If you are an old DeFi dweller you know that day by day money are not made with swing trading but are made providing liquidity of a good pair on a DEX.
Liquidity pairs have evolving APR in time, and sometimes projects incentive their liquidity with a staking pool where you can deposit LP token to get rewards, usually in that project governance token.
DeFi veterans, that now are probably whales, put their money in many liquidity pools, earning swap fees from the DEX and usually staking their LP to get even more revenues. They (should) move their money daily or weekly between LP pairs and staking pools following the best revenues and adapting to their risk profile. This is what they do, this is why they become whales.
Equilibrium automate this process for the casual investor: let's dive in and see what is actual happening when you deposit your funds in an Equilibrium pool.
Equilibrium pools
Equilibrium has three pool on each chain it is deployed, currently Ethereum, Polygon, BSC and Fantom. Each pool has in common the risk factor: H2O pools are low risk (stable/chain native token pairs), Tesla has medium risk (good established projects / native chain token pairs), Frankenstein has higher risk (promising low cap projects pairs).
Each pool will have many strategies, that are enabled by Yel Team and can be requested with their Governance. Each strategy enable the pool to deposit is a LP pair on a DEX and staking that LP for revenues.
Let's take Tesla pool on Fantom as an example.
Deposit
When you deposit on Tesla pool on Fantom your Fantom are invested on the best strategies among those active. Let's say for example that all those four strategies are active: your deposit in $FTM get divided in four parts.
One part will deposit on SPELL/fUSDT on Spiritswap, on part on wMEMO/MIM on Spiritswap, one part on SPIRIT/FTM on Spiritswap, on part on ANY/FTM on Spiritswap.
Your deposit is now divided in:
- 1/8 SPELL
- 1/8 fUSDT
- 1/8 xMEMO
- 1/8 MIM
- 1/8 SPIRIT
- 1/8 ANY
- 2/8 FTM
All these tokens will get or lose value as the market evolve, they are inside a liquidity pair so they are subject to impermanent loss (not that bad actually), all that four pairs will collect swap fees.
Those will be deposited on staking pools, SPELL/fUSDT LP for example will be put on staking on Spiritswap farm:
and it will collect $SPELL on top of swap fees. Of those $SPELL token earned by staking 85% is collected, converted in SPELL/fUSDT pair LP and staked again (auto-compounding the revenue), 15% is kept as protocol fee, swapped for $YEL and distributed on Yel staking pools (not Equilibrium pools: Yel single staking and LP staking pools, on https://yel.finance/spectre).
These buybacks and reinvestments of the farming reward happens each time someone depodits or withdraws, or if there are no transactions once per day.
For this reason when you deposit you will see a dollar value of the position that will change following market price of all that LP positions, but you will accumulate with time swap fees and staking rewards.
Equilibrium will re-balance the positions when one of those get too much percentage on the pool (for example is one of the token in one pair appreciate in value more than the others).
Withdraw
You always own a percentage of the pool, whatever operations and re-balances the pool does. When you withdraw you will receive your percentage of the pool value (or less than that if you make a partial withdraw).
Remember that you had your position split into 1/8 SPELL, 1/8 fUSDT, 1/8 xMEMO, 1/8 MIM, 1/8 SPIRIT, 1/8 ANY, 2/8 FTM?
When you withdraw you should receive all those tokens separately, but Equilibrium for convenience swaps all those in $YEL token, and that is what you receive when you unstake: the equivalent dollar value of your position, converted in $YEL token.
After the withdraw you can swap back those $YEL in stables, $FTM, stake them on Spectre, or whatever you like or need.
Final considerations
We have seen that depositing on a Equilibrium pool does not invest on $YEL token: $YEL value is not a component of Equilibrium revenues, it is just used as single token to pay the position when a user withdraws.
Equilibrium revenues are independent from $YEL price.
When you deposit on Equilibrium you are differentiating your investment on many LP position, you will warn 100% of swap fees from those positions.
When you deposit on Equilibrium you are staking those LP positions and Equilibrium auto-compounds those staking revenues for you, keeping 15% of the revenues as protocol fee. That 15% you pay is still less of the money you earn with auto-compound vs simple deposit on the staking pools. Plus you save gas, plus it constantly switch from and back the best strategies should one of those staking pool get overcrowded.
Hi, I’m -DvD-. I’m a mod in the Yel.finance Discord — this is why I invested on Yel.finance. Being on that Discord I realized which are the most misunderstood concepts of DeFi and here I try to simplify them.
I believe that knowledge should be free and accessible for all, but if you wish to offer me whatever beverage is good in your culture you can tip me at: 0xebDBbca4744C66E3aE39F997fD5fB7dE29874ce5, I’ll be super happy to know I helped someone! Cheers!
