I. Introduction
Staking and liquid staking tokens
Besides, liquid staking users could exit their staking position anytime by trading their receipt tokens back to their original assets in any DEX in which the liquidity for their tokens is available. In contrast, solo staking and staking as-a-service are more likely vulnerable with price volatility due to locked assets becoming illiquidity during staking period. Therefore, liquid staking has been recognized as the most popular staking mechanism among investors, especially retail stakers.
Lido Finance and stMATIC
Stader and MATICx
Manhattan Finance and MAI
Arrakis Finance and MATICx –MAI LP
Kyberswap and stMATIC-MAI LP
KyberSwap is also an automated market maker (AMM) with a concentrated liquidity feature which allows users could add their liquidity in custom price ranges in order to receive more trading fees, similar to Uniswap V3. However, Kyberswap has other advanced features in their protocols such as dynamic fee, sniping attacks prevent, and auto-compounding.
II. Farming strategy
To implement our strategies, we assume that the rates including prices, interest rates, APRs, and chosen farming price ranges will have been constant during our simulations period, precisely:
The exchange rate for stMATIC-MAI is 0.859216 MAI per stMATIC with our chosen farming prices range from 0.85831 to 0.85968 at 0.04% fee.
The exchange rate for KNC-MAI is fixed at 1.11542 MAI per KNC with farming price ranges from 1.1149 to 1.1167
The exchange rate for LDO-MAI is 1.40755 MAI per LDO.
The exchange rate for KNC-stMATIC is constant at 1.29992 stMATIC per KNC.
APR for stMATIC-MAI pool is 124.74% which equals to 247.388% APY by daily compounding or 20.615% monthly.
APR for KNC-MAI pool is 102.16% which is equivalent to 177.367% APY or 14.78% monthly by daily compounding.
APR for MATICx-MAI pool is 40% or 49.15% APY by daily compounding which means 4.1% monthly.
We also assume that our initial investment begins with $1000 worth of stMATIC or MATIx by whatever method we introduced above. We will outline two different strategies for stMATIC and MATICx, respectively which go to two different routes.
Strategy for stMATIC
At first step, we will use Manhattan Finance to borrow $500 stablecoin MAI against $1000 worth stMATIC to maintain Collateral Debt Rate (CDR) at 200% before creating stMATIC-MAI LP in Kyberswap to farm as our next step based on the rate we have assumed above. All LDO rewards will be swapped to MAI to pair with the remaining KNC reward for KNC-MAI LP farming before swapping all the earnings in form of KNC token into stMATIC for the next loop. The illustration for our strategy is described below.
Strategy for MATICx
Similarly, we start with a $1000 assumption worth of MATICx which also will be used to borrow $500 stablecoin MAI with 200% CDR on Manhattan Finance before using it to create MATICx-MAI vault on Arrakis Finance. The position then will be deposited into Mai Farm to receive SD reward with 40% APR, which will be swapped back MATICx for our next loop.
III. Daily Routine
Daily works for stMATIC strategy
Harvest KNC and LDO token from stMATIC – MAI pool.
Swap all LDO into MAI on Kyberswap.
Deposit into KNC-MAI pool.
Daily activities for MATICx strategy
Harvest SD reward from MATICX-MAI pool.
IV. Result
Raw results month after month for stMATIC-MAI strategy (USD)
Day
stMATIC as collateral
stMATIC-MAI LP
KNC and LDO reward
KNC-MAI LP
KNC reward
MAI debt
After one year, the result for stMATIC strategy is:
$2,438.98 worth of stMATIC as collateral asset in stMATIC vault on Manhattan Finance.
$1,219.49 worth of stMATIC-MAI LP on Kyberswap.
$1,736.27 worth of KNC-MAI LP on Kyberswap.
$1,219.49 MAI debt on Manhattan Finance.
Interest for borrowing MAI is $12.19
Total result for the strategy is $2,438.98 + $1,219.49 + $1,736.27 - $1,219.49 - $12.19 = $4,163.06 which means 416.3% APY.
Raw results month after month for MATICx strategy (USD)
Day
MATICx as collateral
MATICx-MAI LP
SD reward
MAI debt
At the end of our simulation period, we will have:
$1,265.6 worth of MATICx on Manhattan Finance.
$637.81 worth of MATICx-MAI on Mai Finance.
The repayment fee for MAI debt is 0.5% which means $3.19
Total result of our strategy for MATICx is $1,265.6 + $637.81 - $631.81 - $3.19= $1,253.4 or 25.34% APY.
V. Conclusion
With our simulation for liquid-staked MATIC tokens, you might notice that there is a very good return for stMATIC when using Kyberswap to farm in two pools, which is much higher than MATICx with the same steps. However, compared with a simple holding strategy, this is still a good earning for MATICx owners. It also should be pointed out that our strategies have been accumulating liquid MATIC tokens during the simulation period, which is more likely to favor Polygon supporters who believe in Polygon growth in the long term along with its native token MATIC.
VI. Risks
It is worth noticing that each protocol has its liquidity campaigns for specific pools in determined periods; therefore, after this period, LPs will receive only trading fees from their pools. Concentrated liquidity protocols, like Kyberswap, allow LPs to receive more trading fees by concentrating their liquidity at chosen price ranges. However, in the real conditions, your position could no longer contribute to trading activities due to the market moving out from your pre-set ranges, which leads to capital inefficiency for LPs.
stMATIC-MAI, KNC-MAI, and MATICx-MAI pairs are chosen for our guide with the intention to limit impermanent loss by price fluctuation. This is because MAI price is stable; therefore, the movement of LP pairs only depends on its counterparity prices which is much lower compared with other volatility token pairs. Usually, protocols like Lido Finance and Stader try to compensate for this loss with their native tokens as a bonus through their incentive program besides the trading fee.
Like any CDP protocol, Manhattan Finance also has a stabilization mechanism that exists to maintain the value of stablecoin MAI by liquidation when the value of collateral assets is below a specific threshold. Due to using the codebase of Qi Dao protocol as its backend, all vault currently has also been set at 135% Collateral to Debt Rate (CDR) or 74% Loan to Value threshold for the liquidation process could be triggered. Therefore, our collateral could be lost during Blackswan events without careful custody. With 200% CDR for our strategies which is relatively safe, we try to mitigate liquidation risk as low.
Disclaimer
This simulation has been implemented under strict assumptions about the rates and price of digital assets, which is unlikely to happen in real situations. Therefore, this is definitely not financial advice, it was made only for educational purposes. 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 own research and simulation, and only invest what you're ready to lose possibly.