Discovering the Next DeFi Yield Meta

Historically, DeFi has had a Yield Meta, which offers relatively high APYs at scale. These Yield Metas can act as catalysts for DeFi as a whole by incentivizing new capital to enter the industry to capture that yield and by creating a potential ecosystem of new and existing protocols optimized for capturing that yield. With EigenLayer points farming recently subsiding, the industry must now look ahead to what the next Yield Meta could look like. Surveying the landscape of existing opportunities, two protocols stand out as having the potential to become the next Yield Meta: Ethena and MakerDAO. Between the two protocols, we see greater upside potential in terms of yield growth for Maker due to the start of SubDAO farming on the horizon. As part of the Maker Endgame, Maker will be spinning out AllocatorDAOs, which are responsible for propagating DAI and sourcing the most profitable collateral base, with different AllocatorDAOs targeting different asset types such as crypto-native collateral and RWAs. Each of these AllocatorDAOs, along with any other SubDAOs, will have its own token, which will be distributed to DAI and MKR stakers in a process known as SubDAO farming. We see significant upside to the yield earned from SubDAO farming due to the spinning out of Maker operations to AllocatorDAOs as a catalyst for a multiple re-rating. At present, MakerDAO trades at a discount to both lending and RWA protocols, despite fundamentally offering the same services as those protocols. As SubDAOs begin to spin out, they will offer pure play exposure to enticing verticals, such as bringing US Treasuries and other RWAs onchain, possibly bringing their valuations in line with the rest of the market. Using historical growth rates for future growth rates and a conservative re-rating, our base case expects SubDAO farming to offer roughly 15% to DAI stakers, but a more aggressive re-rating could lead to yields upwards of 30% APY.