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DeFi Vaults Issue #71

Explosive Volume Growth on Arbitrum and Solana: Farmer's Guide to Maximizing Gains

⚡️What’s new?⚡️

🏦 DeFi Vaults: The Best LST and Stablecoin Yield Opportunities

📊 Charts & Stats: Explosive Volume Growth on Arbitrum and Solana: Farmer's Guide to Maximizing Gains

🌾 Yield Farming 101: Pendle to Aave strategy via Arbitrum

🐦 Last Week in Crypto Twitter (CT): Exploring MakerDAOs RWA revenue, iShares Bitcoin Trust is registered with the DTCC, Solana Hackathon recieves 900+ submissions, and more.

🏦 DeFi Vaults

Liquid Staked Tokens

Stablecoin Yields List

Ethereum

Polygon

Optimism

Avalanche

Arbitrum

zkSync

📊 Charts & Stats

Arbitrum experiences 33% increase in volume and Solana experiences 90% increase in volume WoW

Crypto prices are on the rise, along with on-chain volume. Notably, two networks have witnessed significant surges in volume: Arbitrum and Solana!

Solana

Solana has experienced a 90% increase in volume, facilitating $637.15M worth of trades in the last 7 days:

The top three Dexes by volume are Orca, Raydium, and Lifinity:

How to benefit as farmer?

The price of $SOL has increased 37% over the last 7 days (leading to more on-chain trading and speculation):

Fortunately, on Solana, Drift Protocol stands as the leading derivatives exchange, offering cross-margined perpetual futures for Solana. This platform allows traders to speculate on price movements, enabling both long and short positions.

However, that doesn't exactly qualify as farming. Nevertheless, Drift offers users two avenues to earn yields through simple one-click deposit vaults, each with its own associated risks:

Method 1: Drift Liquidity Provider

  1. Becoming a Liquidity Provider (LP):

    • Users can become LPs by allocating margin into any perpetual market offered by the vAMM. LPs increase liquidity and collateralization in the market and earn a rebate from taker fees.

    • LPs on Drift acquire opposing positions from new trades against the vAMM, regardless of the vAMM's net position. This means LPs are effectively investing in an active liquidity provision strategy on Drift's vAMM.

  2. Trading Fees & Funding:

    • 80% of taker fees collected by the vAMM are given out to LPs based on the pro-rata liquidity they provided.

    • This fee improves the cost basis of the positions acquired by LPs.

    • LPs with unsettled positions can participate in funding payments once positions are settled. The vAMM acts as the custodian for funding payments until positions are settled.

    • LPs only earn funding on settled positions to prevent abuse and ensure fair distribution.

  3. Leverage for LPs:

    • Users have the option to LP with leverage, which increases their risk of liquidation.

    • Liquidation removes LP shares before liquidating positions, giving LP shares more leeway.

    • The amount of margin available for LPs is calculated based on their unsettled position and open orders.

    • Unsettled positions are treated like regular market positions without unrealized funding payments. Leverage increases the risk of liquidation, but LP shares are removed prior to liquidating positions.

  4. Risks & Other Considerations:

    • When LPs remove their liquidity, it decreases the parameter k and may lead to more slippage for traders. In certain circumstances, a user may be blocked from burning their LP shares.

    • it's possible for LPs to accumulate large directional positions at times. This can lead to losses even with a small amount of LP shares or with 1x leverage. LPs are compensated for this risk by earning fees but are not guaranteed to profit.

Method 2: Insurance Fund Staking

  1. Becoming an Insurance Fund Provider:

    • the Insurance Fund is a vital component of Drift Protocol, providing a safety net for users in case of market disruptions or insufficient margin.

    • It acts as a safety net to cover bad debts and maintain the protocol's solvency.

  2. Fee's and Funding:

    • Users can stake assets (USDC, BTC, ETH, SOL) into the corresponding Insurance Fund to earn a share of fees from the Revenue Pool.

    • This staking carries the risk of potentially resolving bankruptcies or deficits in the vAMM.

    • The Fund is replenished by both stakers and the protocol through fees from liquidation, trading, and borrowing.

    • Exchange fees collected in USDC are pooled in the USDC pool, which supports bankruptcies in each perpetual market.

  3. Fund Utilization:

    • The Insurance Fund is used to cover liabilities in case of user bankruptcy.

    • It pays off spot market balances in full and up to the set maximum insurance limit for perpetual markets.

  4. Risks & Other Considerations:

    • If losses in a market exceed the token balance in the Insurance Fund for that market, a socialised loss occurs.

    • This means that losses are spread across all users' deposits and positions.

    • Perpetual traders and lenders contribute to cover these excess losses on a pro-rata basis.

Arbitrum

Arbitrum has experienced an ~33% increase in volume, facilitating $1.8b worth of trades in the last 7 days:

The top three Dexes by volume are Uniswap, GMX, and Trader Joe:

How to benefit as farmer?

Assuming trading stays at current levels, or trends higher, you can provide liquidity to the pairs that experience the highest volume/accrue the highest fees. Here are some examples below:

Uniswap pools with highest fee's 👇

Trader Joe pools with highest fee's 👇

Additionally, there are other protocols including Gains network, Aave, and Balancer that are benefitting as shown through their increase in yield opportunities.

🌾 Yield Farming 101

Pendle to Aave strategy

Strategy

Farm Diversified Stablecoins on zkSync Era: Farm BUSD/USDT and Use $CAKE farm rewards to create USDC/LUSD

  1. Deposit $500 into gDAI liquidity vault on Pendle (18% APY)

  2. Claim & unwrap gDAI sy rewards

  3. Unlock gDAI on Gains Network

  4. Deposit DAI into Aave (9% APY)

  5. Borrow LUSD (-3% APY)

  6. Rinse and Repeat

Risks:

  • Smart Contract risk from interacting with multiple protocols

🐦 Last Week in Crypto Twitter (CT)

MakerDAOs RWA revenue:

iShares Bitcoin Trust is registered with the DTCC:

Weekly stablecoin roundup courtesy of Bluechip:

Winter Soldier explains pull vs. push based oracles:

Solana Hyperdrive Hackathon receives over 900 submissions:

That's all for this issue of DeFi Vaults, stay up on your research, and happy farming!

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