In our last article, we broke down how Yield Farming works, and the unique benefits ZooDAO users can expect to secure through participation. In this article, we provide specific details on the logistics of deploying Yield Farming on Sushi, and how users can get started with securing rewards.
We highly recommend reading Article 1 in the Yield Farming series before getting started with this article.
Important information about Yield Farming
Yield generated through farming is represented in APR, or annual percentage rate of return. When a yield farmer contributes to a pool, their contribution can be represented as a percentage of ownership of that pool. For instance, in a pool of $100,000, a user contributing $1000 would own 1% of the pool. That user would receive 1% of the rewards emitted by the pool per day; presented on an annual basis in a single number, this rate would be 365% APR. This number can be misleading however. The APR of a pool continuously adjusts, and is dependent on a number of other variables, like:
- The number of farm tokens that are made available as rewards on a daily basis
- The price of the farm token being distributed
- How many tokens are in the pools
- How much the pool is generating in swap fees, based on the trading volume
APR indicates the annual percentage rate at a single point of time, based on the current conditions of the pool — however based on the factors above, this number continuously changes.
The yield users may expect to secure in participating in the pool therefore declines over time, with early participation incentivised with higher APRs.
ZooDAO addresses this declining return available to users by stacking, or compounding rewards by enabling users to stake their SLP token — representing their participation in the pool — in ZooDAO’s dApp.
ZooDAO’s Compounded Rewards
Users participating in yield farming undertake two steps to maximize benefits of participation:
- Stake an equal value of $ZOO and $DAI in the Sushi pool, and receive a Sushi Liquidity Pool (SLP) token in return; and
- Stake their SLP token in ZooDAO’s dApp to earn additional rewards in $ZOO.
The returns generated by participating in both stages 1 and 2 will differ between users. Factors which influence returns for an individual user are primarily, the volume of $ZOO and $DAI staked in the pool, and when a user stakes in the pool. As shown in the table in the Key Parameters section of this article, users staking in the early weeks of ZooDAO’s yield farming can expect to secure higher returns in the early stages than users staking in later weeks.
Participation in yield farming is not without its risks. We strongly advise users to do their own research before participating, and seek other sources of information aside from the information in this article.
Tokenomics of $ZOO
The Tokenomics of $ZOO tokens address the issues of diminishing returns users experience while participating in yield farming. As a deflationary token, the current supply of $ZOO is fixed and may only be increased with approval via a governance vote by the community of token holders. This mitigates the risk of a continuously declining token value, and incentivizes users to hold on to their tokens as scarcity of $ZOO increases. Second, $ZOO tokens have a great deal of utility within the ZooDAO environment: as a key driver of NFT Battles, holding $ZOO enables users to gain an advantage in battle, and drives community members to acquire tokens to secure greater odds of victory. Combining utility with demand, $ZOO tokens are more likely to retain or increase in value over time as additional NFT holders participate in battles.
Key Parameters for Yield Farming
Based on the current parameters of yield farming, the table below displays the estimated weekly yield and APR generated by staking an SLP in ZooDAO’s dApp. These numbers are projected considering a time period of 26 weeks, with a projected distribution of $ZOO tokens to users at 1.8M tokens during the period.
Expected Outcomes
Yield Farming is a benefit to both holders and potential buyers of $ZOO. With the $ZOO-$DAI pool experiencing low levels of liquidity at the time of publishing this article, we can expect that launch of yield farming will generate higher levels of liquidity to enable consistent trading of $ZOO. While users pooling liquidity generate rewards for participating, this enables new entrants to ZooDAO to secure tokens, with the likely outcome of increasing the value of $ZOO over time.
How to participate
We’ve put together two short tutorials to enable users to become more comfortable with the steps to first provide liquidity, and second, stake their SLP in ZooDAO’s dApp.
dApp Link: https://dapp.zoodao.com/#/yield/dashboard
Getting started with DYOR
- Binance: What is yield farming in DeFi?
- Finematics: What is Yield Farming?
- 101 Blockchains: A beginner’s guide to yield farming
- Cryptogeeks: What are the risks of yield farming?
Find a helpful resource on yield farming? Share it with the community!
Disclaimer
The information provided in this article or any other article by ZooDAO does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the DAO’s content as such. ZooDAO does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.
Some jurisdictions regulate or prohibit purchase, trading or holding cryptocurrencies. It is the responsibility of individual users to determine if purchase, trading or holding of a token or any crypto-related asset complies with the relevant laws and regulations of the country or jurisdiction in which they reside
