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Leveraged Yield Farming
Introduction to Leveraged Yield Farming
IBNB Contract:
What is leveraged yield farming?
In short, leveraged yield farming is nothing more than yield farming combined with the ability to borrow assets and automatically reinvest farmed tokens and trading fees to increase the returns over time.
How does it work?
To understand how it works one must first learn what the roles of each user is on the platform.
There are three roles when it comes to our Leveraged Yield Farming platform, BNB Lenders, Yield Farmers and Liquidity Providers.
BNB Lenders
Yield Farmers
Liquidity Providers
BNB Lenders are the users that provide BNB to the bank.
How does one become a lender and what is iBNB?
When a lender provides BNB to the bank, they receive a proportional amount of iBNB tokens, which is a tradable and interest-bearing asset that represents their shares of BNB in the bank.
What are the advantages of becoming a BNB lender and why should one provide BNB?
By providing BNB to the bank to be lent to yield farmers, the user is paid interest by BNB borrowers - the yield farmers - proportionate to the amount of BNB lent.
Yield Farmers are the users that borrow BNB from the bank.
Why would one borrow BNB from the bank?
By borrowing BNB from the bank the yield farmers are able to increase their positions, therefore increasing the returns of the yield farming process up to x2.5 the APY.
What does one have to provide in order to borrow assets from the bank?
In order to borrow BNB from the bank one has to provide the token of the pair he wants to farm and/or BNB. The user doesn't necessarily have to buy one or the other.
What does Kalmar's Leveraged Yield Farming platform do, besides borrowing from the BNB bank?
Along with borrowing BNB from the bank based on the amount of leverage the user picked, the smart contract also reinvests the returns received from the yield farming process, along with the trading fees for more LP, therefore constantly increasing the position of the yield farmer.
Example:
User X has 100 BNB and wants to farm CAKE by using PancakeSwap's CAKE/BNB Farm.
Normally, User X would split 100 BNB in 50 BNB worth of CAKE and 50 BNB, provide liquidity, and farm CAKE with the 200% APR PancakeSwap provides.
But User X wants to get higher rewards, so he or she uses Kalmar's Yield Farming platform to borrow another 150 BNB from the bank, and uses leverage to yield farm PancakeSwap's CAKE/BNB Farm with a total of 250 BNB, which gives the user the ability to more than double the yield they would farm compared to their initial capital.
It is good to keep in mind that User X also has to pay the borrowing interested on the borrowed amount, as well as making sure his position value doesn't drop below the minimum threshold, in which case his position will be liquidated.More about the risks and threshold below.
Liquidity providers are users that also borrow BNB from the bank.
What's the difference between Yield Farmers and Liquidity Providers?
The difference between the two is the following:
- Yield Farmes get revenue from farming tokens and fees
- Liquidity Providers get revenue only from fees, because there isn't a farm for the said pair
Liquidity providers provide assets for liquidity that doesn't have a farm or tokens as rewards, therefore the revenue is generated only from fees.
Why would one borrow BNB in order to leverage their liquidity?
The answer for this question isn't any different, Liquidity Providers leverage their positions to increase the value of their liquidity, therefore increasing the revenue he gets from fees.
More about the risks and threshold below. What's the process of leveraged yield farming?
When it comes to leveraged yield farming the user only needs to supply the token of the pair and/or BNB and choose the leverage level.
After supplying the assets to the smart contract, the process is as follows:
- 1.The smart contract borrows the amount of BNB from the bank based on your leverage level.
- 2.The assets are swapped, making sure you have equal value on both sides of the pair.
- 3.The liquidity is provided for the said pair on the protocol chosen.
- 4.LP Tokens are received for the liquidity provided.
- 5.The LP Tokens are then staked in the farm of said protocol.
- 6.Reward tokens are farmed.
- 7.The farmed tokens are sold for more liquidity, increasing the total value of your position.
- 8.Repeat.
The process of leveraged yield farming
What's the process of liquidity providing?
The process of liquidity providing is not different for the user, which only needs to supply the token of the pair and/or BNB and choose the leverage level.
After supplying the assets to the smart contract, the process is as follows:
- 1.The smart contract borrows the amount of BNB from the bank based on your leverage level.
- 2.The assets are swapped, making sure you have equal value on both sides of the pair.
- 3.The liquidity is provided for the said pair on the protocol chosen.
- 4.Trading fees are being earned on leverage.
What are the risks?
Each user exposes himself to different risks, depending on what he is doing and how much leverage he used.
The risks of yield farming and liquidity providing
No leverage (1x)
If the user chooses to use no leverage then the risks are no different than participating in other yield farming or liquidity providing opportunities, which is the impermanent loss risk.
Users that choose to use no leverage are not exposed to the risk of liquidation.
Leverage (more than 1x)
If the user chooses to use leverage then he will be exposed to the risk of liquidation.
Liquidation happens when the debt ratio (debt / position value) reaches liquidation level due to impermanent loss.
Example:
User X decided to leverage his position by borrowing 150 BNB on top of his initial 100 BNB.
Later that week there is a significant increase in BNB's price, which causes User X's liquidity to suffer from impermanent loss and the value of his position dropped from 250 BNB to 175 BNB, which is over the threshold allowed by the contracts.
In that case User X's position is liquidated, the 150 BNB borrowed is given back to the lender and User X takes back the remaining 25 BNB.
The risks of lending BNB
Unlike Alpha Homora, the Kalmar team decided to automate the process of liquidation, no longer requiring liquidators to do it manually.
Therefore, the risks of lending BNB now resume only to sudden drops in the price of the assets your BNB was used to buy, drops that are faster than the smart contract could react to, in which case the lender might not get all of his BNB back from the borrower.
It has never happened before.
Risk Parameters
Kindly check the risk parameters on the page below.
Step-by-Step Guides
On the page below you'll find all the Step-By-Step Guides you'll need for Kalmar's leveraged yield farming platform.
Additional Information
The roles of liquidators and bounty hunters of Alpha Homora have been automatized on the Kalmar platform.
If you still have any questions or issues, feel free to reach the Kalmar team in the telegram group.
Last modified 7mo ago
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Contents
IBNB Contract:
What is leveraged yield farming?
How does it work?
What's the process of leveraged yield farming?
What's the process of liquidity providing?
What are the risks?
The risks of yield farming and liquidity providing
The risks of lending BNB
Risk Parameters
Step-by-Step Guides
Additional Information