The HOPR Farm — Should You Join The Harvest?
The first of the HOPR Farm’s 13 seasons will start on Tuesday March 30th at block 12141500, and with it the distribution of 5m HOPR tokens as liquidity rewards.
We’ve already provided a rundown of how to provide liquidity and start farming in a previous post. If you prefer, you can watch a video showing the whole process in one minute here. The HOPR Farm interface can be found at https://hopr-farm.eth.link/
But how can you decide whether or not to participate? This article will provide some more background on providing liquidity, impermanent loss, and help provide estimates for some of the transaction costs involved in the Farm, to help you reach a decision.
Obviously, we can’t tell you what to do. The information here is just intended to provide context, and cannot be construed as financial advice. We’re also going to be simplifying things a little: Throughout this article, for ease of calculation, we’ll assume that 1 HOPR = $0.80, 1 ETH = $1,600 and 1 DAI = $1. Remember that all these values can and will change (even for DAI, which can drift from its peg like all stablecoins) as market conditions shift. For example, at the time of writing, these valuations for HOPR and ETH seem rather pessimistic!
Providing Liquidity — The Basics
WARNING: Acting as a liquidity provider carries significant risk of impermanent loss. Proceed at your own risk, and only commit funds you can afford to lose.
When you act as a liquidity provider in a decentralized exchange like Uniswap, you provide an equal value of assets to both sides of the pool. These pooled assets are then available for other users who want to make trades. https://uniswap.org/docs/v2/core-concepts/pools/
Taking our assumed price of 1 HOPR = 0.8 DAI, if you put 10,000 HOPR into the pool, you would also need to add 8,000 DAI to match it on the other side. DAI is a stablecoin pegged to USD, so in total you’re providing $16,000 in liquidity, split evenly between the two assets.
If the pool contained 1 million HOPR (which would be matched by 800,000 DAI), you would be providing 1% of the total liquidity. You would receive an amount of UNI-V2 “liquidity tokens’’ which represent this contribution. These can then be sent back to the pool to cash out your contribution and any accrued rewards.
If people subsequently add or remove liquidity, the percentage you will be providing will shift accordingly, but this doesn’t matter since the total amounts in the pool also shift in turn. Still, for the sake of simplifying these examples, we’ll assume no-one adds or removes liquidity after you, and the liquidity you provide continues to represent 1% of the total.
This percentage figure is important, as this is what determines how much you will receive when you eventually withdraw your liquidity from the pool, NOT the raw amounts of the assets you provided at the time.
This is because, of course, prices can change. If the market decides that 1 HOPR is now worth 1 DAI, people will take advantage of the temporary arbitrage opportunity and trade into the pool until the ratio of HOPR to DAI matches this valuation. We’d then expect it to stabilise at around 894,000 HOPR and 894,000 DAI (for more information on how these numbers are calculated, see the Uniswap article on returns).
If you now decide to remove your liquidity, you would receive 1% of these values or roughly 8,940 HOPR and 8,940 DAI.
And of course the price can move the other way. If we imagine the market value of HOPR shifts such that 1 HOPR = 0.6 DAI, we would expect arbitrageurs to trade into the pool until it settled at around 1,154,000 HOPR and 692,000 DAI. In this case, removing your liquidity would net you roughly 11,540 HOPR and 6,920 DAI.
Impermanent Loss
What’s crucial to notice is that even though the price of HOPR went up by $0.20 in one example and down by $0.20 in the other, in both cases you would lose relative to holding the original 10,000 HOPR and 8,000 DAI.
In the case where HOPR increases in value to 1 DAI (remembering that 1 DAI is pegged to $1) you have $18,000 worth of tokens if you hold, but only $17,880 after using the pool. A relative loss of $120.
In the case where HOPR decreases in value to 0.6 DAI, you have $14,000 worth of tokens if you hold, but only $13,844 after using the pool. A relative loss of $156.
So it doesn’t matter if HOPR gains or loses value, you lose out relative to holding outside of the pool. This is called impermanent loss, because the losses only manifest when you exit the pool. The best result occurs when the values stay the same, but even then you only get out what you put in.
So why on earth would anyone provide liquidity if it’s a lose-lose game? The answer is liquidity mining rewards. Uniswap takes a 0.3% fee for each transaction, which is distributed between all liquidity providers. In this case, by providing 1% of the total liquidity, you’d be receiving 0.003% of every trade in the pool. This might not sound like much, but if it’s a highly active pool where the price doesn’t change much, this can quickly add up.
This compensation is even higher when there are dedicated mining rewards on top of the standard fees, as in the case of the 5m HOPR provision mandated by the Genesis DAO.
Uniswap Fees and Farm Mining Rewards
First, let’s look at Uniswap fees. Every transaction into the pool incurs a 0.3% fee split between all liquidity providers based on the amount they provide. Here, unless you plan to provide a LOT of liquidity, it’s unlikely you’ll be able to beat your impermanent loss. That’s because the Genesis DAO is currently providing more than $30m of liquidity, or almost 90% of the total liquidity in the pool. That means it scoops up the lion’s share of the fees as well (these are all automatically reinvested into the pool).
That’s what the HOPR Farm is for: by providing 5m HOPR tokens in extra rewards for liquidity providers, hopefully enough new liquidity will be added that the DAO will be able to diversify its holdings in a few months without inducing too much volatility.
At our assumed HOPR token price of $0.80, that’s $4mil in rewards split over 13 weeks, or just over $300,000 per week.
So how can you decide whether the Farm rewards are enough to participate? You need to consider how much liquidity you want to provide, and how much the costs will be. You also need to consider how many other participants are in the farm and how much liquidity they’re providing, as this is who you’ll be sharing the rewards with. Note that the Genesis DAO will NOT participate in the farm, only the liquidity pool.
Some basic analytics for the Farm can be found here: https://duneanalytics.com/qyuqianchen/Farm
You can see the total amount on UNI-V2 in the Farm, as well as the number of participants and a leaderboard showing the top contributors.
Farming Transactions
With gas prices sky high and showing little sign of dropping, it’s vital to know how many transactions an interaction with a smart contract like the HOPR Farm will require. When each transaction costs at least $10, it can very quickly add up.
You can see the full steps involved for the HOPR Farm in our previous blog. There are at least six transactions required from start to finish, each of which requires a different amount of gas (shown in brackets below).
1. Approve HOPR on Uniswap (45k)
2. Approve DAI on Uniswap (45k)
3. Add HOPR and DAI to Uni pool as liquidity (215k)
4. Add the UNI-V2 you receive to the HOPR Farm (432k)
5. Close the HOPR Farm once you’re finished farming (220k)
6. Return the UNI-V2 to the Uni pool to claim back your DAI and HOPR (250k)
This assumes a couple of things: you already have both the DAI and HOPR you want to provide as liquidity, but this is the first time you’ve used the HOPR-DAI UNI pool. It also assumes you just deposit UNI-V2 once, and don’t harvest and reinvest as you go along.
This means an absolute minimum gas spend of 1,207,000, or 0.15 ETH assuming you set a gas price of 125 GWei for the transactions. With our assumed ETH price of $1600, that’s a minimum of $240 in gas fees to participate from start to finish, which is not a small amount of money!
Still, the HOPR Farm has 5m HOPR tokens as rewards. Assuming a price of $0.80 per HOPR (a little on the low side at time of writing), you’d need to claim 0.006% of these rewards to break even on those gas costs, which means providing at least 0.006% of the total UNI-V2 in the Farm. But how much HOPR or DAI does that mean you’d need to provide?
UNI-V2
When you provide liquidity to the HOPR-DAI pool on Uniswap, you receive UNI-V2 tokens in exchange. When you want to withdraw your liquidity, you return these UNI-V2 to the pool. It’s these same UNI-V2 which you “plant” in the HOPR Farm to access the extra rewards. But how many UNI-V2 will you get for providing liquidity? That’s based on two things: the current size of the pool, and the amount of liquidity you’re adding.
UNI-V2 is minted when you provide liquidity and burned when you cash it in. To determine the amount of UNI-V2 you’ll receive, calculate your contribution as a percentage of the total value of the pool and then take that percentage of the UNI-V2 supply. At the time of writing, the maximum circulation of UNI-V2 for the HOPR-DAI pool is around 20.5m, representing around $40.5m of HOPR and DAI combined in the pool.
So if, for example, you provided $1,000 in combined HOPR and DAI you’d be providing 0.0025% of the total liquidity. You’d therefore receive 0.0025% of the UNI-V2 supply, or 506 UNI-V2. At time of writing, with around 2.5m UNI-V2 in the Farm, your 506 would represent 0.02% of the total, and would hence accrue 0.02% of the rewards. That’s around 3 times higher than the amount we calculated as needed to recoup the past costs (0.006%).
Assuming nothing changed, that would be 1,000 HOPR over the entire period, or just over 75 HOPR per season.
Of course, the more people who contribute UNI-V2 to the Farm, the lower your share will be, so always check the current figures. And remember that this example was just about breaking even on gas costs. This doesn’t cover any impermanent loss from providing liquidity rather than holding, and it assumes gas prices stay constant.
Keep an Eye on the Seasons!
One final point: The 13 seasons of the HOPR farm are designed to be around a week each, to fulfil the three-month stipulation of the original DAO proposal. However, the smart contract for the farm tracks the passage of time via blocks. Each season is 44,800 blocks long, based on an average block times of 13.5s. Since block times can vary considerably, the start and end times for each season will also drift from the intended time of 14:00 CET each week. Make sure to check the Farm interface at https://hopr-farm.eth.link/ to see the current progress through the seasons.
The precise blocks when each season starts are listed below, along with the intended start date and a link to a countdown which estimates when that block will actually be reached (we’re not entirely sure how it makes this calculation, and it updates dynamically, so make sure to check back regularly).
Season 1: 30th March Block 12141500
Season 2: 6th April Block 12186300
Season 3: 13th April Block 12231100
Season 4: 20th April Block 12275900
Season 5: 27th April Block 12320700
Season 6: 4th May Block 12365500
Season 7: 11th May Block 12410300
Season 8: 18th May Block 12455100
Season 9: 25th May Block 12499900
Season 10: 1st June Block 12544700
Season 11: 8th June Block 12589500
Season 12: 15th June Block 12634300
Season 13: 22nd June Block 12679100
Farm Ends: 29th June Block 12723900
Remember, you can only earn rewards for tokens which are planted for the entirety of a season.
Phew! That’s quite a lot of info, but we hope it will help you reach a decision about the HOPR Farm. As always, if you have any more questions, head over to our Telegram and ask someone in the community or one of the HOPR Ambassadors.
Sebastian Bürgel,
HOPR Founder
Website: https://www.hoprnet.org
Twitter: https://twitter.com/hoprnet
Telegram: https://t.me/hoprnet
LinkedIn: https://www.linkedin.com/company/hoprnet
HOPR Farm: https://hopr-farm.eth.link/
