Survey of current nature of LPing in DeFi
Instrumental Finance as a strategy hub for cross-chain-and-layer LPing
As the decentralized finance (DeFi) landscape is expanding rapidly, new yield generating opportunities are being presented by different chains or on different layers of protocols regularly. These liquidity provisioning (LP) opportunities are great but the compounding of yields across different chains and layers becomes a problem.
The lack of cross-chain-and-layer interoperability makes it difficult to harness the potential of the best yield-generating opportunities. Yield farming is a staple to the foundation of DeFi applications and a key reason for the increase in the sector’s adoption and utilization.
The concept is one that encompasses a highly attractive source of value generation, implemented by DeFi protocols across all ecosystems. Instrumental Finance, a DeFi protocol that automates yield-seeking positions across chains and layers, is not reinventing the wheel here, the team is simply enabling utility optimization through cross-chain-and-layer technology.
Evolution of methods in LPing
DeFi took a radical turn with the introduction and commercialization of yield farming as a crucial piece in the arena of DeFi. Prior to the ‘DeFi Summer of 2020’ as we call it, a mere $1.03 billion of value was locked in DeFi protocols (as of May 25). This number grew to an astonishing $20.49 billion by the end of the year (Dec. 31).
Today, nearly $224 billion of value is locked in hundreds of DeFi protocols, of which the total-value locked (TVL) of Tricrypto (USDT, wBTC and, wETH) is over $1.6 billion on Curve (CRV), nearly $220k on Arbitrum and over $50 million on Polygon (MATIC).
Source: Curve dominates the $223.91 billion DeFi market
Currently, to participate in a new yield-earning opportunity, users must perform a number of tedious, manual processes to move LP positions cross-chain. If a user is too late to the scene and decides to cut losses, he must undergo another series of steps to recover provided liquidity. Even if a user makes a profit, he must always be on his toes in order to find the next best opportunity.
Here is how LPing works in today’s DeFi scenario:
- Single-chain farming: users farm yield with what is available and ignore the fact that new opportunities are arising that may provide a higher yield. This is the safest path to yield generation and best-suited to those who are looking to earn more, albeit slightly, on provided capital than traditional financial providers.
- Multi-chain farming: the attempt to navigate the complexities of siloed blockchains to chase after maximized yield often results in high incurred fees and time constraints that block or outweigh the benefits of swapping positions for the extra yield. Multi-chain farming without the right infrastructure could prove to be a double-edged sword.
For a user holding and wanting to farm USDC and ETH, there is a wide range of opportunities to farm on different applications and on different chains…
The best way to harness the potential of LP positions is cross-chain farming but with the right infrastructure — cross-chain farming is the process of seamless yield farming across different blockchains, from a single, optimized ecosystem.
Cross-chain-and-layer farming is now possible with Instrumental Finance i.e. the ability to deposit assets on a specific chain or layer and then earn yields on an entirely different chain. The solution provides automated, optimized yield, in a seamless manner, with new novel strategy implementations. More on this in the next section.
Levelling DeFi yield farming through Instrumental’s chain and layer agnostic LPing
As new applications are introduced to the DeFi landscape, spread across different chains and layers, it becomes more important for innovators to come forward with solutions that allow for the free movement of assets, cross-layer-and chain, and communication between them.
Infrastructures are being developed and deployed to solve and interconnect the different ecosystem participants and applications. The Mosaic bridge, Composable Finance’s transfer availability layer, is a prime example and the key component of Instrumental Finance’s jigsaw puzzle.
Instrumental Finance’s modular Portfolio Development Environment (PDE) enables the team to develop alpha-generating strategies. To maximize yield on several LP positions, Instrumental uses its PDE to retrieve data from numerous sources, update strategies and take necessary actions, such as moving LP positions from one network to another, as and when required.
One such strategy involves the compilation of daily profit and loss (PnL) statistics per $1, over a period of more than 50 days, obtained from a competitive crossing moving average system and deployed across ecosystems for Curve LP pools. The PnL would correspond to over 30% APY. To ensure this happens, Instrumental Finance’s automated portfolio balancer checks for changes in pool activities every hour and makes transfer decisions on that basis. The rebalancing system uses forecasting methods and technologies to move funds from one network to the other with cadence changing based on transfer activities. Moving LP positions to the highest yield-generating opportunity. For an in-depth explanation of Instrumental LP yield optimization technique, see here.
Instrumental Finance leverages the Mosaic bridge to become a strategy hub for users to successfully and seamlessly participate in cross-layer yield optimization. The protocol fills a key gap in the industry and enables users to harness the potential of yield across chains and layers, without needing to navigate the complexities of siloed blockchains, pay extravagant fees, and waste time, in the quest to maximize LP positions.
By simply depositing assets into the Instrumental Vault, LP assets will be automatically allocated to the highest yield-earning LPing chain Instrumental is connected to. Instrumental Finance enables users to harness opportunities that are already out there, sans the infrastructure to make it possible.
As highlighted in a previous example, moving LP pairs to the highest-earning deployment isn’t as easy as it seems, without the right infrastructure. By leveraging Instrumental Finance, the user will be able to earn the highest possible yield on an ETH-USDC LP position, by just depositing liquidity into the Instrumental Vault.
A vital primitive for substrate-based Dotsama protocols looking to bootstrap liquidity
By providing the infrastructure to make yield generation easy, Instrumental Finance positions itself as a vital component of Composable Finance’s cross-layer, cross-chain ecosystem by making it easier for new primitives launching in Composable and the broader Dotsama space. As a strategy hub, DeFi projects can utilize Instrumental to spin off their yield strategies to help bootstrap TVL i.e while users enjoy the best yields via Instrumental enabled agnostic LPing, projects achieve their vision by attracting enough liquidity to allow them to efficiently execute along with their roadmap.
Summary
DeFi presents an opportunity for one and all to experience the benefits of financial applications and solutions, in a decentralized manner. Yield-seeking is one of the primary attractions of DeFi and the industry is constantly evolving to meet current user needs.
The DeFi ecosystem as a whole has grown 200-fold since May 2020 (from a TVL of roughly $1 billion to over $200 billion) and the next step in its journey is evident — a cross-chain-and-layer future.
Given the number of new yield-seeking opportunities that present themselves in double-quick time and the lack of infrastructure to fully utilize yield-generating potential, Instrumental Finance positions itself as the key ingredient to providing a one-stop solution to maximizing yield generation, without having to worry about manual cross-layer-and-chain LPing, high fees, and time constraints.
Deposit funds in the Instrumental Vault and reap the benefits of an interoperable present and future.
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