Single Sided-Farming on Any DEX Via Orbs Liquidity Nexus — Part 1

Not all liquidity is created equal

  • Type A is a typical crypto ape. They are long on crypto. They hold a portfolio that is primarily exposed to volatile crypto assets. They hold a significant percentage in BTC, a significant percentage in ETH and a significant percentage in alts. For them, hodling USDC for too long feels like holding a melting ice cube as the global money printer goes brrr.
  • Type B has a more traditional outlook. For them, high risk means allocating a large percentage of their portfolio towards NASDAQ. Their benchmark is fiat. Holding crypto assets is something they’ve only considered after seeing Tesla doing the same. But it’s a bit too avant-garde now, maybe next year, and definitely not more than 3% of the portfolio.

Different appetites for risk = different rewards

  • If you’re designing for Type A — High APY is probably the most important metric. This crowd tends to throw its capital towards positions where the yield is maximal. This crowd is no stranger to risk. They often don’t even consider high exposure to volatile crypto assets as a risk at all (to be honest, dollars are also frightening to be long on). For them, dealing with Impermanent Loss (IL) is usually not an issue and they love farm rewards.
  • If you’re designing for Type B — The first order of business would be to minimize the exposure to crypto. They can’t have their portfolio suffer if ETH jumped up or down 20% over night. They will definitely compromise on APY because they’re used to the yields of the CeFi world which are much lower. The concept of IL is more difficult for them to grasp because IL is triggered primarily by volatility in the crypto markets which they prefer not to be exposed to.

The dream of single-sided farming

Alternatives to single-sided farming

  1. Bite the bullet and exchange some assets for the duration of the farm — This approach is very simple. Instead of maintaining your original portfolio distribution of 60% BTC, 30% ETH, 10% USDC, just swap between them and change the allocations. What’s wrong with this approach? It defeats the idea of having long exposure to certain assets and using DeFi to maximize yields. If you’re long on BTC as a benchmark, swapping it for a whole bunch of USDC for a little APY doesn’t make sense. You’re about to lose a lot more if BTC were to go into another bull run. In addition, this approach suffers from slippage because swapping large amounts of base assets at once is the worst way to get a good price.
  2. Lending — If you don’t want to buy these assets, why not borrow them? Isn’t this exactly what Compound and Aave were invented for? Well, they do solve a lot of the problems in alternative 1, but they bring in several new disadvantages. One of them is low utilization. Borrowing assets introduces a wasteful collateral ratio. If you place your BTC as collateral, you’ll only be able to borrow a significantly smaller amount of USDC. This means that much less of your capital will participate in farming. Another big issue is the fear of liquidation. If these assets suffer a volatile night and you sleep through a 20% price change, you might find yourself liquidated in the morning and be hit with losses. Nobody likes to lose sleep.

Back to single-sided farming

Enter Liquidity Nexus

Learn more

Unlisted

--

--

--

Public blockchain for the real world. Founder at Orbs.com. React fan. Ex Wix.com head of mobile engineering.

Love podcasts or audiobooks? Learn on the go with our new app.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Tal Kol

Tal Kol

Public blockchain for the real world. Founder at Orbs.com. React fan. Ex Wix.com head of mobile engineering.