As a DeFi-focused hedge fund, MEV Capital has grown comfortable with moving funds around on-chain in pursuit of higher returns, a strategy known as yield farming.
But in the last few months, the firm has added a new trick to its arsenal: Accruing points, or rewards for interacting with a protocol that may lead to payouts in a future token, on behalf of clients.
MEV Capital is farming these points especially in order to gain exposure to EigenLayer and a raft of other Ethereum restaking projects offering off-chain points to on-chain users. It’s a testament to renewed animal spirits in crypto and the excitement surrounding restaking that hedge funds like MEV Capital are now acquiring participation tallies for clients.
EigenLayer is a restaking protocol that allows the staked ether securing the Ethereum blockchain to be restaked, or used to secure other Ethereum-based blockchains and services. Liquid restaking tokens (LRTs), like ether.fi’s eETH or similar offerings from KelpDAO and Renzo, create a tokenized version of restaked ether that can be used in DeFi applications.
EigenLayer currently rewards users with points for restaking their ether, and several LRT protocols have points systems for users of the tokens.
Pendle Finance, a DeFi platform that offers tokenized versions of an asset’s APY dubbed yield tokens, has become popular for accruing points.
Through Pendle and its yield tokens, points farmers can use an LRT to earn EigenLayer points and points from the LRT protocols simultaneously. These yield tokens give investors leveraged exposure to EigenLayer and LRT points, as they’re essentially buying the rights to the points accrual from holders of Pendle’s principal tokens.
Points have been a very effective tool for bringing assets to the restaking sector. EigenLayer’s total value locked (TVL) was roughly $250 million on Dec. 18, according to DeFiLlama. That figure is over $9 billion today.
Some funds are sitting out the points mania, but there’s still money to be made from the sidelines.
Valentin Mihov, who co-founded the DeFi investment fund Finexify, told Blockworks that the fund has been using Pendle to gain elevated ether yield caused by points speculation.
Pendle’s fixed-yield products have a higher APY when the implied yield, or the market’s future estimate for yield, goes up.
Mihov said that while the points-induced higher APY is “quite nice,” his firm finds points farming too risky because the future value of the IOUs is still mostly unclear.
In some cases, points farming can be quite lucrative. When Solana-based liquid staking protocol Jito executed a points-based airdrop in December, for example, one researcher remarked that moving $40-worth in tokens around on-chain could have netted a user $10,000 in JTO tokens.
As a result, points are trading in anticipation of future airdrops. Roughly $2.7 million-worth of EigenLayer points have changed hands on the website Whales Market for an average price of around $0.18. A Messari researcher tried his hand at finding an estimate and guessed LRT points to be worth roughly $0.14 apiece.
Since points live off-chain, how they’ll convert to token allocations can be opaque — sometimes to the disadvantage of bigger investors.
A partner at a crypto-native investment firm told Blockworks that points are meant to bootstrap community interest in crypto projects so the tokenomic structure usually favors smaller allocations.
“The way the points typically convert [is] such that larger points farmers are usually rewarded less than smaller people, so it’s not worth putting the capital at risk in a native protocol for a very low payoff,” they said.
Chase Mayeux, managing partner at investment firm Coral, said figuring out returns on points is more “art than science.” Coral is accumulating points on EigenLayer and a number of other DeFi protocols, Mayeux said.
“There are secondary markets for points (Whale Market / Pendle) but ultimately we are trying to accrue either tokens or points on protocols that we think will appreciate in price. Generally you won’t know until months or years down the line whether you were correct in your theses,” Mayeux said in a Telegram message.
Clients of these investment firms may not understand the ins and outs of points farming, but points’ potential upside still tends to be attractive. MEV Capital general partner
Laurent Bourquin gave the upshot of a hypothetical conversation with a client about points farming:
“‘Do we make more money? Yes, no?’