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 benefits of dirt cheap fees.
On Extra Finance, lenders earn yields by depositing in-demand, single assets such as ETH, USDC, wstETH, and now thanks to the growth of Optimism and Velodrome, there’s demand for newer assets like OP, VELO, and frxETH.
The Extra Finance team has completed a security audit with Peckshield and based on the audit report, PeckShield has confirmed that the potential issues have been fixed. I would still caution anyone with this kind of complexity under the hood, there’s lots of opportunity for different attack vectors.
Today, I’ll show how I can earn up to 139% APY with the DOLA-MAI LP on Velodrome, leveraged 5X on Extra Finance!
Earn Up To 139% APY with Leveraged Stablecoin LPs on Extra Finance
Before we get started, please be aware of these risks.
- Smart contract risk in Velodrome and Extra Finance
- Front-end spoof attack on the Extra Finance frontend
- An economic design exploit in the design of Extra Finance
- Stablecoins in a liquidity pool depegging
- Colluding signers on a multisig
Here’s how I get started!
- First, I go to the Extra Finance Leveraged Farms under Stable Pool, connect my Optimism wallet, rank by APY, find the best farm for me based on stablecoins I want to hold (ie DOLA-MAI), and choose to Farm on the far right.
- Assuming I have MAI or DOLA (unless I need to swap for some on Velodrome), I can now opt to deposit one or both of the tokens, in any ratio. I can choose my leverage (up to 5X) and specify which asset to borrow, but in this case it makes little difference as I’m holding a stablecoin LP. Extra Finance will do the work of building the LP in the right proportion of the 2 tokens. I click Confirm and follow the prompts to confirm…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
