Gone are the days of Ponzi node projects that labeled themselves as “DeFi” in the last bull market. During the year-plus bear market, authentic DeFi protocols have been building and innovating and this next round of DeFi will be something special. This round will be all about liquidity; who has the most of it and who can reward liquidity providers, depositors, and farmers with consistent and sustainable yield (also known as real yield).
It will be important to have auto-rebalancing features for leveraged positions in liquidity pools because it can be cumbersome to manually reconfigure liquidity bins every day. Auto-rebalancing also helps reduce the risk of liquidation, which is great. This is where Steadefi comes in. Let’s take a look at what Steadefi offers in preparation for its planned launch on April 10th.
Overview Of Steadefi Protocol
One of the target audiences of Steadefi is “DeFi optimists looking for both high-yield and risk management.” This is a great way to target a protocol because to a farmer or liquidity provider, this sounds like a dream come true. One of the biggest things that make Steadefi stand out is its built-in hedging strategies. Let’s discuss those first before we get into lending and strategy vaults.
Risk Management (Hedging) Strategies
If you’ve ever been a liquidity provider or farmer, you know it can be very risky for the following reasons:
- Sensitivity to Market Movements
- Impermanent Loss
- Unpredictable returns and misleading APYs
- Excessive position management
- Mismatch of risk versus reward
Steadefi has come up with solutions for each problem. Steadefi’s vaults incorporate auto-rebalancing when certain parameters are met with volatile assets so that investors minimize impermanent loss, don’t experience liquidations, and don’t have to manually rebalance their liquidity into specific price bins. Steadefi also offers a more predictable and sustainable yield because they use APR which incorporates fees and any other costs associated with a loan. This is better than getting surprised by unforeseen costs when closing a position. Another great feature provided is isolated lending pools that match the risk profile of the lender. Finally, another problem when taking out leveraged loans is variable borrowing rates. This can quickly cause negative APRs if the borrowing rate changes by as little as .5%. To counter this, Steadefi is offering fixed borrowing rates, which is great news.
Lending is a way to earn yield from the borrowing interest rate that borrowers pay when taking out 3x loans in the strategy vaults. When a user deposits an asset to lend out, they receive a corresponding balance of ib (interest-bearing) tokens. If you deposit Avax, you get ibAvax in return. The value of each ib token begins at 1:1, and as borrowers take out more leveraged loans, the interest is deposited into the lending pool, which increases the exchange rate of each ib token. When you redeem (close out) your lending position, the ib token reverts back to regular Avax with the additional amount of Avax earned as the interest added to the amount. Finally, as mentioned earlier, each lending pool is isolated to its own specific strategy vault and the corresponding risk associated with each vault.
This is a very brief overview of each vault. The main intent is to provide a link to each strategy vault so you can do further research on it.
There are two types of vaults currently available: Liquidity Swaps from AMMs and Perpetual DEX Liquidity (GMX). Each vault type earns fees from either token swaps or traders paying borrow interest rates or liquidations. Each vault is a 3x leveraged position, auto-rebalances, auto-compounds, and there are no lock-up times. Each user receives sv (strategy vault) tokens after they deposit, which operate similarly to the interest-bearing tokens in the lending pools.
- 3x Long GLP GMX – Best for investors that believe the underlying assets of GLP will appreciate over time, GMX will continue to attract traders, and more investors will get liquidated in the future.
- 3x Long Avax-USDC Trader Joe – Best for investors that believe Avax will appreciate or that simply want to accumulate more Avax.
- 3x Neutral Avax-USDC Trader Joe – Best for investors that believe Avax will remain in low volatility (sideways) for a long period of time.
- 3x Long Avax-USDC Pangolin – Best for investors that believe Avax will appreciate or that simply want to accumulate more Avax.
- 3x Neutral Avax-USDC Pangolin – Best for investors that believe Avax will remain in low volatility (sideways) for a long period of time.
- 3x Long Curve Tricrypto – Best for investors that think $BTC and $ETH will continue to appreciate and veCRV voters will continue incentivizing the tri crypto pool (ETH, BTC, and USDC).
The next generation of DeFi is here. Steadefi is an interesting protocol and I love how they’ve incorporated built-in risk management strategies with just enough leverage to be worth the squeeze. Of course, it’s still a brand-new protocol that hasn’t been launched yet, so there might be some growing pains along the way. But the concepts needed to propel DeFi into its next iteration are all included in the protocol. It will be interesting to see how Steadefi evolves over time as they add new features such as liquid staking and options contracts. As always, be blessed.
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