Supercharging LSD Yields on Cosmos - Part II, Becoming the Captain of Sustainable Yield
Welcome to our second post in our Supercharging LSD series. If you read our recent relaunch article, you’ll know that Apollo is designed to sustainably Supercharge LSD LP yields on Cosmos by:
- Utilising vxASTRO holdings to boost LP yields,
- Tokenising of LSD yield positions so that they can be used in DeFi as:
a. Collateral for Leveraged and Looped positions
b. Collateral to mint stables or synthetics against
c. As well as split into Yield and Price exposure components.
But Apollo will also be bringing something completely unique to LSDs on Cosmos.
Our aim is to make Apollo so completely indispensable in the world of LSDs on Cosmos. So much so, that LSD protocols will need to buy APOLLO in order to remain competitive and sustainable.
Not only will Apollo Vaults be able to offer the highest sustainable yields for LSD LPs on Cosmos, but we will also increase the base yields of LSDs on all the DEXs we build upon (Astroport, Osmosis, etc.).
We know that this is in fact a very lofty goal and appreciate that it will not be accomplished over night. However, first we will dive into the problems facing LSD providers, before looking at how Apollo will help solve them.
The Problem for LSDs
The primary problem currently facing LSD providers is; How to maintain the “Liquid” part of their “Staking Derivatives”?
The reason these LSDs need to maintain Liquid markets, is their primary selling points are:
- They can be used throughout DeFi (leverage, borrowing etc.)
- There is a liquid market to exit with minimal slippage.
These LSD Protocols currently have three options to maintain liquid markets:
- Provide large amounts of incentives (forever?)
- Own their own liquidity (POL)
- Control the emission flow of a DEX (such as vxASTRO)
All of these are expensive; POL is not scalable, incentives come at the expense of current token holders and Astroport is unlikely to have enough incentives to power the whole LSD ecosystem of Cosmos.
The Current LSD Liquidity Landscape
For ATOM LSD LPs to even offer the same yield as just holding the LSD, providers need to offer >6% APR and this doesn’t account for the extra effort and risk.
Without incentives, ATOM LSD LPs on Osmosis are struggling to gain over 1% APR, and while Stride is offering an attractive >20% APR, STRD has 88m circulating vs 100m max supply (88%) and can't provide incentives in perpetuity.
The story on Astroport (Neutron) is currently even worse, with 0 incentive to LP stATOM or stkATOM and with the liquidity (assumedly) primarily POL.
While this may work for ATOM, where the hub is able to provide large amounts of liquidity, how do these LSD protocols scale to 3 to 4 different DEXs and 5 to 6 different chains?
So how does Apollo Help?
While we are sure LSD providers on Cosmos have a plan on how to continue to incentivise liquidity sustainably for the long term; Apollo aims to help enhance this with our Volatility Farming/Harvesting for LSDs on Cosmos. We will harness the natural and perpetual volatility of the crypto market to sustainably boost the yields for LSD LPs.
Volatility Farming/Harvesting
In short Volatility Harvesting creates arbitrage opportunties by having pools of liquidity that can only be accessed for a fee/tax, meaning as prices of external markets move relative to the pools of liquidity, arbitrageurs are incentivised to pay the fees to access this liquidity (to then sell on an external market for a profit).
These fees are then used to:
1. Burn APOLLO
2. Incentivise LSD Vaults
3. Rewards (LSD)VT/APOLLO LPs.
While it can sound a little complex it comes down to:
Liquidity + Volatility = Volume & Volume + Tax = Profit
In our next article “WTF is Volatility Farming? - Part I” we will be diving into:
- WTF is Volatility Harvesting/Farming and its History
- What is $PEAS
- How Apollo will harvest crypto volatility to benefit LSD LPs
- What is coming in "WTF is Volatility Farming? - Part II"
