Leveraged Yield Farming
An introduction to Leveraged Yield Farming product.
Leveraged yield farming is yield farming with the ability to borrow assets and automatically reinvest tokens and trading fees to increase returns over time.
With Kalmy App, APYs on other protocols such as PancakeSwap, BiSwap, Helio, and Wombat can be multiplied by up to x6.5 times.
To understand how it works one must first learn what the roles of each user is on the platform.
There are two roles when it comes to our Leveraged Yield Farming platform, lenders and borrowers.
Let's learn about both options:
Lenders are the users that provide BNB or BUSD to the bank.
How does one become a lender and what are iBNB and iBUSD?
When a lender provides assets to the bank, they receive a proportional amount of iBNB or iBUSD tokens, which is a tradable and interest-bearing asset that represents their shares of assets in the bank.
What are the advantages of becoming a lender and why should one provide BNB or BUSD?
By providing assets to the bank to be lent to yield farmers (borrwers), the user is paid interest by them - the yield farmers - proportionate to the amount of assets lent.
Yield Farmers are the users that borrow assets from the bank.
Why would one borrow BNB or BUSD from the bank?
By borrowing assets from the bank the yield farmers are able to increase their positions, therefore increasing the returns of the yield farming process up to x6.5 the APY.
What does one have to provide in order to borrow assets from the bank?
In order to borrow assets from the bank one has to provide the token of the pair he wants to farm and/or BNB/BUSD. The user doesn't necessarily have to buy one or the other.
What does Kalmy App's Leveraged Yield Farming platform do, besides borrowing from the BNB or BUSD bank?
Along with borrowing BNB or BUSD 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.
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 Kalmy App'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.
When it comes to leveraged yield farming the user only needs to supply the token of the pair and/or BNB/BUSD 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/BUSD 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.
Each user exposes himself to different risks, depending on what he is doing and how much leverage he used.
Users that choose to use no leverage are not exposed to the risk of liquidation.
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.
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.
Unlike Alpha Homora, the Kalmy App team decided to automate the process of liquidation, no longer requiring liquidators to do it manually.
Therefore, the risks of lending assets now resume only to sudden drops in the price of the assets your BNB/BUSD 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/BUSD back from the borrower.
The rewards for the borrowers within our leveraged yield farming product are given out every Monday.
Learn how to use our leveraged yield farming product.
Learn about the parameters of the leveraged yield farming product.
Unsure what "BNB Value" means? Let us explain.