⍺ DeFi Alpha: Using Uniswap V3 To Dollar-Cost Average + Single-Sided LPs on Bancor V3

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:

prePO is a decentralized trading platform allowing you to gain synthetic exposure to any pre-IPO company or pre-token project. Check us out at prepo.io
ZetaChain is the first public L1 blockchain that natively connects with any chain and layer including Bitcoin and Dogecoin without wrapping or bridging assets. Dive into the docs to start building the future of multichain.

📈 Yield Alpha

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

ETH – Earn 16.92% vAPR with the Curve sETH LP staked in Convex
- This yield is accrued CRV, CVX, and trading fees.
- To participate, one must first deposit ETH or sETH into this Curve sETH LP and then stake the LP here in Convex.
BTC – Lend WBTC at 7.33% APY to borrowers on Aurigami Finance on Aurora (NEAR)
- This yield is issued in 0.12% APY in WBTC + 7.21% APY in PLY tokens.
- To participate, one must deposit into the WBTC pool here on Aurigami.
- Caution: The PLY token rewards vest over 48 weeks, and it’s likely the price of PLY will change over that time, meaning the estimated net yield as of this writing, could go up or down.
AVAX – Lend AVAX on Aave using Yield Yak for leveraged lending at 9.8% APY
- This yield is issued in AVAX, paid by borrowers on Aave.
- To participate, one must deposit into this YieldYak farm.
SOL – Lend SOL to leveraged farmers on Tulip Protocol at 10.49% APY
- This yield is backed by interest paid by borrowers on Tulip.
- To participate, one must deposit SOL in the Tulip lending tab.
MATIC – stake MATIC with MaticX and LP MaticX-MATIC on Balancer for a net 39% APY
- The yield is backed by validator rewards using the MaticX liquid staking derivative + trading fees on Balancer + BAL rewards + SD rewards.
- To participate on Polygon, I use the Stader MaticX dApp to mint MaticX.
- Then, I deposit into the 50/50 MaticX-MATIC pool on Balancer and stake the LP.
ATOM – mint pATOM and stake the pATOMs on Ethereum to earn more pATOMs on pSTAKE at a rate of 13.5% APR
- 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 – stake with sFTMx by Stader, earning 14.5% APY
- 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 – stake with the first HBAR liquid staking derivative by Stader, earning 41.6% APY
- 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 will not be possible until July 2022 or later.
Stablecoins – LP with DOLA, USDC, USDT, and/or DAI at 16.53% vAPR in the Curve DOLA+3Crv LP staked in Convex.
- This yield is accrued in CRV, CVX, and trading fees.
- To participate, one must first deposit into this Curve DOLA-3Crv LP and then stake the LP here in Convex.

🪂 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.

Hop Airdrop

$HOP went live on June 9. Claim here.

If you followed the guide posted in previous issues of DeFi Alpha, you should be eligible.

Optimism Airdrop

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

$OP is Live! Claim guide here.

Arbitrum Odyssey

Layer-2 rollup Arbitrum will be launching a series of tasks in for airdrop seekers. Originally slated for mid-June, there has been no official announcement yet. We’ll keep you posted in DeFi Alpha.

https://twitter.com/arbitrum/status/1527280695889960961

Arch Finance – a protocol for comprehensive indices that provide access to differentiated sources of market risk.
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
Jupiter – The leading DEX aggregator by trading volume on Solana
LI.FI – A cross-chain bridge and DEX aggregator protocol
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
StarkNet – Layer 2 scaling solution for Ethereum using zero-knowledge (ZK) proofs. Testnet guide here. Bridge some assets using StarkGate.
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
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

How to Earn with 100+ Single-Sided LPs on Bancor v3

Update: As of June 20, Bancor has temporarily dropped IL protection citing extreme market volatility.

https://twitter.com/bancor/status/1538662297635282949?s=21&t=XAyLaq6k4wjP322t-wjynA

Almost 2 years ago, Bancor introduced their signature single-sided liquidity provisions (LPs) with what they call “impermanent loss protection.” Impermanent loss (IL) can be defined as a temporary loss of funds when providing liquidity, or the difference between holding an asset versus providing liquidity in that asset.

These single-sided LPs conveniently allow users to deposit a single token, such as ETH, because Bancor pairs BNT to create the two-token LP, and meanwhile provides a protection/compensation for impermanent loss whenever LPs withdraw.

In layman’s terms, this means Bancor LPs can lend a single token and earn trading fees without being impacted by the loss of IL. As an early pioneer of protocol-owned liquidity, Bancor v2 and v3 operate under the assumption that the benefits of increased liquidity, higher trading volume, and hence more yield in trading fees will outweigh the obligation of Bancor to compensate LPs for any loss on a deposit to IL.

While Bancor IL-protected single-sided LPs are a popular tool among DeFi LPs, it’s been long debated among AMM experts whether this mechanism can continue to scale long term, since Bancor is essentially offering compensation for LPs while IL is still present in the AMM.

In early May, Bancor v3, Phase I launched, which ushers in new and improved benefits for single-sided LPs, including:

100+ pools with unlimited deposits
Migration for any v2 pools with a corresponding v3 pool
Instant IL-protection for both new v3 LPs and migrated v2 LPs
Omnipool, a single deposit option for easier yield earning among BNT depositors
Lower gas fees on Ethereum Mainnet vs its predecessor in v2

By early July, Bancor expects to launch more new pools along with auto-compounding for liquidity mining reward tokens and a dual rewards liquidity mining option to start enabling more protocols to deposit reward tokens into the pool, to be distributed to LPs. Bancor will also offer vampire attack buttons, allowing LPs to see how much IL they’ve incurred on other AMMs like Uniswap, and then instantly migrate their liquidity to Bancor v3.

Given the simplicity and benefits of using a Bancor single-sided LP, I’ll show how I can earn as an LP with a single token like ETH, but with the added guarantee to withdraw the exact amount I deposited + earned yield in the future, thanks to Bancor v3 impermanent loss protection.

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

Smart contract risk in Bancor v3
A failure of economic incentive design in compensating single-sided LPs for IL
Systemic risk in DeFi composability
Pegged assets such as stablecoins can potentially depeg
Yield can go up or down depending on the amount of competing liquidity and the trading volume in each pool
To withdraw from a single-sided LP, there is a 7-day cooldown + 0.25% withdrawal fee.

Step 1: First, I can check which token pools are supported in Bancor v3 by going to the Bancor dApp under the Earn tab -> V3. I am already long ETH so decided I’d like to earn an estimated 5.97% APR, as of this writing.

Step 2: I click Deposit, specify how much ETH, and click Deposit ETH. I follow the prompts to confirm the transaction in my wallet and I’m now earning trading fees as a single-sided LP in Bancor v3!

Even with high volatility and IL in other AMMs, when I withdraw in the future from Bancor, I can expect to receive the same 1 ETH I deposited thanks to the Bancor v3 IL-protection.

🦍 Defiant Degen Tutorial

Using Uniswap V3 To Dollar-Cost Average And Earn Fees

gm Defiers!

The markets have been absolutely battered in 2022 with Bitcoin and Ether down 70% and 77% from their all-time highs in November 2021. Most altcoins have fared even worse and its been 12 straight weeks of relentless selling with a few short-lived bounces.

For investors looking to deploy fresh capital, bargains are everywhere but timing the bottom is a tough task given the extreme volatility (ETH is down 40% in just the past week).

Dollar-cost averaging (DCA) is a popular investing strategy that attempts to smooth out the volatility by making regular, smaller purchases instead of one big buy.

In this tutorial, I’m going to show you how to implement a DCA strategy the DeFi way using range orders on Uniswap V3. Market volatility works in your favour here as you’ll earn LP fees while you wait for your position to be filled.

The majority of trading volume is on Ethereum mainnet. However, since using Uniswap on Arbitrum could potentially be a qualifying action for an airdrop, sacrificing some LP fees by setting up the position there could be worthwhile.

Note: I’ll be setting up a range order for ETH, but this strategy can be applied to any token that trades on Uniswap V3. You can also use range orders to scale out of a position.

Let’s get started.

Step 1: Add the Arbitrum One network to your MetaMask wallet. You can do this manually by following this guide and entering the below parameters, or automatically in Step 2.

Step 2: Head over to the Arbitrum Bridge. If you didn’t add the network in Step 1, click on “Add L2 Network” in the top-right corner and you’ll be prompted to add Arbitrum to MetaMask.

Enter the amount of USDC you wish to transfer, and confirm the transaction. It took around five minutes and $11 in gas fees for my deposit to become available on L2.

Step 3: Navigate to Uniswap and ensure that your wallet is connected to the Arbitrum One network.

Click on ‘New Position’ and enter your desired range. I’m using $750-$1050.

Since we’re looking to add single-sided liquidity, the max price needs to be below the current market price.

Approve your USDC and confirm adding liquidity.

That’s it!

You’ll start earning LP fees as soon as ETH trades under $1049.5 and your USDC will gradually be exchanged for ETH as price moves towards $750.

Under $750, your position will be fully made up of ETH and you can withdraw your liquidity. Note that the proportion of USDC and ETH in your LP position will fluctuate as long as price stays within your preset range.

A similar strategy can be used to sell tokens, as shown in this example from the Uniswap documentation.

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.