EasyFi Yield Farming Program
Communities play an important role in bringing value to networks. Data networks eventually become value networks through the transfer of economic units among participants. In order to make the ecosystem work, the need for creating a participative economy through governance, validation, and hence improving the protocols, cannot be undermined.
Therefore, to support and motivate such communities it is pertinent that community members are counted as inseparable parts of the network and economic incentives are shared among them for their valuable contribution.
What is prevalent in the market?
Decentralized Finance being at the forefront of the innovation in the blockchain ecosystem has led to the emergence of a new concept called Yield Farming which is an eccentric way of earning rewards by holding cryptocurrencies on permissionless liquid protocols. Money markets offer the simplest way to earn reliable yields on your crypto. Liquidity pools have better yields than money markets, but there is additional market risk.
Distribution of the governance token, which grants the governance rights to token holders algorithmically through voting, attracted a large number of liquidity providers to farm a new token by providing liquidity. Different Defi Projects have brought up innovative schemes to attract communities to their ecosystem.
As Helmut Schmidt has rightly quoted, “The biggest room in the world is the room for improvement”, we need to keep looking for shortcomings so as to bring possible improvements. We analyzed the prevailing incentivization mechanism and tried to address the concerns.
Yield Farming or Liquidity Mining frenzy has taken over the DeFi community by storm. It’s just a few months since Compound Finance launched its liquidity mining program and we have witnessed a crazy trend of unrealistic APYs thrown over the face of platform users, popularly termed as farmers.
According to august estimates by Messari, Liquidity mining programs provided more than $7 million in daily rewards on average which is equivalent to $2.6 billion a year. No doubt, DeFi has witnessed unprecedented growth with ‘Total Value Locked’ to reach more than $10 billion USD in just a few weeks. Thanks to the enormous influx of capital in lieu of four-five digit APYs. But the question arises if these are sustainable?
Liquidity Mining is seductive because of the positive feedback loop it creates. We have now entered into a phase where it is an all-out brawl for liquidity based on numerous subsidies offered so as to capture maximum value. In a zero-sum game, opportunists swing fluidly from protocol to protocol to gauge the arb. But these overextended and inflated subsidies tend to dry up and are not sustainable over a longer period of time. Will savvy suppliers demonstrate loyalty? to the incumbent protocol or to the next best opportunity?
So we believe in the phenomenon that also has the possibility of creating sufficiently subsidized capital efficiency which is sustainable. The equilibrium we sought tends to balance & incentivize both the supply-side and borrow-side ensuring asset availability over the long haul.
Introducing Dual Yield Farming
For accelerating the adoption of this newly launched lending protocol and attracting new liquidity onto a layer two blockchain network, we would like to introduce a new variant of yield farming or liquidity mining called “Dual Yield Farming” whereby EasyFi along with different partner projects, will allocate a portion of EASYFI tokens (EASY) and partner project’s native token (say XYZ) towards incentivizing liquidity providers and yield farmers. This, in turn, we believe, will bring in community interest and supply to the protocol hence enabling desired liquidity as well as engagement in a sustainable way.
Under dual yield farming, a higher APY ( Annual percentage yield) can be achieved in a sustainable manner. Since the inflation of native token is controlled and is complemented through corresponding emission of incentives of another partner token, users tend to earn more, in a sustainable way, over the period of time. By innovating yield farming structure and combining forces with other quality projects, easyfi has adopted an open-minded approach for a more collaborative & engaged community with an end goal of incentivizing users for the long term and earning their loyalty.
Once the protocol is live, 0.24 EASY tokens will be released per block for the three markets currently available. These tokens will be distributed uniformly over the defined period (if in case team & community warrants otherwise), meaning 10368.00 EASY tokens will be handed out per day, subject to timely revision.
Market Allocation & Distribution
39.5% of EASY total supply is reserved for community distribution and various incentive programs over a period of 20 months. For the first few months, once the protocol is launched, a total of 1,250,000 EASY are allocated for distribution in a linear fashion as part of yield farming.
EasyFi is looking forward to a dedicated engaged community for decision making in this regard. For now, as stated in the previous posts, we have planned yield farming, liquidity mining & dual yield farming programs to attract initial liquidity & adoption to the protocol.
So, 1,250,000 EASY will be locked into a reservoir contract for distribution. The distribution is allocated to each market in proportion to the daily interest accrued for available markets.
Within each market, 50% of the distribution is earned by suppliers, and 50% by borrowers; in real-time, users earn EASY proportionate to their balance; this is separate from the natural interest rates in the market.
Once an address has earned 0.001 EASY, any EasyFi transaction (e.g. supplying an asset, or transferring an eToken) will automatically transfer EASY to their wallet; for smaller balances, and address can manually collect all earned EASY.
If you are borrowing stable coins with non-stable coin collateral, your liquidation risk happens when the price of the collateralized asset decreases. If you are borrowing non-stable coins with stable coin collateral, your risk of liquidation happens when the price of the borrowed asset appreciates.
The risk of liquidation occurs when the value of the collateral becomes less than the value of the loan. When the asset prices rise, the value of the loan goes up, but the stable coin collateral value stays the same — that is why there is a risk of liquidation.
Always watch your borrow limit and always have a safe liquidity buffer. As the price of crypto can fluctuate greatly, your liquidity buffer always changes. In addition, interest grows the longer your loan is held — this means that the borrow balance also increases over time.
As long as your borrow balance is greater than your borrow limit, other participants are allowed to liquidate your assets and get a pre-specified discount on your collateral. If your liquidity buffer is too narrow, repay some of the loans to ensure that you do not get liquidated.