Generating Yield on Trading Collateral Through Protocol Composability
The unique composability of DeFi, which allow protocols to seamlessly and permissionlessly integrate with one another to create new outcomes, allows the creation and development of new cases for on-chain trading.
One such use case is on-chain leveraged trading, which amplifies users’ trading power and allows them to execute trades in larger sizes while maintaining high levels of transparency and security over users’ funds.
A key mechanism of on-chain leveraged trading is collateral; the assets deposited to secure the loan a trader takes to gain access to leverage.
In this blog post, we will cover how LeverFi helps traders increase the asset efficiency of their trading collateral through protocol composability, and the different yield deployment options traders can consider.
Idle Assets Don’t Generate Returns
When it comes to on-chain leveraged trading, collateral is the underlying asset that a trader pledges as a guarantee that the loan they took is going to be repaid, i.e. securing the loan. Traders are required to maintain that amount of collateral to cover potential losses that they may incur when they leverage trade. As such, the collateral cannot be withdrawn until the line of credit is paid off in full.
As DeFi shifts from token-incentivized TVL to real yields, asset efficiency becomes increasingly important to maximize outcomes for traders. Existing leveraged trading platforms provide little to no added value on the assets traders deposit as collateral to open positions.
LeverFi solves the limitation on asset efficiency by allowing traders to earn yield on their collateral deposits. By deploying trading collateral to protocols with robust track records like Aave and Convex, LeverFi enables traders to generate returns on their collateral while trading simultaneously. Traders are able to earn yields comparable to if they deployed their assets to these protocols directly.
Platform Deployment
LeverFi is integrated with three main platforms for single assets and LP tokens collateral deployment, that have robust track records.
The complete list of currently accepted collateral assets and their deployment can be found here.
Single Asset Collateral Deployment
Aave
Aave is a decentralized non-custodial liquidity market protocol where users can participate as depositors or borrowers. Depositors provide liquidity to the market to earn a passive income, while borrowers are able to borrow in an overcollateralized (perpetually) or undercollateralized (one-block liquidity) fashion.
Stargate
Stargate Finance is a composable liquidity transport protocol. Users can transfer assets cross-chain with Stargate’s Omnichain native asset bridge and access the protocol’s unified liquidity pools that enable decentralized lending and borrowing.
Yield Comparison
Considering a large portion of trading volume is in stablecoins, used as collateral on crypto-asset trading and lending platforms, we will use USDC as an example. At the time of writing, comparing the two single-asset deployment options, Aave offers a yield of 0.78% APY while Stargate offers 3.90%.
If a trader deposits $10,000 worth of USDC as collateral and assuming that yield remains constant for a year, they will get a return of $78 (Aave) or $390 (Stargate) on top of their trading P&L exposure. Assuming an 80% LTV with 5x leverage, a LeverFi user can leverage trade up to $40,000 worth of leverage with that collateral.
Curve LP-Token Asset Collateral Deployment
As LP-token assets became increasingly popular, more users started looking for tools that allowed them to be used as collateral. LeverFi is the only leveraged trading platform that supports LP-token assets like Curve, amongst others, as collateral.
Convex Finance
Convex allows Curve.fi liquidity providers to earn CRV rewards and Convex rewards.
Using the tricrypto2 pool as an example, traders earn a gross yield of 10.62% APR, in a mix of base yield + CRV tokens + CVX tokens, from their trading collateral. . If they deposit $10,000 as collateral and assuming yield remains constant for a year, they would get a return of $1,062 on top of their trading P&L exposure. Following this illustration, a LeverFi user can leverage trade up to $40,000 worth of leverage, assuming an 80% LTV with 5x leverage with that collateral.
Note that the yield calculations above are solely estimates at the time of writing, and may change anytime subject to the protocol developments.
Conclusion
DeFi users do not have to wait until the next bull run to make their assets work for them. Innovations like collateral yield are just one aspect of an ever-growing on-chain leveraged trading platform like LeverFi. Considering current market conditions and the prominent crashes experienced by other platforms in the past year, it is more important than ever to adopt sustainable platform practices and design, broaden the avenues available to traders to improve their asset efficiency, and opt for decentralized on-chain platforms over their less transparent counterparts.
The Future is LeverFi
We hope this blog has helped you understand how you can start earning yield on your trading collateral, and the different collateral yield deployments adopted by the platform. LeverFi leverages the latest innovations in DeFi, such as protocol composability, to empower its users.
We cannot wait to hear what you think of LeverFi, so keep engaging with us!
- Visit our website for more information: https://www.leverfi.io
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- Join our fast-growing Telegram community: https://t.me/leverfi
- Read our blog for product updates: https://medium.com/leverfi
- Learn about the LeverFi product design: https://docs.leverfi.io
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