A Spooky Symfony
Taking a loan isn't exactly a contracting a debt when you use this loan as the starting point of an investment strategy. It's a real investment.
Taking a loan against your assets is always a double-edged sword: it can help you kickstart an investment strategy, or leverage your assets, but you will have a debt that you need to repay at some point. In this guide, we will use a loan taken on Market.XYZ, a lending protocol on which you will be able to borrow MAI with a low borrowing rate, and use this loan to farm most of the battle-tested protocols on Fantom. We will use the strategy to repay the loan and see how fast this can be done in order to unlock the assets deposited as collateral.
This guide is definitely not financial advice, it was made with an educational goal in mind. You need to pay attention to price variations, supply and demand, reward programs, end dates, impermanent losses etc ... The goal wasn't to propose recipes that can be followed blindly, so please do your homework and your own simulation, and only invest what you're ready to possibly lose.
In this strategy, we will use the a lot of different LP (Liquidity Providing) pairs on a lot of different protocols, so we thought it would be a good idea to give you a brief recap of what each protocol is doing.
Market.XYZ is a lending protocol that builds several lockers for their partners. You will be able to deposit single assets or LP tokens as collateral, and borrow other assets against your deposits. Because you are borrowing against a collateral, it's important to make sure that you don't get liquidated. A liquidation occurs when the value of the asset you deposited as collateral goes below the value of the loan you contracted. This is why it's important to make sure the ratio between the 2 values remains relatively high, and that your collateral doesn't loose too much value when the market goes down.
In order to mitigate the risk of liquidation, we will be using the FTM-USDC LP token as collateral
- The impermanent loss on this pair is relatively low
- USDC is a stable coin pegged to the US dollar
- FTM is the native gas token of Fantom, it has deep liquidity and is used everywhere
- reward rates ont he FTM-USDC pair are high, which means that even if the price of FTM stays the same, the value of your collateral will go up
You will be able to borrow against the FTM-USDC pair from the Spooky LP pool on market.xyz. The steps to deposit your collateral are as follows:
- Deposit the FTM-USDC LP token on Beefy finance to get a mooBooFTM-USDC receipt (search for the SpookySwap platform and USDC asset in the search filters)
- Deposit the mooBooFTM-USDC receipt token on Market.xyz
Spooky lending market on MarketXYZ as of February 2022
When your beefy LP receipt tokens are on Market.XYZ, you still get the reward APY provided by Beefy. This means that your assets are still generating yields for you while you borrow against them. This is a very powerful tool, especially when you see that the mSPLP-FTM-USDC (moo Spookyswap FTM-USDC = mooBooFTM-USDC) is earning 51.4% APY and you can borrow MAI at 2.56% APR. In other words, your collateral grows faster than your debt, so in theory you can very well repay your loan with the interests of your collateral.
As a side note, you can see that the Spooky LP Pool locker also offers the possibility to borrow against other LP tokens: ETH-FMT, DAI-FTM, BTC-FTM and fUSDT-FTM. Depending on the assets you have in your wallet, your convictions and your risk tolerance, you can totally use any Spookyswap LP as collateral.
For this tutorial, we will also limit the risk by borrowing with a CDR (Collateral to Debt Ratio) of 200%. This means that we will borrow 50% of the value of our collateral. More in the farming strategy section. Liquidation ratios are expressed as LTV (Loan to Value) which is the opposite of a CDR. You can see that the LTV for the mooBooFTM-USDC token is 60%, above which you will get liquidated. This is equivalent to a CDR of 166.67%. With a target of 200% CDR, we are 33% above the liquidation ratio, which may be risky or not, depending on your risk tolerance.
Market.XYZ only allows loans with a minimum value of 0.05 ETH (~$170.00 at time of writing). Make sure you deposit enough collateral if you want to bororw from the different lockers.
BeethovenX is a Decentralized Exchange and Automated Market Maker forked from Balancer. You will be able to deposit your assets in liquidity pools, as well as swapping different assets on their application. They've been solid partners of the QiDAO protocol, providing LP tokens for the farms that you can find on Mai Finance. We will be using two different pools on BeethovenX for this strategy
- The Monolith: an inventivized pool that has been open for Exodia, a Ohm fork that we presented in this tutorial. You will be able to deposit your MAI tokens directly into this pool and collect yields
- Pirate Party: an incentivized pool dedicated to LQDR tokens, the native token from Liquid Driver, another big protocol that we will be using in this guide
The Monolith pool on BeethovenX with 20% MAI as of February 2022
Pirate Party pool on BeethovenX with 80% LQDR as of February 2022
As always, the biggest advantage of using BeethovenX (or Balancer) is that you can deposit single assets in the pools instead of having to provide tokens in a balanced ratio.
Spookyswap is the biggest Uniswap V2 fork on Fantom, a platform where you will be able to swap assets et provide liquidity for many pairs. Spookyswap has also been a solid partner of Mai Finance and proposes a MAI-USDC pool. The partnership extended via Market.XYZ where you will be able to borrow MAI against some specific LP pairs (see the section about Market.xyz) as well as your BOO and staked BOO tokens, the native token of Spookswap.
For this guide, we will be using two different LP tokens from SpookySwap:
- FTM-USDC which will be used as our starting point for the strategy. This LP token is used as collateral on market.xyz
- FTM-BOO because it's one of the pool from SpookySwap accepted on Liquid Driver with the highest APR. We will swap the BEETS rewards from the Monolith for this pair (more in the Farming Strategy section)
Liquid Driver is a yield optimizer on which you will be able to deposit LP tokens from different farms and earn yields on them. The way yield optimizer work is by harvesting the reward tokens of the target platform and compound them for you. This is useful since the gas on Fantom can be expensive. A performance fee is taken out, but a portion of the protocol's revenue is redistributed to LQDR stakers. LQDR is the native token of Liquid Driver.
For this strategy, we will be using the FTM-BOO LP pair because it's a pool with one of the highest APR in LQDR for Spookyswap.
FTM-BOO and FTM-USDC LP pairs on LiquidDriver as of February 2022
For this strategy, we will be using Market.XYZ as our starting point to borrow MAI against mooBooFTM-USDC LP tokens. The borrowed MAI will be deposited on BeethovenX in The Monolith pool. Because this is the pool with the highest reward rate in our strategy, we will use it as our engine to repay our debt: 50% of the BEETS will be sold to repay the debt on Market.xyz, and 50% will be converted into FTM-BOO LP tokens. The FTM-BOO tokens will be deposited on LiquidDriver to collect LQDR tokens that will then be staked in the Pirate Party pool on BeethovenX. Once the debt is fully repaid, the BEETS rewards will be fully converted to FTM-BOO tokens. The BEETS rewards provided by the Pirate Party pool will also be compounded into more FTM-BOO.
For this simulation, we will use the following numbers
- We start with a value worth of $1,000 of mooBooFTM-USDC tokens
- The APR for the mooBooFTM-USDC token provided by SpookySwap via Beefy is 41.5%
- The borrowing rate for MAI is 2.56%
- BeethovenX gives an APR of 304.17% for The Monolith, and 175.77% for the Pirate Party
- LiquidDriver gives 82% APR on FTM-BOO LP pair
As usual for our simulations, we assume that all prices remain the same for the entire period of 1 year, rates stay the same, and we also use the provided APRs as is. In reality, prices and rates will vary, and APRs are composed of trading fees and reward tokens, which may affect the end result. It's also important to note that no transaction fees are taken in account for this simulation. Finally, we're using a lot of protocols, and each protocol may present smart contract risks. Make sure you do your own researches before using a platform, and only invest what you are willing to loose.
You can find our Spooky Symfony simulation in this SpreadSheet. Feel free to copy it and play with it to see how the loop works, and how the different rates may affect your final APY.
On Day 1, you need to create your collateral for Market.xyz. Get an equal portion of FTM and USDC and provide liquidity on SpookySwap to create FTM-USDC LP tokens. These tokens will be deposited on Beefy, which will get you the mooBooFTM-USDC receipt token. This is the token that will be used as collateral on Market.xyz and against which you will borrow MAI. Since we want to keep a CDR of 200%, we will be borrowing $500 worth of MAI. Finally, the MAI tokens will be staked on BeethovenX into The Monolith pool.
At the end of the first day, you will have
positon | value ($) |
|---|---|
mooBooFTM-USDC | 1,000.000 |
the monolith | 500.000 |
pirate party | 0.000 |
BEETS rewards | 4.167 |
FTM-BOO | 0.000 |
LQDR rewards | 0.000 |
MAI debt | 500.000 |
On Day 2, you will have to
- sell 50% of your BEETS for MAI to repay a small fraction of your loan
- swap your BEETS rewards for FTM-BOO LP pair. You can either swap on BeethovenX and create the LP pair on SpookySwap, or do everything on SpookySwap.
- stake the FTM-BOO LPs on Liquid Driver to start collecting LQDR tokens.
At the end of the second day, you will have
positon | value ($) |
|---|---|
mooBooFTM-USDC | 1,001.137 |
the monolith | 500.000 |
pirate party | 0.000 |
BEETS rewards | 4.167 |
FTM-BOO | 2.083 |
LQDR rewards | 0.005 |
MAI debt | 497.952 |
Repeat the operation from Day 2, then harvest your first LQDR tokens. These will be deposited on BeethovenX in the Pirate Party pool to get extra BEETS rewards, and at the end of Day 3 you will have
positon | value ($) |
|---|---|
mooBooFTM-USDC | 1,002.275 |
the monolith | 500.000 |
pirate party | 0.005 |
BEETS rewards | 4.167 |
FTM-BOO | 4.167 |
LQDR rewards | 0.000 |
MAI debt | 495.903 |
Gains from the Pirate Party pool are too small to be significant at this point, but you'll get some over time.
At this point the system is fully primed. Your daily routine will consist of
- harvest BEETS rewards from The Monolith
- harvest BEETS rewards from the Pirate Party
- swap 50% of the BEETS for MAI if you still have an outstanding debt
- repay a portion of your debt if you still have some
- swap the rest of the BEETS for FTM-BOO LP tokens
- deposit the FTM-BOO on LiquidDriver
- harvest LQDR
- deposit in the Pirate Party
This strategy isn't very gas-efficient so you may consider compounding your gains only once a week, or even less frequently.
Here are raw results month after month, as you can get them in the Google SpreadSheet linked above.
day | FTM-USDC | The Monolith | Pirate Party | FTM-BOO | MAI debt |
|---|---|---|---|---|---|
30 | 1,033.503 | 500.000 | 1.901 | 60.500 | 440.541 |
60 | 1,069.343 | 500.000 | 8.031 | 123.652 | 378.905 |
90 | 1,106.425 | 500.000 | 18.452 | 187.988 | 317.139 |
120 | 1,144.794 | 500.000 | 33.265 | 254.136 | 255.242 |
150 | 1,184.493 | 500.000 | 52.612 | 322.738 | 193.216 |
180 | 1,225.569 | 500.000 | 76.681 | 394.462 | 131.058 |
210 | 1,268.069 | 500.000 | 105.704 | 470.006 | 68.770 |
240 | 1,312.043 | 500.000 | 139.963 | 550.105 | 6.351 |
270 | 1,357.542 | 500.000 | 181.427 | 691.752 | 0.000 |
300 | 1,404.619 | 500.000 | 233.046 | 846.443 | 0.000 |
330 | 1,453.328 | 500.000 | 295.350 | 1,009.331 | 0.000 |
360 | 1,503.726 | 500.000 | 368.942 | 1,182.000 | 0.000 |
At the end of one full year farming this system, you would have
- $1,512.294 worth of FTM-USDC tokens on Market.xyz
- $500.000 worth of MAI in The Monolith pool
- $382.353 worth of LQDR stored in the Pirate Party pool
- $1.211.845 worth of FTM-BOO tokens on Market.xyz
- a final debt that is fully repaid after day #243
This is equivalent to a total APY of 260.65%.
In most of our guides, we don't repay any debt as part of the strategy. This is, in most cases, due to the fact that we're using a 0% interest loan taken on Mai Finance. Here, we are borrowing on Market.XYZ with a borrowing rate of 2.56% and we repay the debt with 50% of the BEETS harvested from The Monolith.
If you allocate more than 50% to the debt repayment, you will pay less interests, but you will grow your positions much slower on Liquid Driver. If you allocate less than 50% to the debt repayment, you will get more rewards from the other platforms, but you will also pay more interests on Market.xyz.
Here's a small table that indicates the effect of the allocated BEETS to your debt repayment on your overall APY:
BEETS % | Overall APY | debt repaid after |
|---|---|---|
100 | 242.85 | 122 days |
90 | 245.06 | 135 days |
80 | 247.75 | 152 days |
70 | 251.05 | 174 days |
60 | 255.23 | 203 days |
50 | 260.65 | 244 days |
40 | 267.92 | 305 days |
33.5 | 274.09 | 364 days |
If you use less than 33.5% of your BEETS rewards to repay your debt, you will still have some MAI to repay after a complete year.
It is also good to understand that it you repay faster, you also increase your CDR in a more significant way, which allows you to get away from liquidation ratio faster.
This strategy presents many variations that present different benefits.
You can totally borrow MAI from Mai Finance at 0% interest. As an example, if you use mooScreamFTM instead of mooBooFTM-USDC as collateral, this will present the following advantages:
- You don't have any impermanent losses on your collateral
- You borrow at 0% with a single 0.5% repayment fee, which will be in most cases, much lower than the interests you will pay on Market.xyz (if there are MAI to borrow for this vault)
- You may get Qi rewards for borrowing on the platform, which will let you participate in the protocole's governance, as well as get dividends if you stake your Qi tokens. This will increase your yearly gains
- You're protected from very fluctuating borrowing rate on Market.xyz. Mai Finance will lend new MAI regularly to keep the borrowing rates as low as possible but it's not a guarantee that it does not go up. You can check metrics for the lending market here.
However, the mooScreamFTM tokens get a much lower APY compared to the mooBooFTM-USDC tokens, so you may miss on that.
If you stake your LQDR instead of using it in the Pirate Party pool, you will earn some dividends from Liquid Driver that are paid in different assets (LQDR, WFTM, LINSPIRIT, BOO, SPELL and BEETS). You will also get xLQDR that will let you participate in the governance of Liquid Driver, and possibly LINSPIRIT to vote on reward allocation on Spirit Swap. Please check the xLQDR page carefully for more details.
If BEETS from The Monolith play a high role in this strategy, you can totally use the ones from the Pirate Party as follows:
- deposit the BEETS in the Fidelio Duetto pool (BEETS-FTM)
- stake the LP token on BeethovenX to receive fBEETS
- stake your fBEETS to get protocol dividends
This will also let you vote on BeethovenX protocol improvements, as well as on the reward allocation for the different pools on the platform. This is particularly useful to keep a high APR on The Monolith.
In our strategy, we're selling all the BEETS rewards from The Monolith. However, you could also integrate the FTM-BEETS pool from Spookyswap in your loop. You would have to sell 50% of your BEETS for FTM and combine the two tokens into a new LP pair that will earn you BOO. You can then decide to create the FTM-BOO and deposit on Liquid Driver, or you can stake your BOO on SpookySwap. Note that if you stake your BOO, you will have the possibility to deposit the xBOO receipt tokens and earn LQDR tokens directly, and you can even use the xBOO tokens as collateral on Market.xyz. This additional lego brick opens many possibilities.
Keep an eye on this particular pair in case it becomes available on Liquid Driver. This may be a better option than the FMT-BOO one.
After your loan is fully repaid, you can keep the mooBooFTM-USDC tokens on Market.xyz or on Beefy, they will continue accruing rewards. However, you can also remove the LP pair from Beefy and deposit it on Liquid Driver to get more LQDR.
As a side note, while you're repaying your loan, the value of your Collateral to Debt Ratio grows (collateral is compounding rewards and grows in value while the debt is shrinking after each partial repayment). This means that you can withdraw the collateral pieces by pieces in order to keep a safe CDR, and deposit them on Liquid Driver for more LQDR tokens.
This system is a closed loop that feeds itself. However, you can very well continue selling parts of your BEETS for other assets after you're done repaying your loan on Market.xyz. As an example, you could convert your BEETS rewards into USDC or another stable, or increase one of your positions that earns more rewards than the ones granted for the FTM-USDC pair.
This guide was mostly designed to showcase the way you can repay a debt using farming yields. The speed at which you repay your debt will highly influence the global reward rate, but also presents some very positive aspects, the main one being lowering the risk of liquidation.
Of course, you can very easily cut corners with this strategy, change pieces of the loop for some other ones, replace protocols with something you prefer etc ... However, make sure to read all the documentation available for the protocols that you want to use, and make sure you understand all the different risks.
This guide is definitely not financial advice, it was made with an educational goal in mind. You need to pay attention to price variations, supply and demand, reward programs, end dates, impermanent losses etc ... The goal wasn't to propose recipes that can be followed blindly, so please do your homework and your own simulation, and only invest what you're ready to possibly lose.
Last modified 1yr ago