents, with additional support and instructions for new users.
- Customers can download all transactions as one file based on a defined date range.
- VIP users can contact their Relationship Managers and book a call directly through the platform.
Yield App Digital Wealth
During Q4 and beyond, we are working on the development of the Yield App Digital Wealth product suite. This is a dedicated platform for our sophisticated and qualified investors to access a wide range of funds and investment products with different return profiles based on their investment horizons and risk appetites. We are currently awaiting regulatory approval for the platform from the Jersey Financial Services Commission (JFSC).
We are building out a structured products offering, which will provide our customers with opportunities to diversify their digital asset portfolios and further enhance the returns on their holdings. A structured product is a combination of fixed-income assets with derivatives, such as put or call options, packaged together for easy investor access. Structured products provide additional flexibility and options that suit different market environments.
Our work on fiat ramps is nearing completion. This will encompass a simple and cost-effective solution to on- and off-ramp Euros, Pounds Sterling (GBP) and US Dollars onto the Yield App platform.
Increased conversion limits
We are currently in the process of increasing the limits on asset conversions on our platform, along with lower spreads. We have already increased the limits on certain asset pairs to $10,000 in the web platform, with further changes and integration with the mobile app to follow.
While lighter than the first two quarters of 2022, these last three months have seen continued activity in digital/virtual assets regulatory and legislative development across the globe.
The EU reached a final legal text for MiCA (the EU Regulation of Markets in Crypto-assets) at the end of September following agreement on its political baseline in June, the UK introduced the FSM Bill (the Financial Services and Markets Bill) at the end of July, and US government agencies brought an increasing number of enforcement and legal actions against certain players in the digital assets sphere.
All this reaffirms regulators’ commitment to creating mechanisms for integration, oversight and monitoring of entities already operating in this space and an enthusiastic approach to defining a comprehensive framework for those who are interested to join the Web3 arena.
The latest regulatory efforts aim to consolidate legal provisions around customer protection, market integrity and stability and the risks associated with inappropriate or insufficient identification and verification of customers and transactions.
DeFi, DAOs and NFTs are still excluded from the majority of the latest regulatory initiatives. However, we are seeing signs of an increased focus on creating a sustainable environment for development and innovation in the DeFi space.
This impetus is coming from advocacy groups (such as GBBC Digital Finance (GDF), where Yield App maintains an active membership), the more progressive jurisdictions (like the Financial Services Regulatory Authority in Abu Dhabi), discussion papers and newer legislative proposals in US and Europe, as well as calls to policy makers by stricter regulators like BaFIN.
In his ongoing role as co-chair of the DeFi Working Group, Yield App’s CFO/COO Justin Wright contributed to the latest GDF report entitled 'DeFi: Moving the Dialogue on Standards and Regulation Forward', which focuses on opportunities for engagement between the digital asset industry and regulators to develop right-size, globally harmonized standards and regulation of the DeFi ecosystem. This report provides a comprehensive summary of the state and challenges for both regulators and the DeFi industry; you can read a comprehensive summary here.
With the adoption of distributed ledger technologies globally, across industries such as high fashion, global logistics, agriculture, supply chains, music and entertainment, public sector (governmental transactions, issuance of documents) and financial services, blockchain is becoming an essential part of the financial infrastructure.
The rapid implementation of the latest payment standard, ISO20022 is an excellent demonstration of utility, efficiency and harmonization of old and new technologies and a step forward towards alignment of the old and new financial systems.
Yield App remains committed in its effort to provide secure and stable products and services to its customers. Our goal is to maintain industry best standards in Risk, Compliance and Governance at all times.
Our Compliance Team is continuously scanning the international legislative landscape for regulatory changes and trends and is consistently amending Yield App policies to not only comply with existing standards but achieve full alignment with applicable local and international regulations going forward, thus ensuring overall process and operations compliance.
Marketing and communications
Sentiment in the cryptocurrency market remained subdued during the third quarter, as the fallout from the collapse of UST affected multiple players in the space, causing insolvencies and perpetuating the breakdown of trust we witnessed during Q2.
Our marketing activities during Q3, therefore, continued to focus on differentiating ourselves from competitors who became involved in high risk unsecured lending activities. We conducted educational campaigns designed to shed light on our wealth management approach, including our strict risk management framework and its role in protecting our customers’ assets throughout this uncertain period.
Given the current market backdrop, we made the decision not to conduct extensive marketing or PR campaigns, focusing instead on building out the capabilities within our marketing team to deliver strong and timely results when the market improves. As such, we have built an extensive internal database which will allow us to conduct targeted marketing campaigns and gain better visibility of data points to improve new customer conversion rates.
In addition, our marketing team has undergone a restructuring process, with several key hires made to advance our digital marketing expertise, improve campaign outcomes and underpin our focus on digital transformation. The frameworks we are putting in place will define our wider marketing strategy going forward.
Community and social media
During Q3, our social media strategy of focusing on quality over quantity has been paying off. Though our total follower numbers declined slightly from 105,000 in Q2 to 103,000 in Q3, our engagement rate increased by 20% to 4.8%.
We were pleased to see the strong growth in our engagement rate, which is close to double our engagement rate during the same quarter last year. This strong interest from our community has been driven by more focused education content, as well as our expansion into different forms of collaterals such as infographics and videos (thanks to the hire of Sergio Lombardo as Motion Graphic Designer in Q2).
We will continue to follow a social media communication strategy that prioritizes transparency and education in our effort to grow our following organically. To this effect, we have been expanding our thought leadership content across social media channels, as outlined below.
While we continue to keep an eye on key events in the digital asset space, we are adopting a more focused strategy across the entire marketing department. This strategy is directed towards quality rather than quantity and picking out the top industry events for the greatest visibility and reach.
In Q3, our attention was focused on TOKEN2049 in Singapore – the biggest crypto conference in Asia, which took place at the Marina Bay Sands on 28 and 29 September 2022. With 7,000+ attendees, 250+ exhibitors and 200+ speakers, this was one of the largest events in the 2022 calendar and was exceptionally well organized.
In comparison to some other crypto events we have attended, TOKEN2049 brought together an audience with a high level of understanding of cryptocurrency. We made many quality connections with attendees and saw interest in our offering from a variety of business owners and individual investors alike. To read the full report, click the link below.
As we focus on education, we have continued to produce thought leadership content from our top executives, as well as expanding our reach to new platforms.
This has seen us launch a bi-weekly LinkedIn newsletter, where we share a curated selection of top cryptocurrency market news along with the Yield App view on how these events are likely to develop and affect market participants. In the two months since launch, the newsletter garnered 800 subscribers, demonstrating the need for quality content in the market.
The quarter also saw us produce exclusive content for our Diamond Tier customers, starting with a PDF ‘Guide to Bear Markets’, which was extremely well received by the community.
Meanwhile, despite a slowdown in PR activity, our CIO Lucas Kiely contributed to a number of insightful articles with leading publications in the financial sector. This includes an article in the ‘SRP Digital Assets Report’, which can be downloaded for free here, as well as a contribution to a three-point article series on stablecoins in AltFi, a London-based publication focused on alternative finance and fintech.
Finally, our highly knowledgeable DeFi team have launched their own Twitter account, Yield App Labs. Here, they share their cutting-edge DeFi research and discuss all the latest developments in the Web3 ecosystem. To follow this account, click here.
Corporate business development
Our corporate client base continued to expand during Q3. We now serve over 120 global corporate and institutional clients spanning Europe, Asia and APAC, a 20% increase from last quarter.
Corporate and institutional clients are attracted by Yield App’s conservative investment policy aimed at capital preservation combined with our personal approach delivered through our dedicated Relationship Managers across multiple geographies and languages.
Currently, stablecoins remain the digital asset of choice for our corporate treasury management clients due to their lack of volatility, with 60% of total corporate and institutional assets sitting in stablecoin portfolios.
Our future product development plans, including fiat rails and the Digital Wealth platform, will offer a wider range of opportunities for corporate and institutional clients to make the most of their digital assets.
Relationship Manager program
Our highest Tier members have access to our exclusive Relationship Manager (RM) program, which provides a dedicated support channel and helps us further enhance the personalized service we offer to our clients. Every VIP client – those with a balance valued at $100,000 equivalent or more on the Yield App platform - has been assigned a dedicated Relationship Manager.
During the third quarter, we have been developing new ways to keep in touch with our VIP clients on a regular basis. This includes regular exclusive Q&A's for VIP members enabling them to speak directly with the heads of DeFi and Portfolio Management. During these calls, we have introduced our plans for the new structured product offering and the wider Digital Wealth product suite.
On a regional level, we have assisted hundreds of VIPs in their language to further explain our product offerings and services as well as extending that support to thousands of non-VIP users. We have conducted many regional AMAs and appeared on local language panels. We have also met many of our VIP clients in person at major events across the globe, such as TOKEN2049 in Singapore and smaller local meetups.
During Q3, our Relationship Managers have benefited from new tools and notification systems thanks to our expanding developer team, enabling RMs to welcome new VIPs and respond to a variety of service triggers for existing clients more efficiently. For example, VIP clients can now book a call with their RM directly through their dashboard. We also offer 24/7 support via our website with quick response times and have received high customer satisfaction ratings.
Despite the ongoing market conditions, Yield App continues to expand across all departments, adding world-class talent to our dedicated team of professionals as we continue on our mission to become the leading global digital wealth manager.
The three months to the end of September saw us restructure the marketing team, enhance our development team with additional hires, and bring in a brand new product team to spearhead the growth of our product offering.
We continue to seek outstanding talent to add to the Yield App team as we remain focused on building and preparing our business for future growth. A list of our open vacancies can be found on the Careers page of our website.
Managed assets and customers
Against a backdrop of subdued investor sentiment in digital asset markets, Yield App’s total managed assets continued to decline during the third quarter. However, the outflows slowed significantly compared to the previous quarter, with stablecoins witnessing a return to net positive.
In line with prevailing market sentiment, our ETH portfolio continued to suffer outflows, albeit significantly less pronounced than in Q2. Between 1 July and 30 September 2022, total assets across our ETH offerings dropped from 33,670 ETH to 28,490 ETH.
BTC assets on Yield App also declined from 2,411 BTC at the beginning of the quarter to 1,778 BTC at the end of September. However, both our ETH and BTC portfolios saw positive flows in the last weeks of the quarter.
Meanwhile, our stablecoin portfolios enjoyed inflows of 10.8% compared to the beginning of the quarter, finishing the period with total managed assets of 137.7 million. Stablecoins continue to represent our largest asset type by market value.
We continued to welcome new customers to our platform during Q3, passing the 90,000 customer milestone towards the end of the quarter.
In August, we were pleased to surpass 3,000 Diamond Tier customers, demonstrating the strong support we continue to receive from our community.
The amount of YLD locked on the platform for 12 months rose to the all-important 100 million level, up 12.2% since the beginning of the quarter.
During the third quarter, we paid out a total of $4,373,662.51 in rewards to our loyal customers.
Do you want to earn a secure and sustainable yield on your digital assets? Sign up for a Yield App account today!