Introducing Yield Farming Strategies on TokenSets
The first yield farming strategies are now live on TokenSets!
Today, we’re excited to announce the launch of our new line of products, yield farming strategies! Like the recently launched DeFi Pulse Index, these strategies are built on Set Protocol’s new v2 infrastructure and they are part of the second phase of the Set v2 rollout plan.
The first Yield Strategy going live today is the ETH USD Yield Farm which automatically farms the $UNI token by providing liquidity to the ETH/DAI pair on Uniswap. In the future, the strategy may expand to all ETH/Stablecoin and ETH/Bitcoin pairs.
We take security seriously at Set and we always strive to ensure that our smart contracts are as safe as they can be thorough external audits. However, these new strategies have only had the critical parts of the system audited, with the Uniswap strategy contract managing the Set only internally audited. Users should be aware of this and exercise caution when depositing funds.
Key points
- The ETH USD Yield Farm is now available on TokenSets
- This strategy will automatically farm $UNI tokens and reinvest the proceeds back into the strategy
- More yield farming products are coming soon
LP Yield Farming on TokenSets
There is currently no way to automatically rebalance between the best LP (liquidity provider) pair yield opportunities on Ethereum (e.g. take a Uniswap liquidity provider position and put it in the best yielding pools). The ETH USD Yield Set that we launched today will allow users to pay with a single asset and get access to a strategy that automatically claims tokens from an LP farm, sells it for the underlying assets, and reinvests it into the farm.
How the LP Yield Strategies Work
The LP Yield strategies aim to make yield farming accessible to everyone — not just those who can afford Ethereum’s high network fees or those who have specialized or insider knowledge. To that end, we’ve designed the LP Yield strategies to be as simple as possible — here is how they work.
- Deposit — ETH and USD is deposited into the Uniswap ETH/USD LP pool staked in $UNI rewards.
- Claim — The farmed $UNI is claimed and reinvested into the ETH/USD LP pool to farm more rewards.
- Repeat — The strategy repeats this process until it rotates to a new pool to farm.
Issuance
Users can simply deposit either ETH or DAI into one of the strategies. In return, the user receives a corresponding ownership of the pool based on its net asset value. This innovative issuance design we call ‘net asset value issuance’ or ‘NAV issuance’, enables users to deposit any allowed ERC20 token to issue new Sets without needing to replicate the Set’s positions. This means big gas savings for you on issuance and redemption.
There is a 0.35% premium that the user pays when entering the strategy which is distributed to existing members of the pool to disincentivize oracle mismatch arbitrage. This mechanism can be compared to an insurance deposit, where users receive this deposit back as more people transact afterwards. This effectively boosts APY for long-term holders of the strategy.
Redemption
When a user wants to exit one of these strategies, they can simply withdraw from their position on TokenSets which utilizes what we call ‘NAV redeem’ to exit the position to ETH or stablecoins. In doing this, the user incurs a 0.3% withdrawal fee and a 0.35% premium that is redistributed back into the pool and effectively boosts APY for long-term holders of the strategy.
There is also a limit of 500 WETH or $200,000 in stablecoins for what a user can redeem in a single transaction. This is to make sure there is enough capital as reserves to help facilitate other redemptions.
The pool targets a 1% of all capital allocated to the reserves in order to redeem out of the pool which rebalances anytime the reserve assets go below 0.5% of the total pool’s value. This pool of reserves is what’s used to provide redemption liquidity, meaning that redeems greater than what’s available in the reserves will not go through.
As the pool of capital in the Set grows, so too will the size of the reserves and size of redemptions available to take out. While the reserves are low, it’s recommended that users redeem in smaller amounts over time as the pool continues to rebalance its reserves to provide exit liquidity.
Claim Fee
The ETH USD Yield Farm claims LP rewards and stakes ETH/USD every 24 hours. A 5% fee is applied to all claimed LP rewards which is paid out to the Set Manager. This fee is used to pay gas costs required to claim, sell, and stake the yield farm LP rewards.
When you deposit your funds, you receive an ERC20 token called ‘Sets’. These can be stored in any Ethereum wallet that supports these tokens such as MetaMask, Coinbase Wallet, Trust Wallet, Argent and many more.
Impermanent Loss Risk
The ETH USD Yield Farm utilizes Uniswap which is an automated market maker (AMM). Due to this, there is a risk of what is known as “impermanent loss” associated with this strategy. Don’t let the name fool you though — losses can become permanent depending on when you enter or exit a liquidity provider (LP) position. If you enter into the ETH USD Yield Farm, you will be exposed to impermanent loss risk and you should be aware of what this means for you.
We highly recommend learning about impermanent loss. You can get a detailed understanding on what impermanent loss is through this article.
How to Buy
Entering into the ETH USD Yield Farm is easy as you only need ETH or the currently weighted stablecoin to get started. Let’s walk through a guide on how to start farming $UNI tokens using the ETH USD Yield Farm on TokenSets. Click here to get started.
On this page, you can find all of the relevant information about the ETH USD Yield Farm including performance history, current composition and technical details like its associated Ethereum address.
Once you’re logged into your account, feel free to hit the Buy button which will bring up the buy window. From here, input the amount of the ETH or stablecoins that you wish to use.
Now you can click the Preview Buy button which will display the summary of your order. If you’re comfortable with the order, hit Submit Buy and then confirm the transaction on your Ethereum wallet. This will automatically convert your ETH or stablecoins into Uniswap LP tokens and stake them in the strategy.
Congratulations — you are now automatically yield farming the $UNI token with all proceeds reinvested to farm even more! You can store this Set anywhere that you usually store your ERC20 tokens — be that in your favorite desktop or mobile wallet or in your TokenSets account.
Keeping Pace with DeFi
The DeFi ecosystem is evolving at an incredible pace with new and innovative products going live every single week. At Set, we’ve been heads down building out v2 for a couple of months now and it will enable us to ship products faster than we ever have before.
We have many more exciting releases coming as we continue to execute on the Set v2 rollout plan and beyond.
If you have any interesting product ideas you want to see come live on Set, message us on Discord or email us at hello@setprotocol.com. We’d love to hear your thoughts.
Frequently Asked Questions
Are more yield farming strategies coming to TokenSets?
You bet! We have plans to release new yield farming strategies to the TokenSets platform in the near future.
Are there any fees associated with the yield farming strategies?
Yes, there is a 0.3% withdrawal fee that is also paid to the manager upon redemption of funds from a strategy, and a 5% fee on the APY gained.
What is the issuance premium?
The 0.35% NAV issuance and redemption premium protects against oracle-related arbitrage attacks and is accrued to existing strategy holders upon depositing or withdrawing funds into a strategy.
Have the new contracts been audited?
We take security seriously at Set and ensure the base protocol smart contracts follow security best practices and are externally audited. In saying that, the Uniswap strategy contract managing the Set is currently unaudited at launch so users should be aware of this and exercise caution when depositing funds.
