⍺ DeFi Alpha: Profit From Market Turmoil With Liquity's Stability Pool

• Yields: Up to 10% APR on Stablecoins, 8-44% on ETH and BTC

• Starter Tutorial: Earn 40-45% APR with StakeDAO tBTC2 Liquid Lockers

• Degen Tutorial: Profit From Liquidations With Liquity’s Stability Pool

DeFi Alpha is a weekly newsletter published for our premium subscribers every Friday, contributed by Defiant Advisor and DeFi investor at 4RC, DeFi Dad, and our Degen in Chief yyctrader. It aims to educate traders, investors, and newcomers about investment opportunities in decentralized finance, as well as provide primers and guides about its emerging platforms.

Motivation

Two years ago, DeFi investors could easily name every yield farming opportunity without much effort. It was a simpler time, when only a handful of teams had launched with any liquidity to trade, lend, borrow, provide liquidity, or even demonstrate new primitives such as no-loss savings by PoolTogether.

But times have changed! Before the current bear market took hold, DeFi liquidity had grown to hundreds of billions of dollars across Ethereum with new burgeoning DeFi economies taking shape on EVM-compatible chains such as Polygon and Avalanche and non-EVM chains such as Cosmos and Solana. Any given day, a new DeFi or NFT project is launched.

So, after writing and creating countless DeFi guides and tutorials since 2019, we at The Defiant agreed it’s time we publish a more detailed weekly guide on all you need to know to keep up with new and old yield earning opportunities. 

This is DeFi Alpha by The Defiant.

Any information covered in DeFi Alpha should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions. Any mention of a token or protocol should not be considered a recommendation or endorsement.

🙌 Together with: 

• DeFi Saver provides you with the only automatic liquidation protection and leverage management options on Optimism. Automate your Aave v3 position management now with drastically lower tx fees.

📈 Yield Alpha

Each week we will provide options to earn yield on ETH, WBTC, stablecoins, and other major tokens.

• ETH – 7.84% APR with the wETH/sETH LP staked in Velodrome on Optimism

  • This yield is accrued in VELO.

  • To participate, one must deposit and stake in this wETH + sETH LP.

• WBTC – 44.72% projected vAPR with the Curve tBTC2 LP staked in Convex

  • This yield is accrued in CRV, CVX, and trading fees.

  • To participate, one must first deposit tBTC, renBTC, sBTC and/or WBTC into this Curve tBTC2 pool and then stake the LP here in Convex. Learn more in today’s beginner tutorial!

• Stablecoins – 10% projected vAPR with the Curve DOLA LP staked in Convex

  • This yield is accrued in CRV, CVX, and trading fees.

  • To participate, one must first deposit DOLA, USDT, DAI, and/or USDC into this Curve DOLA LP and then stake the LP here in Convex.

• AVAX – 10.6% APR lending AVAX to the sAVAX/AVAX pool on Platypus via Vector

  • This yield is issued in VTX, PTP, QI, and AVAX.

  • To participate, one must deposit into the AVAX Stake option here on Vector.

• SOL – 9.81% APY lending stSOL on Tulip Protocol + 5.6% APY from the underlying SOL liquid staking rewards issued to stSOL holders

  • This yield is backed by interest paid by borrowers on Tulip + staking rewards.

  • To participate, one must deposit stSOL in the Tulip lending tab.

  • To obtain stSOL, one can trade on a Solana DEX or mint it here on Lido.

• MATIC – 22.49% APR with the 50/50 MaticX-WMATIC LP on MeshSwap

  • The yield is backed by validator rewards using the MaticX liquid staking derivative + MeshSwap trading fees + MESH rewards + SD rewards.

  • To participate on Polygon, I use the Stader MaticX dApp to mint MaticX.

  • Then, I deposit into the MaticX-WMATIC pool on MeshSwap and stake the LP.

• ATOM – 13.5% APR staking pATOMs on pSTAKE on Ethereum

  • The yield earned is issued and claimable in pATOM.

  • To participate, one must first mint a 1:1 representation of ATOM as pATOM on Ethereum by using the pSTAKE dApp under Stake

  • Then, deposit/stake pATOMs to get stkATOMs and earn 13.5% APR 

• FTM – 13% APY staking with sFTMx liquid staking derivative by Stader

  • The yield is issued in FTM rewards, as sFTMX is earning FTM via validator rewards to support Fantom’s PoS network.

  • To participate, one must deposit FTM to receive sFTMX here on Stader.

• HBAR – 30.9% APY staking with HBARX liquid staking derivative by Stader

  • The yield is issued in HBAR rewards, as HBARX is earning validator rewards.

  • To participate, deposit HBAR to receive HBARX here on Stader.

  • Caution: This is in beta and withdrawals may not be possible until July 2022 or later.

🪂 Airdrop Alpha

In each DeFi Alpha guide, we update a list of the most obvious DeFi protocols that have yet to announce and/or launch a token.

Arbitrum Odyssey

Layer-2 rollup Arbitrum kicked off a two-month-long program on June 21.

Participants will be able to claim NFTs based on completing various tasks over the summer.

Week 1 was Bridge Week and we walked you through it in a previous issue of DeFi Alpha.

Participants can now claim their Week 1 NFTs.

Week 2 involved the GMX derivatives protocol but was paused after heavy traffic on Arbitrum caused gas fees to spike.

https://twitter.com/arbitrum/status/1542159105946787840

We’ll be watching for the Odyssey to resume.

Optimism Airdrop

Congratulations if you followed our guide betting on a hunch that Optimism would release a token!

$OP is Live! Claim guide here.

• Aptos – is a new Layer 1 blockchain being built by ex-Diem developers. It launched an incentivized testnet on Aug 19. It’s a complex process but detailed instructions can be found here.

• Arch Finance – a protocol for comprehensive indices that provide access to differentiated sources of market risk.

• Concentrator – Congrats if you used Concentrator! They’re currently running an Initial Farming Offering (IFO) and are expected to distribute CTR tokens to early users of Concentrator.

• DeFi Saver –  a one-stop dashboard for creating, managing and tracking DeFi positions across Aave, Compound, Maker, Liquity, and Reflexer

• Francium – leveraged yield farming similar to Alpha Homora but on Solana, one can choose to simply lend single assets or hold leveraged LPs to potentially earn an airdrop here

• Gnosis Safe – a popular a smart contract wallet often managed by multiple signers developed by the Gnosis team, just announced a SAFE airdrop for users of Gnosis Safe!

• Jupiter – The leading DEX aggregator by trading volume on Solana

• LI.FI – A cross-chain bridge and DEX aggregator protocol

• Liquality – A cross-chain, non-custodial browser extension wallet, similar to MetaMask but with more integrations for swapping cross-chain.

• Magic Eden – The leading NFT marketplace by trading volume on Solana

• Nested – a crypto social trading platform built on Ethereum and other chains

• Opyn – one of the OG decentralized options protocols on Ethereum, with major investors that signal a token has to be in their future. Buy/sell puts or call options to earn a possible future airdrop.

• Polymarket – one of the strongest players in the DeFi prediction market vertical, bet on an outcome related to crypto, politics, sports and more or add liquidity

• Polynomial – A newer DeFi derivatives vault creator, built on Optimism

• Sense Protocol – A decentralized fixed-income protocol on Ethereum, allowing users to manage risk through fixed rates and future yield trading on existing yield bearing-assets

• Set Protocol – one of the earliest DeFi protocols yet to launch a token for DeFi asset management, popular for TokenSets and known for powering IndexCoop indexes

• Socket (formerly Movr) – their bridge aggregator Bungee moves assets between chains, finding the cheapest, fastest route

• Volmex – Volmex is a tokenized volatility protocol, similar to the VIX but ETHV

• Wormhole – a cross-chain messaging protocol known for bridging between Solana, Terra, Polygon, BSC, Avalanche, Fantom, and Oasis

• Yield Protocol – a newer protocol for fixed-term, fixed-rate lending in DeFi, backed by Paradigm, one might earn a future airdrop by lending DAI or USDC 

• Zapper – participate in Zapper trading, lending, providing liquidity, or yield farming; given the Zapper Quests and NFT Rewards program, it can be surmised that if Zapper ever releases a token, this is one way they might do a retro airdrop

• Zerion – same can be said speculated about Zerion; if they ever release a token, they’re likely to reward those who interacted with their smart contracts swapping, lending, providing liquidity, or borrowing

• ZigZag – a DEX on zkSync that’s announced an upcoming airdrop.

• zkSync is a Layer 2 scaling solution for Ethereum that uses zero-knowledge proofs to enable scalable low-cost payments. Bridge some assets and do some swaps for a potential airdrop. Guide here.

👨‍🎓 Defiant Starter Tutorial

 Earn 40-45% APR with StakeDAO tBTC2 Liquid Lockers

Convex remains the most popular DeFi protocol for boosting rewards as a Curve LP. However, when you use Convex to boost your Curve yield, you lose liquidity as it remains locked up in Convex until you unstake the Curve LP.

With this limitation in mind, StakeDAO introduced Liquid Lockers to allow DeFi users to unlock more utility from lockable tokens without having to compromise on yield, voting power, or liquidity.

With Stake DAO Liquid Lockers, any DeFi investor can provide liquidity and earn the maximum yield boost while retaining full voting rights and benefits of the token’s native protocol, as well as the ability to boost voting rights, and later exit back to the underlying token(s). 

Today, I’ll show how I can earn up to 40% APR with the Curve tBTC2 LP in a Stake DAO Liquid Locker if I prefer the benefits described above, or how to stake this Curve LP in Convex for a projected 44.71% vAPR.

Before we get started, please be aware of these risks.

• Smart contract risk in Stake DAO, Curve, and Convex

• Front-end spoof attack on the websites curve.fi, lockers.stakedao.org, or convexfinance.com

• Exploits in economic design

• Governance attacks or admin key compromise

• Systemic risk in DeFi composability

• Pegged assets such as tBTC can potentially depeg 

Step 1: First, let’s assume I prefer the benefits of Stake DAO Liquid Lockers and already have either tBTC, renBTC, sBTC, or wBTC. So I go to the deposit page for the Curve tBTC2 factory pool and I do the following:

• Connect my wallet

• Specify how much of the 4 BTC-pegged tokens I have to deposit in any ratio

• Click Deposit (careful not to click the Deposit & stake in gauge button!)

• And follow the prompts to Approve each token followed by a final Deposit transaction

Step 2: Now with the Curve tBTC2 LP, I can go to this Stake DAO Liquid Locker here and search tBTC2 to find the appropriate Locker. I specify depositing the maximum amount of Curve tBTC2 LP tokens, followed by clicking Approve and Deposit & stake. 

Step 3: Alternatively, let’s assume I discover the yield is higher for a staked Curve tBTC2 LP on Convex Finance here, as it is 44.72% project vAPR and prefer to just use Convex over Stake DAO. I would connect my Ethereum wallet, specify depositing the maximum amount of the Curve tBTC2 LP tokens, and follow the prompts to Approve and Deposit & Stake.

🦍 Defiant Degen Tutorial

Earn Liquidation Rewards With Liquity’s Stability Pool

The recent US sanctions on Tornado Cash and subsequent fallout across DeFi has kicked off a debate over censorship in crypto. Many protocols have chosen to play it safe, using external compliance vendors like TRM Labs to flag and block addresses from using their websites.

Stablecoins are of particular concern since the largest ones, USDT and USDC, are controlled by centralized entities that can freeze assets if pressured by regulators. Centre has already blocked USDC in 38 addresses in the wake of the Tornado sanctions.

DAI is the largest decentralized alternative, but over half its collateral consists of USDC, leading it to consider abandoning its peg to the dollar.

For those looking for a viable decentralized alternative, LUSD from Liquity has many advantages:

• Overcollaterized – Liquidations ensure that the protocol remains solvent and maintains the LUSD peg.

• 100% ETH collateral – No risk of being frozen.

• Interest-Free Loans – No interest is charged apart from a 0.50% borrow fee when the debt is created.

• Capital Efficiency – Borrow up to 90% LTV against ETH

• Decentralized – No governance. All parameters are preset or controlled algorithmically by the protocol. Even the frontends are run by incentivized external parties.

• Immutable – Smart contracts have no administrator that can halt or modify the protocol.

LUSD can be minted by depositing ETH as collateral into a vault, called a Trove, and borrowing up to 90% of its dollar value.

Liquity launched in April 2021 and TVL has remained relatively stable around 400K ETH for most of 2022.

The LUSD peg has held up through the bear market and it’s now trading at a premium as more DeFi users seem to be prioritizing decentralization. This is a drawback of using only ETH as collateral, as it hinders scaling (there is a limited amount of ETH available to be collateralized).

There are two ways to earn yield using Liquity:

• Deposit LUSD in the Stability Pool to earn LQTY tokens and liquidation rewards in ETH.

• Stake LQTY to earn a share of borrowing and redemption fees in LUSD and ETH respectively.

In this tutorial, we’ll deposit LUSD in the Stability Pool.

The Stability Pool (SP) acts as a source of liquidity to instantly settle the debt from liquidated Troves. When a Trove falls under a collateralization ratio of 110% and is liquidated, LUSD from the SP is used to settle the outstanding debt. This ensures that LUSD is always backed by $1 worth of ETH.

The ETH collateral from the liquidated Trove is distributed among SP liquidity providers. Since Troves are liquidated with a 10% buffer, the SP receives more value than it paid out to settle the loan.

In addition, Stability Pool participants are incentivized with LQTY tokens since liquidation rewards will likely not be consistent.

Essentially, the Stability Pool provides a decent base yield with an added bonus of cheap ETH when markets crash and degens get liquidated.

Let’s get started.

Step 1: Obtain LUSD. You can either do this by opening a Trove and borrowing LUSD or trading on Uniswap.

As LUSD is currently trading at a premium, borrowing is a cheaper option. If you do choose to borrow, make sure to deposit adequate collateral to avoid getting liquidated!

Step 2: Once you’ve obtained some LUSD, deposit your tokens in the Stability Pool.

Click ‘confirm’ , approve spending your LUSD, and confirm the transactions.

That’s it! You’re now earning LQTY rewards that you can claim at any time. You’ll also earn ETH from liquidations as they occur.

Please review the protocol’s documentation before depositing assets.

📱DeFi Alpha Call

The DeFi Alpha call is held every Monday at 2pm ET in Discord.

In case you missed it, check out the recording of this week’s call.

📰 Elsewhere on The Defiant

Tuesday Tutorial on The Defiant YouTube: This week, Robin showed you how to use ETH collateral to mint RAI, a non-pegged stablecoin backed by ETH. Learn how and subscribe to The Defiant on YouTube!

The information contained in this newsletter is not intended as, and shall not be understood or construed as, financial advice. The authors are not financial advisors and the information contained here is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. We have done our best to ensure that the information provided is accurate but neither The Defiant nor any of its contributors shall be held liable or responsible for any errors or omissions or for any damage readers may suffer as a result of failing to seek financial advice from a professional.