Hop Protocol on Arbitrum
Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
The long awaited arrival of Ethereum Layer 2 network tokens is here. It started with Optimism’s recent OP airdrop and there’s speculation that more are coming, with higher confidence in the arrival of a native token airdrop for Arbitrum L2 in 2022. Arbitrum uses a scaling technology called optimistic roll-ups, similar to the underlying tech behind Optimism. Arbitrum offers a unique combination of benefits (and I’m quoting it below as Offchain Labs has it written in their docs):
- Trustless security: security rooted in Ethereum, with any one party able to ensure correct Layer 2 results
- Compatibility with Ethereum: able to run unmodified EVM contracts and unmodified Ethereum transactions
- Scalability: moving contracts’ computation and storage off of the main Ethereum chain, allowing much higher throughput
- Minimum cost: designed and engineered to minimize the L1 gas footprint of the system, minimizing per-transaction cost.
Just 24 hours ago, Arbitrum’s core team at Offchain Labs announced Week 1 of Arbitrum Odyssey, an 8-week long initiative that will encourage users to try different on-chain Arbitrum ecosystem projects and in return, receive exclusive NFTs. My assumption is these NFTs will later be used to reward new users on Arbitrum with their native token. Week 1 is designed for onboarding new users so “you must bridge ETH at least once into Arbitrum starting now, up until June 27th, 12:59pm EST using a bridge/fiat-on-ramp below.”
As a result, we know that countless existing and new users will be bridging ETH to and from Arbitrum and so today’s tutorial will aim to capitalize on the high bridging volume in ETH as a Hop bridge LP, as well as a likely but unconfirmed future Arbitrum token airdrop. Previously, I’ve covered Hop Protocol, which is a leading bridging protocol to hop between Ethereum L2s, Ethereum Mainnet, and EVM-compatible L1s. Anyone can bridge ETH, USDC, USDT, DAI, or MATIC between Ethereum Mainnet, Arbitrum, Optimism, Gnosis, and/or Polygon.
Due to this new initiative, the estimated APR based on 24-hr bridging volume for ETH LPs on Arbitrum is up to 28.89% APR (in ETH) as of this writing. I have long been an ETH LP in Hop so I can attest while the APR is higher recently, it’s been comparatively higher than other risk-adjusted yield in DeFi, especially considering one is only exposed to the spot price of ETH as an LP of ETH/hETH on Arbitrum.
How to Earn Up to 28% APR in ETH with Hop on Arbitrum
Before we get started, please be aware of a few major risks.
- Smart contract risk in Hop Protocol on Arbitrum
- Systemic risk in DeFi composability, especially with bridges
- Pegged assets such as stablecoins can potentially de-peg
- Estimated yield can go up or down depending on the amount of competing liquidity and bridging volume in Hop
Here’s how I get started!
1. First, I go to the Hop protocol dApp, and connect my wallet in the top right.
2. Based on the link above, I should be under the Pool tab, with Arbitrum and ETH selected. I then check the latest APR to be certain it’s still high enough and worthwhile for me to become an ETH LP in Hop on Arbitrum. In the screenshot below, the APR had increased even higher so I’m ready to…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
