Velodrome Yield Farming Research
Research Summary
About Velodrome
The Velodrome-AMM DEX provides swaps with deep liquidity and low slippage. In other words, it gives us the opportunity to trade crypto with less slippage, meaning we get better prices.
According to Defilama, the project has existed for less than a year, but has already become a central figure in the Optimism ecosystem, and seen a 4x increase in its TVL.
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Documentation:
Velodrome Finance distributes rewards using the same two tokens that you provide to the liquidity pool, plus $VELO. Trading commissions for these pools range from 0.02% to 0.05%, and the $VELO rewards depend on governance votes.
The Optimal Deposit Amount & Token Type
This giant in the Optimism ecosystem can benefit us not only with its large TVL, but also with its excellent set of farming tools. Here, we can start farming with as little as $500, up to $20,000. As always, risk management is one of the most important aspects of any strategy.
For this research, we have chosen the sAMM-USD+/LUSD pool, where we are ready to deposit our stables ourselves. Due to the fact that this pool only consist of stable assets, we eliminate the risk of Impermanent Loss.
This pool consists of entirely super collateralized stables.
LUSD is a stablecoin on the ETH network, requiring 110% ETH collateral to mint.
LUSD Information:
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USD+ is a stablecoin on the Ethereum network which is 100% backed by a delta neutral strategy on various DeFi platforms.
Why do we call this stable a tool? Users can use it to generate returns with the OVERNIGHT protocol.
Here, the TVL represents the amount of USD+ in circulation.
USD+ Information:
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Velodrome APR
This platform makes it possible to earn such high APRs due to the fact that it is the central index of the ecosystem. Most of the liquidity in Optimism goes through Velodrome
As we utilize our funds in liquidity pools, the project earns revenue alongside us, by charging commissions for each transaction.
Why does the project share earnings with us?
In order for the project to function properly, a significant amount of liquidity is required. Without liquidity, no one could trade, and the project would die. In order to incentivize liquidity providers, the project shares a percentage of its revenue.
Conclusion: The project generates profits through our involvement, and we also benefit financially.
Velodrome Profitability
Approximate yield for a $20,000 deposit:
For many, this profitability is not amazing, but it is always a good idea to diversify your funds among reliable stables..
Step By Step Instructions:
- Log in to KuCoin
- Withdraw your USDC and some ETH to your wallet
- Choose a liquidity pool
- Look at what proportion of stables you need for farming
- Swap your USDC for the required stables here
- Deposit liquidity to the pool on Velodrome
If your stables are already in your wallet:
- Withdraw some ETH on the Optimism network with KuCoin
- Use Stargate to transfer USDC to the Optimism Network (skip this step if your stables are already on Optimism). Llook at what proportion of stables you need for farming
- Swap your USDC for the required stables here
- Add liquidity to the pool on Velodrome
Entry & Exit Costs (for $20,000)
Sign in with KuCoin:
- Withdrawing USDC from the exchange — $3
- Withdrawing ETH from the exchange — $1.6
- Optimism transaction fees — $2
- Price impact from exchanging USD+\LUSD ±$15
Approximate costs: $20 to $25
If your stables are already in your wallet:
- Withdrawing ETH from the exchange — $1.6
- Using the Stargate bridge — $32
- Optimism transaction fees — $2
- Price impact from exchanging USD+\LUSD ±$15
Approximate costs: $16 to $52
Approximate payback time: 2.5 to 12+ days, depending on your method of entry, as well as your deposit size.
Note: We swap from USDC to LUSD and USD+ on Velodrome due to those pairs having high liquidity and thus small price impact on large swaps. The bigger your deposit, the more important this is. Before withdrawing USDC, you can look at the price impact on the swaps, and choose a different initial stable if you will get a better swap rate.
Risks
- Chain risk — Optimism is a fairly new chain; it no problems at the moment, but should still be treated with caution (just take a look at Solana)
- Token risk — These stables are fairly new, and although they are secured quite well, we cannot exclude potential black swan events.
- Liquidity problems — An unlikely scenario given the current TVL, but still a possibility.
- Platform risk — Velodrome is audited, and has no issues so far, but hacks do happen.
- Wallet risk — Real degens do not exclude such risks.
- Non-compliance risk: If Velodrome is found to be non-compliant with any applicable laws or regulations, it could pose significant legal risks to its users. For example, if the protocol is found to be operating without the necessary licenses or permits, users could face legal consequences for using the protocol. It’s important for users to ensure that Velodrome is compliant with all applicable laws and regulations before using the protocol to avoid legal risks.
- Securities risk: Velodrome’s tokens may be classified as securities by securities regulators in some countries. If this occurs, Velodrome may be required to comply with securities laws and regulations. Failure to comply with these laws and regulations could result in severe legal consequences, including fines, penalties, and the possibility of Velodrome being unable to continue its operations or fulfill its obligations.
Don’t forget that risks are multiplied in Defi, so keep a watchful eye on your positions.
This research is brought to you by Leech Protocol Team and Degen Hustle researchers
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