This is a weekly tutorial on the most compelling opportunities in yield farming, written by our friend DeFi Dad, an advisor to The Defiant and Head of Marketing and Portfolio Support at Fourth Revolution Capital. The goal is to expose more Defiant readers to new DeFi applications and their associated liquidity mining programs.
Disclaimer: All opinions expressed by DeFi Dad are solely his own opinion and do not reflect the opinion of 4RC. This post is for informational purposes only and should not be relied upon as a basis for investment decisions. Please do not follow any opinion as a specific strategy.
Background on Protocol: The fundamentals among top tier automated market makers, or AMMs, in DeFi is fiercely competitive. While just a year ago, we might have debated the pros and cons of deploying liquidity on other blockchains like Matic/Polygon, the reality of market demand for L2s and sidechains of Ethereum has officially arrived.
After Curve, SushiSwap and native Polygon teams like QuickSwap grew parabolic demand for liquidity, yet another marquee name in DeFi, born on Ethereum, was forced to launch on Polygon. This time, it’s Balancer!
Balancer allows for automated portfolio management and providing liquidity while you collect fees from traders. On Ethereum and Polygon combined, Balancer has grown liquidity from nearly $1.5B TVL on July 1 to $2.2B on July 20 and notably, while the crypto market headwinds have drawn down against the price of most tokens.
As with most AMM launches in DeFi, Balancer launched another liquidity mining program to help bootstrap those willing to risk providing liquidity on Balancer Polygon. According to Balancer’s Medium account, “The liquidity mining committee has expressed a desire to focus on more index-like pools on Polygon to emphasize the unique value proposition of Balancer on L2.”
The following incentives began on June 28, 2021 but may change each week:
- 25,000 BAL per week from Balancer
- 375,000 MATIC per week from Polygon
- 30,000 Qi per week has also been committed by the Qi Dao per pool for the two pools of which they will be a part of
- The best place to check the latest estimated APRs based on swap fees + liquidity mining rewards is linked here on the Balancer Polygon app. I recommend ranking by APR to explore LP opportunities.
Opportunity: Today, we’ll focus on how to earn both trading fees and liquidity mining rewards in the form of BAL, MATIC, and Qi. Depending on the pool, the farming rewards go as high as 152% APR.
Time to Complete: 10 mins if paying the recommended standard gas price or higher on polygongasstation.com.
Gas + Protocol Fees: Based on the gas prices at between 2-4 Gwei on Matic, it should cost pennies to participate in this liquidity mining, assuming one already has liquidity on Polygon/Matic. If not, check out this guide on how to bridge assets to Polygon using Zapper Bridge.
Fees: Other than the usual Matic network fees you pay as gas, the only other fee to consider is whether one chooses to trade on Balancer prior to depositing to gather the appropriate ratios of assets as an LP. However, with Balancer, there is a single-asset deposit so it shouldn’t be necessary.
Risks: As always, this is not financial advice and you should do your own research. The following are risks when participating in this opportunity.
- Smart contract risk in Balancer Polygon
- Oracle failure
- Liquidity crisis
- Systemic risk in DeFi
- Pegged assets de-pegging
- As an LP, you’re likely to experience some impermanent loss.
- First, I connect my wallet (ie Metamask) to the Matic/Polygon mainnet.
- Second, I go to Balancer Polygon’s pools page.
- I can search/filter/rank by token, pool value, pool liquidity, or my favorite—estimated APR—with the three little yellow stars on the far right. You’ll notice up top is a pool with exposure to WMATIC, USDC, Qi, BAL and miMATIC, which references the title of this post earning an estimated “152% APR” in swap fees and mining rewards.
- However, let’s say I’m seeking exposure and yield earning in like-asset pools with all stablecoins or maybe all tokenized BTC. I rank by APR and find the pool in red below with all stablecoins earning an estimated 17.65% APR.
- After clicking on the pool, I navigate to this pool page and specify how much of any token in the pool I want to deposit. I can deposit a single token or up to all four, in any ratio. To be safe, I also adjust the small widget icon for Slippage Tolerance to 1%, in case I’m in a less liquid pool.
- Then I follow the prompts to Approve and Deposit each of the tokens I want to risk as liquidity in the pool. The more tokens I deposit, the greater the percentage of the pool I own, and the more swap fees and liquidity mining rewards I’ll earn. Below, I’ve covered my Balance of tokens to protect the privacy of my own wallet.
- I’m done with the hard stuff! Now, I can track my earned rewards in the top left colored icon you see below on Balancer Polygon or on Zapper.fi under the Yield Farming tab on the Dashboard. The weekly distributions from liquidity mining are airdropped on Wednesdays so there’s no need to return and claim rewards.
About Author: DeFi Dad is a DeFi super-user, educator and investor. He and his team at 4RC (Fourth Revolution Capital) invest in teams building the next killer protocol, app or tool in Defi. You can subscribe to his YouTube channel at defidad.com and follow him on Twitter.