What’s All The Fuss About?
DOLA's expansion across chains is picking up speed, and our new partners are enabling attractive opportunities for yield farmers seeking clever ways of putting their DOLA to work.
Inverse Finance is getting really multi-chain now! We launched on Ethereum, as you probably know, but you can find DOLA on Optimism, Arbitrum, BNB and Avalanche as of late. Fixed rate DOLA borrowing on FiRM is currently limited to Ethereum but more info on FiRM expansions is to come.
In 2023, a number of modified forks of the decentralized exchange named Solidly have mushroomed, Andre Cronje’s brainchild, with Velodrome carrying the torch on Optimism. Several of these protocols have given Inverse Finance DAO an allocation of their governance tokens which lets us vote in their platform’s built-in incentive systems to generate great APR’s for DOLA liquidity farmers.
There are plenty of farming opportunities available and it is pretty easy to provide liquidity to stablecoin pools. Here’s a light overview of the concepts and steps involved. Let’s get started!
Due Diligence
It is very important that you research any protocol and tokens that you provide liquidity for so that you are sure that you understand their features, requirements and to avoid unnecessary risks. Note that Inverse Finance does not officially endorse or advise you to use any protocol, all DeFi and smart-contract interactions carry some form of risk.
Some questions to ask and research before you get rolling with one of these things:
Are you really looking at the right website? Make sure you get the address from an authentic source, Coingecko mostly has links.
Navigate yourself, don’t ever click links received in random direct messages. Phishing is real.
Read through their docs and ask questions on their Discord server to get answers and to see what kind of response you get.
Does the protocol seem secure, are there audits and bug bounties that you can verify with the auditor?
Is there liquidity available on the bridge (e.g. Hop, etc.) on the destination chain?
Select A Protocol
You can find many DOLA yield opportunities here, but note that this page gets its information from Defillama and the updates are sometimes delayed. You might find unlisted opportunities by visiting different exchanges. You can also find opportunities by visiting yield optimizers like Beefy.
Bridging Funds Across Chains
Taking advantage of many of the newer DOLA yield opportunities usually requires moving tokens from one chain like Ethereum to a new chain like Optimism or Arbitrum. This is done with a “bridge” and bridges today are divided into two risk categories depending on the choice of technology and level of decentralization.
Bridges like Hop are on the centralized side of the spectrum which means that they are very fast but could carry censorship risks, along with the risk of an influential person or small group being a single point of failure.
The trade-offs are different for decentralized (native) bridges like the Optimism bridge or the Arbitrum bridge to Ethereum as you never give up self-custody of your funds and therefore don’t need liquidity on the destination chain, but you instead accept that it may take up to seven days to transfer the funds away from the destination chain (in is fast, out takes time).
So if you don’t already have funds on the destination chain, you will need to send them across a bridge. To get started, first check to see if the bridge has enough liquidity to enable the transfer to the destination chain. You can check liquidity by simply setting up a bridging transaction and if liquidity is low, the interface will typically indicate that there is insufficient liquidity to execute your transaction.
Make sure that you are familiar with the underlying infrastructure that you are using: Ethereum provide the strongest security guarantees for tokens issued on Ethereum. Bridging tokens to other base layer chains change the token's risk profile drastically as you need to trust a custodian bridge. Even Ethereum layer 2 rollups like Arbitrum and OP Mainnet have some weaker or different security assumptions than Ethereum, but you can manually withdraw your funds from the rollup back to Ethereum. Here’s a short list of solidly forks supporting DOLA along with bridge options, for your convenience:
Swap, Deposit LP And Stake
Head to your exchange of choice and then look for the liquidity pools. Here is an example of Velodrome’s DOLA pools at the time of writing:
Your goal is to first provide liquidity and then deposit or “stake” the liquidity pool token to receive incentive tokens paid out by the exchange. So your steps are:
Swap to get the right proportion of tokens Add liquidity, receive liquidity pool tokens Stake liquidity pool tokens or use a yield optimizer
Let’s (quickly) take these one by one:
First find the pool that you are interested in and check the proportion of each asset in the pool. You will need to provide both tokens in those very proportions so you will need to swap for one or both tokens. If there is not enough liquidity to make the swap, you’ll need to wait or perhaps use a bridge to send the desired tokens to the destination chain.
Once you have the correct amount of the two tokens, you are ready to add them to a liquidity pool. The liquidity section or page of the protocol you are using will (usually) guide you through this process. Once you add your two sets of tokens to a pool, you will typically receive receipts or “LP tokens” which will be important in the next step.
Staking Your LP Tokens
You often have two options for increasing your yield on your liquidity strategy. The first is to stake your LP tokens in the exchange itself. Make sure that you’re up to speed on the terms as the exchanges may differ from each other in both incentives and withdrawal restrictions. If you stake in the exchange you will often receive additional yield in the form of the exchange’s governance token, which you will need to claim with a transaction.
If you’d rather receive the yield in the form of the exchange’s governance token, using a yield optimizer will instead increase your liquidity position.
Yield Optimizers
Beefy, Dyson, Grizzly and Zunami all have DOLA opportunities at the moment. Getting your yield in governance tokens can be a volatile experience and selling the rewards can trigger taxable events in some countries. Yield optimizers or auto-compounders let you deposit your LP token in a vault which automatically sells your yield tokens to increase and compound your stablecoin LP position (increased APY). The gas cost is socialized between all vault users and the yield optimizers takes a fee from the yield being earned. You only need one transaction to get in and one to get out so accounting is less of a headache. Some even take care of the transactions for you and let you come with one of the tokens and “zap” it into its final form in the vault.
