April 10th, 2022

New Generation Of Liquidity & Leveraged Products

By Alfprotocol Team

The investing landscape has changed dramatically in the past decade. Where investors once had to rely on the advice of a broker or financial adviser, today, they can turn to the internet for guidance. 

Digital investing platforms have made investing more accessible than ever by offering a wide range of low-cost investment products, including exchange-traded funds (ETFs), traditional mutual funds, stocks and bonds, and recently cryptocurrencies. They’ve also dramatically increased the average investor’s access to the markets, making it possible for people to invest in things they would never have been able to access before.

An Innovative Approach to the Future of the Financial Ecosystem

When the economy heads south, most people’s thoughts turn to investments to protect their assets, namely cash, considering its susceptibility to inflation and low to no returns. That’s where liquidity pools come in. These are places where you can take your cash and get a fixed return on it; regardless of what happens in the economy, the liquidity pools are only affected by the supply and demand on that specific pool. 

We think of DeFi platforms as the future of the financial ecosystem. They are, after all, DeFi became the best way for people to invest in a wide range of financial products. Furthermore, they also provide a means for investors to take out a return on money without going through the hassle of traditional financial channels. 

The ease of entering and exiting DeFi markets means investors can reduce the risk of exposure due to the market’s volatility while benefiting from way above market average returns.

Investing Through DeFi Liquidity Pools

The introduction of liquidity pools in DeFi ecosystems has been a boon for investors. Today, liquidity pools are becoming a more common feature in DeFi ecosystems. People have more access to DeFi markets with ease and the security of knowing that their funds are safely invested in decentralized financial ecosystems.

A liquidity pool is a mechanism that allows investors to invest in a range of loans and other financial products. By pooling together the money of many investors, a liquidity pool provides an easy way for people to access the returns offered by the financial marketplace.

An Efficient Approach to Managing Liquidity

For the purposes of computing pool usage and interest rates, each liquidity pool is committed to a single asset and is viewed as a separate entity from the others. When a liquidity provider makes a deposit into a pool, the protocol generates LP tokens, which reflect the provider’s portion of the pool’s total deposits.

Unlike dividends, fees collected by the pool, such as interest paid by borrowers and fees collected by Leverage Protocol users, are added to the underlying pool without diminishing share value. 

A liquidity provider that wishes to depart the pool must burn their shares and obtain the pro-rata fraction of the underlying, which has grown in value with each interest and fee payment made during the participation period.

These pools also help reduce the risk of market fluctuations by making it easier for investors to take their money out of the market. They can also help reduce the volatility that can accompany the market, keeping investors more invested than they would be otherwise.

Yield Farming Approach in Decentralized Finance Protocols

Yield farming is a colloquial term for the practice of “farming” for yield on decentralized finance protocols. This can take the form of investing in dApps that payout yield, investing in digital asset-backed tokens (DATs) that payout yield as a dividend, or taking the form of lending to dApp developers in return for the yield on their dApp revenues. 

Yield farming uses borrowed money to buy tokens in decentralized finance protocols, often to generate returns on the interest and principal payments. 

Introducing Leverage Yield Farming

Leveraged yield farming refers to using margin or other financings to increase the amount of tokens that can be purchased. The primary purpose of leveraged yield farming is to generate leveraged returns on digital currencies known for their high volatility. 

Leveraged yield farming is a product that allows liquidity providers to use their LP or any other supported tokens to borrow and obtain additional LP tokens, intending to supply more liquidity to decentralized protocols while earning additional yield and farming rewards that should outweigh the cost of borrowing. 

Solana Makes High Leverage Yield Farming Possible

Solana is one of the most efficient and dependable blockchains on the market today. Due to its speed and capacity to process a large number of transactions per second and its cheap fees, it paved the way for protocols that support high leverage models by making it easier to monitor and maintain position health effectively.

With the LP token collateralization concept and liquidation auction procedures, Solana’s ecosystem is able to support the highest leveraged yield farming positions possible. Nonetheless, the danger of impermanent loss is increased when using leveraged yield farming techniques to increase yields. 

Alfprotocol Leads Solana’s High Leverage Market

Alf protocol is a decentralized application (dApp) built on the Solana blockchain that enables users to supply their tokens to earn APY, borrow funds by providing collateral, use in-house built decentralized exchange, and become liquidity providers (LPs) by supplying tokens to pools and earning yield rewards and token rewards for being a liquidity provider. What makes Alf protocol distinctive is that it will give customers leverage up to 200x to raise their position size while investing in the liquidity provision.

The protocol for leveraged liquidity provision into automated market makers and yield farming is at the core of the process. Alfprotocol, in addition, provides two protocols for unleveraged liquidity management: AlfMM (a decentralized exchange service) and Alf (an overcollateralized borrowing service). The primary goal of both protocols is to provide access gates for traders and risk-averse investors, providing them with a platform to trade and supply liquidity while also reigning in extra money from indirect liquidity provision.

Find out more about Alf protocol here.


Let's stay in touch