How to Farm up to 130% APY with Leveraged LPs on Alpha Homora by Defi Dad

Over the last few months, one of the most popular ways to participate in DeFi has remained liquidity provisions. When we talk about AMMs (Automated Market Makers) like Uniswap or SushiSwap, we have a pool with assets that anyone can permissionlessly trade. Dumbing it down, it’s as simple as having 1 APPLE token + 1 ORANGE token in a liquidity pool, which dictates 1 APPLE = 1 ORANGE in price.

As a liquidity provider (LP), we enable greater liquidity for trading among these tokens which has a hugely positive impact on DeFi. Trading is one of the most basic use cases in DeFi and so because of this, LPs are some of the unsung heroes of DeFi. In exchange for providing liquidity, the most basic incentive is that LPs earn a proportional amount of the trading fees. For example, if you own 1% of liquidity in the ETH-WBTC LP in SushiSwap, you earn 1% of the 0.25% fee paid by every trader in this pool. (Btws, SushiSwap charges 0.3% but 0.05% of this fee is added to the SushiBar pool in the form of LP tokens for the relative pool.)

Many protocols have developed yield farming (aka liquidity mining) program to incentivize LPs to add liquidity which can benefit their native token and DeFi application. The problem with all of this is that when we act as LPs in a pool, we are at risk of incurring impermanent loss. 

Due to the volatility of asset prices and arbitragers, LPs often do not receive the exact amount of assets upon withdrawal, which can sometimes negate the upside of being an LP earning rewards and trading fees. This problem refers to the dollar value of the assets an LP withdraws being typically