Leveraged Yield Farm
Leveraged yield farming works in a way that helps users deposit assets in a pair by utilizing additional assets from a lending pool. Leverage farmers can take leverage 2 - 3 times as much as their assets, allowing them to earn much more rewards than they would have received from the yield farming pools.
How does this profit model work?
This profit generation with maximized capital efficiency is feasible due to the active lending pool utilization. Leverage farmers can borrow assets from lending pools on a larger scale in addition to their assets in hand, earning more various types of rewards (MESH, airdrop tokens) generated from pools.
Although leveraged yield farmers are required to pay a borrowing interest to lenders, leveraged yield farmers can earn 2 -3 times more rewards than farming in other pools. Hence, leveraged yield farmers can earn more profit even after paying interest fees.
Users can choose the borrowing amount through the leverage multiplier settings. In order to deposit at the scale of (the dollar value of depositing assets*leverage multiplier), a certain percentage of the borrowed asset is automatically swapped and deposited at the optimal rate.
If you choose a 3x leverage multiplier when depositing 200 oUSDT, the user will deposit a total of $600 worth of MESH+oUSDT pair ($200*3) into a pool.
Leveraged yield farmers are not bound by the current exchange ratio(price) of paired assets when depositing. But Meshswap's leveraged yield farming allows users to deposit any proportion of the two tokens or even only one token. Through the smart contract, the underlying protocol will automatically swap tokens into a 50:50 split in optimal rate based on the current pool exchange rate.
You can select a leverage multiplier from the deposit menu, and check the estimate changes history in the estimation section after the deposit.
＊1.0 x leverage means without leverage, such as with standard yield farming.
Leveraged yield farmers can choose which assets to borrow from a lending pool.
If you choose to use oUSDT as the example above, the optimal pair deposit will be made using oUSDT equivalent to $400, and the user will proceed with a pair deposit of 150 MESH + 300 oUSDT ($600).
＊If you leverage up to 3x, when depositing 200 oUSDT (1 MATIC = 2 oUSDT, fees not reflected): → My asset : 200 oUSDT = $200 → Borrowed asset: 400 oUSDT = $400
You will deposit 600 oUSDT ($600) in MESH + oUSDT pool at the optimal rate. → Total deposit: 150 MESH + 300 oUSDT = $ 600
You can choose which tokens to borrow from the deposit menu. After the deposit, the final estimated return will be shown in the ‘Estimated Returns’ section.
Assets borrowed from a lending pool must be returned at the end of the leverage farming period (withdrawal). Including assets with some level of variability (MATIC, ETH, XRP, MESH), stable assets with little price fluctuations (USDT, USDC, DAI) can be utilized in order to pursue more stable returns.
In addition, smart contracts in leveraged yield farming pools can take optimal strategies by directly depositing assets in pairs without swap or by depositing assets in pairs by swapping at a certain ratio.
- The variety of lending pools will be available gradually, and slippage will be fixed at an initial rate of 1.0% (Individual settings will be provided later).
The debt ratio (The debt-to-equity ratio) refers to the ratio of borrowed assets to total assets deposited. A higher debt ratio will eventually require more repayment. If the borrowing cost rises or the value of deposit asset declines due to rapid toke price fluctuation, leverage yield farmers may have difficulty repaying the borrowing.
For safe asset management, Meshswap protocol sets a maximum debt ratio standard for each pool and performs auto-return when the maximum Debt ratio exceeds (Min. 85%~Maximum 92%, Varies by a pool).
Leveraged yield farmers should always be careful not to exceed 85%~92% of the debt ratio for safe asset management. To prevent auto-return, you should either 1) Pay off part or all of your borrowing by withdrawing “leveraged assets” from the withdrawal tab, or 2) lower the debt ratio by depositing additional assets with a low leverage multiplier.
In the case of auto-return, the assets currently being utilized will be returned first, and the remaining balance, excluding the auto-return fee (20%), goes to the users’ wallets directly.
The accumulated auto-return fee is used as a safety fund for returning lending pool assets that have not been returned due to sudden price fluctuations. Debt ratio management and automatic return system are intended for protocol stability and smooth lending asset utilization. The liquidity supply in the lending pool can be activated only when lenders can trust the lending and leverage the yield farming system and supply more liquidity as the lending is safely returned to lending pools. In addition, a greater liquidity supply in a lending pool offers a lower borrowing rate which helps leveraged yield farmers to borrow the lending with a lower cost (%), resulting in greater returns.
＊Debt ratio is different for each pool. For more details, refer to the link below.
The procedure of leveraged asset withdrawal is not so much different from other farming pool withdrawals. If you insert the withdrawal amount based on the total number of LP Tokens currently held, the borrowing will be returned first through the leveraged assets (borrowing) withdrawal.
Once the entire borrowing is fully returned (leveraged asset withdrawal), the remaining balance goes to the user's wallet. The quantity of 'Leveraged Asset' in the 'Withdrawal’ tab refers to the repayment amount of LP tokens (borrowing), and the Leverage farm ends once a full borrowing withdrawal proceeds. Withdrawing a portion of borrowing is effective for safe asset management.
The quantity of 'Leveraged Assets' in the 'Withdrawal' tab is the required redemption amount of LP tokens currently in use, and the leverage farm will be terminated when a full withdrawal is requested.
For instance, the above user currently has a total of 200 LP Token deposited in the MESH+oUSDT leverage farming pool. At this time, 100 LP Token, which is a leveraged asset, refers to the required repayment of borrowing.
When a user withdraws 150 LP Token, 100 LP Token is the amount required for preferential return and the remaining 50 LP Token will go to the user's wallet. You can check the detailed quantity of LP Token used for return in the returned asset details, and the detailed quantity that can be received in your wallet can be checked in the ‘You get’ history. If a user withdraws 150 LP Tokens, 100 LP Tokens will be used for repayment and the remaining 50 LP Token assets (balance) will go to the user's wallet. LP Token borrowing repayment can be confirmed through the returned asset history, and the detailed amount that will be received in the wallet can be found in the ‘You get’ history.
＊If the leverage asset amount shows 0, it means that the entire borrowing has been returned. From that point on, the entire withdrawal amount will go to the user's wallet.