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Learn more about the revenue aggregator in Defi

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Liquidity mining has become the most popular activity for cryptocurrency holders since DEFI's launch in the summer of 2020.

原文标题：《 Yield Aggregators in DeFi 》

原文来源： Simon Cousaert，以太坊爱好者

Min Min & O sword & have spent

This paper summarizes the ideas presented in the paper "Systematizing Knowledge: Revenue Aggregators in DEFI".

Liquidity mining has become the most popular activity for cryptocurrency holders since DEFI's launch in the summer of 2020. The amount locked up in the asset management agreement is well over $3 billion in May 2021 and $2 billion at the time of writing.

While there are a bunch of (scam) projects that claim to deliver huge returns in the short term, revenue aggregators like Idle Finance, Pickle Finance, Harvest Finance&NBSP; And & have spent Yearn Finance is working to create a sustainable source of revenue for the DEFI community. I couldn't help but wonder:

Where does this revenue come from? Which currencies does the revenue aggregator use for LEGO? What, if any, are the common mechanisms behind these aggregators? What are the benefits and risks of putting your money in a yield aggregator? I'm working with Jiahua Xu. The paper "Aggregators in DEFI" by Toshiko Matsui (Imperial College London) and the Blockchain Technology Centre answers these questions and proposes a general framework for revenue aggregators. Let's delve deeper into the most depraved part of DEFI -- fluid mining. If you want to learn more about the framework from a more technical and in-depth perspective, read this paper. Your feedback is welcome. Thank you very much.

Introduction to the

If you've read my previous post on AMM (Automatic Market Meller), you know that DEFI has seen explosive growth since the summer of 2020. One of the most closely watched applications in the DEFI space is fluid mining. The concept was originally introduced by Synthetix until Compound introduced and distributed governance tokens. Then it really caught on. Compound participants were then rewarded with newly minted COMP tokens through lending activities (a process later known as "liquidity mining"). This process is still being replicated today; This also encourages developers to find a way to combine the rewards of different protocols. This is the context in which fluid mining was born. Defi - based aggregation protocols are striving to provide a one-stop solution for people who want to reap the benefits.

Where does the revenue come from?

There is no such thing as a free lunch, so where does the aggregator revenue come from? There are three main sources.

As the demand for loans for cryptographic assets grows, interest rates on the loans rise, generating more revenue for providers of funds. Especially during bull markets, speculators were willing to accept even higher borrowing rates in the expectation that their leveraged long positions would appreciate in value. In April 2021, due to high bullish sentiment in the market, the stablecoin annualized return on the AVE and Compound Lending market was as high as 10%.

Early participants in a liquid mining program typically receive governance tokens representing ownership of the agreement. This creates an incentive for people to deposit money into the agreement, since the token as a reward usually comes with a governance function attached. This feature is generally considered valuable because it gives token holders a say in the future strategic direction of the project. In essence, early users are rewarded for helping the project grow and taking the early risk that a smart contract might have holes. Typical examples are Sushiswap And & have spent Yearn to Finance.

Revenue Sharing Some tokens allow users to take a cut of revenue from the agreement. One example is AMM's LP (liquidity provider) token (see here for more). The more people who trade, the more the liquidity provider is rewarded. Another revenue-sharing token is XSushi. The person who pledges Sushi tokens will receive XSushi tokens in return.

XSushi token holders are entitled to 0.05% of the Sushiswap transaction revenue. Vesper Finance's governance token VSP can also be pledged to &NBSP; In the VVSP pool, share VESPER &NBSP; 95% of the transaction fee.

The mechanics behind the strategy

Now that we know where revenue comes from, how do users get revenue through revenue aggregators? Let's take a fictional "simpleField" revenue aggregator as an example to illustrate the chart below.

- Revenue aggregator mechanism -

in Phase 0,Money is concentrated in smart contracts. A pool typically contains only one asset, although new protocols support multiple pools. Users deposit assets into the pool and receive tokens representing their share of the pool in return. For example, put ETH into a pool of ETH in Simpleyield and receive a Syeth token representing the corresponding share of the pool.

in Phase 1,The assets in the pool are pledged to Compound, AVE or Maker to borrow another asset. This stage is not necessary and can be skipped. The main purpose of this step is to execute a liquidity mining strategy using another asset other than the pool's original asset. For example, the ETH in the Simpleyield ETH pool can be used to borrow the stablecoin DAI through Maker.

Phase 2 Involve revenue strategies with varying degrees of complexity. At this stage, as the figure below shows, people offer either a non-yielding asset (red token) or a yielding asset (green token). Over time, green tokens generate revenue and increase dramatically. For example, the Simpleyield ETH pool uses ETH to borrow DAI, which is then stored in the Compound. Through Compound, Simpleyield gets revenue generating CDAI tokens and money from Compound fluid mining program of COMP tokens.

- Single policy execution process (SC stands for smart contract) -

In the final Phase 3, the proceeds generated in Phase 2 are sold on the open market, exchanged for the pool's original assets, and then re-entered into Phase 0 and redeployed through phases 1 and 2. The value of the lockup in the pool increases, but no new shares are generated, so the value of the original shares increases. For example, the COMP tokens generated in Phase 2 are replaced by ETH through Uniswap and go back to Phase 0. The Syeth token you originally minted has increased in value because the pool value has increased, but the number of Syeth tokens remains the same.

The sample strategy

Now that we know how the revenue aggregator works, the protocol focuses on Phase 2 because the revenue is actually generated in this Phase. Let's take some examples of liquid mining strategies. Note that the examples presented here are simple, and the strategies used in real life are much more complex. Changes in the value of the pool are simulated under controlled market conditions. The results of the simulation can be found in this paper.

Simple borrowing

The example mentioned in the previous section is the simple lending strategy. Users deposit funds into a loanable funds agreement (PLF) and receive interest as well as governance tokens rewarded by liquid mining.

Spiral borrowing

The spiral lending strategy aims to earn as many governance tokens as possible through liquid mining. The aggregator can deposit DAI into a loanable fund agreement, borrow DAI from the deposit, and then deposit the borrowed DAI into a loanable fund agreement. The process can be repeated many times, depending on the amount of money borrowed and the interest rate. The simulation showed that there was a high risk of doing it too many times.

Liquidity mining with AMM LP tokens

AMM LP tokens generate income because transaction fees are kept in the AMM pool. If the AMM also operates a liquidity mining mechanism, users can be rewarded with governance tokens in addition to transaction fee sharing. The strategy is also considered risky because volatile losses can wipe out most of the gains when the price of the underlying asset changes.

Comparative analysis of mainstream revenue aggregators

- Mainstream Early Earnings Aggregators (May 1 data) -

Idle Finance

Idle Finance, one of the first revenue aggregation protocols, went live in August 2019. Currently, Idle Finance only uses a simple lending strategy, allocating the funds in the pool to multiple PLFs (Compound, Aave, Fulcrum, DyDx, and Maker). The agreement offers a "best return" strategy and a "risk adjustment" strategy. The former aims to maximise returns through the above platforms, while the latter takes into account risk factors to optimise risk-return.

Pickle Finance

Pickle Finance Launched in September 2020, it offers two revenue categories: Pickle Jars (PJars) and Pickle Farms. The former is a liquid mining robot, using user funds to earn income; The latter is a liquid mine pool that allows users to earn PICKLE governance tokens by pledging different types of assets. PJARS uses a "liquidity mining with AMM LP tokens" strategy. Liquid miners deposit Curve LP tokens or Uniswap/Sushiswap LP tokens into pools and generate governance tokens through liquid mining.

Harvest Finance

Harvest Finance Launched in August 2020, it provides users with compound interest through its Farm liquid mining mechanism. The protocol has two main strategies: a single asset strategy (including the "simple lending" strategy) and an LP token strategy (including the "liquidity mining with AMM LP tokens" strategy). Thirty percent of the proceeds from the pool are used to buy the Farm in the open market and then go back to the Farm Pledger, not the pool.

Yearn Finance

The largest revenue aggregator & NBSP; Yearn It will be online in July 2020. Yearn offers a variety of products, with Earn and Vaults being considered primarily in this article. Each pool uses a "simple lending" strategy, placing assets in the PLF with the highest interest rate. Vaults supports more complex policies.

- always lock up the forehead (source: https://defillama.com/home)

Benefits and risks of revenue aggregators

advantages

● 用户不需要自主制定策略，可以利用其他用户制定的策略，实现投资策略被动化。

● 由于跨协议交易是通过智能合约，资金转移是自动完成的，无需用户在协议之间手动转移资金。

● 资金全部集中在合约内，因此 gas 成本是社会化的，从而减少交互成本。

risk

● 流动性挖矿策略永远免不了借贷风险，无论它们是通过质押某种资产借入其它资产，还是只将资产提供给 PLF。在资金利用率高（借出额/质押额比率高）的情况下，如果有很多贷款方同时取款，可能会有一定数量的资金提供方需要等待贷款方偿还贷款。这就叫作「流动性风险」。当用户借入资金时，如果质押物的价值低于预先设定的清算门槛，就会存在「清算风险」。

● 流动性挖矿策略通常构建在一组 DeFi 货币乐高上，因此存在可组合性风险。在利益的驱使下，作恶者会利用技术和经济方面的弱点来套利。

● 流动性挖矿策略的收益通常由多种因素决定。对于某些策略来说，这会导致年化收益率不稳定。如果年化收益率会因发散损失、AMM 交易活动少或治理代币价格变化而产生波动，对很多潜在投资者来说吸引力不大。

conclusion

In the last year, a number of revenue aggregator protocols have emerged, each with a different style, although their overall framework is similar. Idle Finance launched its first version in 2019, which puts money into the PLF with the highest interest rate. Inspired by the Compound's fluid mining mechanism, Yearn Finance expanded this model in July 2020 with the introduction of the Vaults, a more complex strategy, in addition to EARN products. Later, more types of liquidity mining mechanisms appeared. Harvest Finance and Pickle Finance specialized in using LP tokens for liquidity mining.

Revenue aggregators have long been a popular way to generate revenue for Defi users. But how long can these gains last? As we have seen, there are three main sources of revenue. While the study of revenue sustainability merits another article, we can conclude that the gains from governance tokens are relatively short-lived. Once the governance token is dispensed, this source of revenue is cut off. While new protocols could flourish by starting new token distribution schemes, this source of revenue is unlikely to be sustainable. Borrowing demand, by contrast, is more sustainable, but it is highly dependent on market sentiment, particularly in unstable currencies. Revenue sharing tokens seem to be the most durable, especially if DEFI maintains its recent growth rate.