Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
After one of the most volatile weeks in crypto market history, I wanted to cover a simpler, relatively safer DeFi strategy, ideal for any type of market and one that might even earn more yield thanks to higher volatility!
Back in early May, I covered the new and improved benefits for impermanent loss (IL) protected single-sided LPs on Bancor v3. Just under 2 years ago, Bancor introduced an innovative new concept called single-sided liquidity provisions where you can deposit a single token and Bancor will pair BNT with the token to create the LP, while still providing protection against impermanent loss.
Quick reminder: Impermanent loss is a temporary loss of funds when providing liquidity. It’s simply the difference between holding an asset versus providing liquidity in that asset.
Since May, Bancor v3 has grown to just under $300M TVL with significant improvements to their IL-protected single-sided LPs including:
- 150 pools live with 30-40 fully activated as of this writing
- Live migrations for any v2 pools with a corresponding v3 pool
- Instant IL-protection for both new v3 LPs and migrated v2 LPs
- A single pool deposit for easier yield earning among BNT holders
- Noticeably lower gas fees on Ethereum L1 than in v2
What’s just around the corner are 2 major developments:
- First is auto-compounding for liquidity mining reward tokens + dual rewards (BNT + Token) to start enabling more protocols to launch more capital efficient LP mining programs. The audit for this new feature is being completed by the end of June and expected to go live in early July.
- Second, early next week Bancor is expected to offer vampire attack buttons allowing people to see from the Bancor UI how much IL they’ve suffered on individual Uniswap and Sushiswap LPs and then instantly migrate them into Bancor v3.
In the following tutorial, I’ll walk through how I can use these new Bancor v3 pools to become an LP of new tokens and/or migrate my existing v2 single-sided LPs.
How to Earn Yield Safely Using Bancor v3 IL-Protected LPs
Before we get started, please be aware of a few major risks.
- Smart contract risk in Bancor v3 (different than v2 contracts) and be extra cautious of any new contracts deployed in DeFi, despite reputable teams
- Oracle failure could lead to an exploit
- Systemic risk in DeFi composability
- Pegged assets such as stablecoins can potentially de-peg
- Estimated rewards can go up or down depending on the amount of competing liquidity and the trading volume in each pool
Here’s how I get started with Bancor v3!
1. First, let’s assume I have an existing single-sided LP in Bancor v2. If the same pool is now listed here in v3 (ie WNXM), I can look in my Portfolio for v2 and find the Upgrade To V3 button which will prompt me with one wallet transaction. [If I was earning any multiplier rewards, I can maintain my amplified earnings by migrating to v3 or else I’ll lose that edge withdrawing my liquidity to redeposit later.]
2. Next, I can opt in to Stake to V3 my BNT reward tokens from my v2 Portfolio. By staking BNT in v3, I can earn higher rewards vs if I simply withdraw my old v2 LP but I don’t withdraw/claim my BNT rewards or stake them, I’ll lose them in 24 hours. I…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
