How to Size Up a Tinlake Pools for Investment

[thedoctor_j]

Here are a few things to consider when determining what pool to invest in:

Pool Size: Tinlake pools on the homepage are ranked by the total amount of Dai. New Silver and FortunaFi are our first two pools to grow to over 1m Dai. In general, the larger pools are more mature and have had more success in raising capital.

Yield: If you are a yield seeking, then check out Harbor and FortunaFi, which both offer double digit yields. But don’t stop just at yield, get to know why certain pools carry higher returns, get to know their risks.

Liquidity: If there is a chance that you will need access to your capital in a short amount of time, then consider pools that have maturities of less than 90 days. 1754, ConsolFreight, Paperchain, databased.FINANCE and Harbor invest in assets with maturities of less than 90 days.

Protection: Some pools have a larger TIN tranches, which provides more downside protection. New Silver, databased.FINANCE, and ConsolFreight have 15% TIN risk buffers. Often times the TIN buffer provides more safety and therefore the yields are lower.

Execution: It is important that when a pool pulls in cash it quickly invests that capital, otherwise the cash will be sitting there not earning any interest. 1754, Harbor, Paperchain, and databased.finance have almost all of their cash invested so there is very little cash drag to weigh down returns. You can see that by looking at the Reserve Ratio, which is the percentage of cash held by the pool. Keep in mind that sometimes a pool will build up a pool of cash before making a large investment, so keep your eye on how long they sit on a large cash balance, which may indicate that they are not executing well.

Concentration: Check out how many assets that are held by a pool. The more assets the better, since it will decrease the concentration risk. If one asset is delinquent or defaults it will have less impact on the overall pool. 1754 and ConsolFreight have highly diversified pools.

CFG Rewards: Remember that you will earn some CFG as a reward for being an early investor providing liquidity to our protocol!! Rewards are distributed to investors across all pools (link to rewards post, edit for 30 days / 5k min)

What variables matter to you? Do your own research, ask questions here, get smart about the investments, and then go for it! tinlake.centrifuge.io

[Exar]

Really nice write up for those looking to invest into a tinlake pool. I’ll definitely show this to people considering which pool to choose. Thankyou

[thedoctor_j]

1754 (@Fab ) continues to do a good job with execution. Beforehand I shared the Reserve Ratio as a way to analyze execution, but an even better way is to look at the Pool Value chart on the Assets tab. This tracks the Asset Value and the Reserve over time. If the Reserve trend line (grey) was much higher than the Asset Value trend line (blue), that would indicate that the pool manager is generating cash drag, which weighs down returns by not deploying capital fast enough. As you can see here with 1754, the Asset Value and Reserve trends lines are tightly coupled, meaning that 1754 has deployed cash into investments very soon after it entered the pool. This shows that the 1754 is executing really well.

[Pep_Ruckpanich]

@thedoctor_j thanks for the insightful analysis and transparency.

An additional point to consider: Maker vault and how it impact DROP liquidity
Maker vault acts as a buyer whenever DROP investors want to redeem as long as the debt ceiling has not been reached. Lets use @prankstr25 New Silver pool as an example, even though avg loan duration is around 12 months, DROP investors can actually redeem their tokens right now (up to 12.5mln DROP because they have only used 7.5mln/20mln debt ceiling as of time of writing). Maker becomes the secondary buyer of DROP even though the pool might not have Reserve from loans being paid back.

Overall, I am excited about END_Bridge and the potential for this pool is massive.

[thedoctor_j]

That is a really good point @Pep_Ruckpanich. A Maker Vault helps to minimize liquidity risk. I defined liquidity risk as the length of time that it would take to redeem your DROP tokens in a worst case scenario. I focused on the term of the underlying assets in the case where there is little cash in the reserve (shorter term assets will get your money back quicker). You bring up a completely different point. If there is a line of credit associated with the DROP tranche, like a Maker Vault, then it can serve as an instant liquidity mechanism for anyone seeking to redeem. That is a great benefit to any pool that draws capital from MakerDAO. I think the upcoming Aave pool will offer a similar mechanism.

[BLahar]

All of the above overlooks the elephant in the room: Have there been defaults? IE, has even a single investor lost any principal? Have Tin Tranche holders taken a hit? Have interest payments fallen below expectations?

Such information is key to the “sizing up” process and must be included at tinlake.centrifuge.io 2 where potential investors can see it when evaluating AOs and weighing where to invest.

Of course, this information will not be available when a pool launches. But it must be collected and publicized on an ongoing basis with context. Why not include this info on a performance chart on the “Overview” page for each pool? This will boost investor confidence.

Look at this also from a different perspective: If not a single investor has lost money, if all interest payments have flowed as anticipated, why not highlight that to promote the protocol.

Currently, the AO performance record is disturbingly opaque.

For all new AOs, details should be provided on their antecedents, and the vetting Centrifuge performed as to their financial health and robustness before their onboarding. Otherwise, the AOs are just pigs in a poke.