Leveraged Yield Farming: leverage and deleverage process
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Last updated
This feature is currently in the works.
Yield farming is a process in which users receive additional incentives (typically in the form of a reward token) for providing liquidity to a liquidity pool on a certain AMM protocol, e.g., Shibaswap.
At its foundation, leveraged yield farming allows for undercollateralized loans, enhancing the capital efficiency within DeFi profit maximization strategies. Users can lever up their yield farming positions by borrowing and then adding the additional liquidity to a particular yield farm. Consequently, the farmers obtain a larger share of a liquidity pool and as a result gain more rewards.
Unit Protocol lets you borrow to multiply your yield using leverage. The protocol launches an automated leveraged yield farming process where a collateralized debt position (CDP) can be utilized with higher earning potential. That means, you can immediately use borrowed USDP to purchase additional collateral assets within Unit Protocol without having to perform multiple actions or go to other platforms to perform the swap. Borrowed USDP stables are employed to purchase the additional amount of collateral, based on the selected leverage level, and deposit it in the protocol again.
The leverage feature can be used in case when the ownership of tokens brings any income. For instance, holding liquidity provider (LP) tokens generate income through exchange commissions.
An open leverage position allows users to mint more USDP than it’s usually possible. By depositing LP tokens in the Unit protocol as collateral, users can earn rewards in the tokens of respective AMM protocols, e.g., Shibaswap rewards its users with the BONE tokens.
The idea is that the more LP tokens are lent into AMM protocol, the more rewards the user gets.
By opening a debt position with leverage, the user will be able to deposit collateral, select a leverage value to perform and then execute a single transaction with a flash mint. The required amount of USDP will be swapped for collateral. That collateral will be locked in the system, and secure enough issued USDP to pay back the flash loan and associated fees.
Standard borrow feature is also available for debt positions with leverage, which means you can deposit or withdraw collateral or USDP to adjust your positions.
An opened debt position can be replenished by supplying more collateral into it utilizing leverage. Providing that the particular asset supports that option.
As a user you should always monitor your open debt positions to avoid liquidations.
With the leverage option no additional fees apply except for the standard ongoing fee charges, which can be checked on the particular collateral page in the Unit Protocol dApp.
Information about the fees, charged by the protocol, and their distribution can be found here.
At the moment, Unit Protocol maintains Shibaswap integration considering future expansion.
Different AMMs have different reward distribution terms. We are going to keep the following sections up-to-date as these terms could be changed by respective AMM. Please check the terms below before making a move.
To cover the loan to the protocol, the user has three options:
1. To repay the debt with USDP.
2. To repay the debt using the deleverage option.
3. To combine two options above.
Debt positions supporting deleverage option can be repaid, partially or fully, from the amount of collateral locked in the system, meaning the required part of the collateral would be automatically sold for USDP to repay the user’s debt. The user will get a remainder of their collateral back, or leave it in the system for future debt position openings.
The process works in the exact opposite way to leveraged transactions.
As Unit Protocol bundles many steps into a single transaction, the user saves on gas fees.
The debt can be repaid with collateral, thus, no need for the user to purchase the additional USDP in order to close their debt position.
The user saves their time as there is no more need for manual asset allocation, the protocol will seamlessly do all the job for you.
