Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
In the golden days of DeFi Summer, Alpha Homora introduced leveraged yield farming for AMM liquidity provisions. The concept was to allow LPs on AMMs, such as Uniswap and SushiSwap, to borrow assets like ETH and USDC to create larger LPs to earn outsized trading fees and yield farming rewards. If farmers could earn substantially more in yield than the cost of borrowing on Alpha Homora, the application would be a hit. And through most of the last crypto bull cycle, it was very popular among DeFi degens!
Unfortunately due to bad debt resulting from an exploit, Alpha Homora is no more (see the latest update). However, the concept of leveraged LPs remains a use case many DeFi users seek out.
Extra Finance is building to fill this gap in the DeFi markets. In May 2023, they launched leveraged LPs for Velodrome Finance on Optimism. As of this writing, they’ve attracted $19.6M TVL and offer up to 5X leveraged LPs for the most popular pairs on Velodrome. This means that LPs can supply any ratio of the 2 tokens in any listed LP and borrow tokens from Extra Finance to create a larger LP on Velodrome, which results in farming larger VELO emissions. In some cases, the yields are as high as 7500% for more volatile long-tail assets (see below). One major difference is now the power of transacting on an L2 like Optimism. For anyone who used leveraged LPs on Ethereum Mainnet, it was very expensive to pay the transaction costs (ie $200-$500USD in ETH gas costs), whereas now on Optimism, we enjoy the