[Proposal] Farm COMP + Leverage Stablecoin Arbitrage with WETH/WBTC vaults

Proposals Vaults
1

Summary:

This strategy takes a Base Asset, stakes it in Compound, borrows stablecoins which it then leverages for arbitrage while farming COMP across all activities.

It will harvest farmed COMP to pay off interest periodically, keeping gains in USD pegged token (Farm Assets).

Abstract:

Optional strategy for yETH vault and yWBTC vault. Leverage Farm COMP and Arbitrage stablecoins, with an optional DAI specific option for extra leverage.

Start by depositing Base Asset (WETH/WBTC) into Compound, and borrowing a Seed Asset (USDC/DAI). This should be drawn to the target safe c-ratio.

Each Seed Asset has a Sub Farm. Flashloans are used to create a leverage long position with debt in the role of short. The Seed initially borrowed is used to pay the difference back to the flashloan as a deposit.The value is still held in the Compound CDP with debt equating to the size of the leverage.

The Optional Farm utilizes Makers lower c-ratio to maximize leverage in short term price spikes.

If price of ETH drops, reduce from the Sub Farm currently Long the higher priced asset until empty.

Motivation:

Currently need better vault strategy for WETH and a way to utilize WBTC

Specification:

Initialize Vault:

  • Funds deposited in vault go into entry pool
  • When a threshold of deposits in the entry pool is reached
    • Deposit Base Asset in Compound as Base Farm (e.x. cETH)
    • Populate each Sub Farm according to Farm Distribution Model

Base Farm:

  • This Farm manages the creation, reduction, and management of the sub farms.
  • Admin assets from Entry Pool
    • Based on current price ratio will deploy assets to either Sub Farm A or B. (DAI/USDC)
    • Compound
      • Deposit ETH
        • Borrow Seed Asset
      • Reduce assets from Sub Farms
        • Based on current price ratio will reduce assets in either Sub Farm A or B. (DAI/USDC)
        • Compound
          • Repay Seed Debt
  • Saver/Boost

Sub Farm:

  • These farms leverage farm the Seed Asset passed to them. (one for each DAI/USDC)
  • Receive Seed Asset
    1. Flashloan Size in Seed * Target Collateral Factor in Seed Asset
      • Currently 25% for USDC/DAI, 75% for ETH
    2. Deposit the flashloaned amount into Compound
    3. Borrow Opposing Seet Asset (DAI if USDC as collateral and vice versa)
    4. Sell Debt for Seed Asset
    5. Repay flashloan (still have initial seed funds to cover difference)
    6. If profit to buy more ETH.

Sub Farm Distribution Model

  • Both DAI and USDC will be farmed at most prices
  • Offsets are corrected by new deposits and withdraws with price change rebalances.
    yearn_distribution_schedule

Generalized Overview

Sample
Sample1225Ă—773 113 KB

For:

Against:

Poll:

14 Likes
2

Poll:

  • Let’s do this!
  • No.

0 voters

7 Likes
3

While I think this is an interesting idea, it would be helpful if we perhaps had some calculations about what the estimated overall return would be based on current rates on Compound, assuming 50/50 DAI/USDC just for simplicity’s sake (and maybe also a 35%/65% DAI/USDC since that is also very likely to happen).

Perhaps you could share this spreadsheet on google sheets so others could play around with the numbers?

3 Likes
4

I should be able to get that out today.

5 Likes
5

Today demanded more of my attention than expected, so still working on adding scenarios, but now have more stats in terms of returns. Each sheet is a scenario. So far includes Deposits and Saver scenarios where DAI is greater or less than USDC.

I imagine rebalances will capture more of the profit, working on getting those added. Currently around 3.15% base where 1/10th of total deposits staked in a day nets ~24%APR for that day. Likely to see low base with large spikes on days. Saver doesn’t need to utilize transfers in typical scenarios. Will map more extreme scenarios as well when one Sub pool is spent and can’t be used in conjunction.

Green squares are input. Welcome feedback if ya notice anything interesting.

6 Likes
6

COMP ETH farm rewards in 1X are interesting with low IL.

5 Likes
7

So the additional yield comes from the volatility between DAI und USDC?
I’m not convinced yet. Wouldn’t you more or less get the same effect by just depositing into the Compound Curve Pool (USDC/DAI), but there you could also get CRV rewards?

11 Likes
8

The additional yield in this plan was to leverage arbitrage DAI/USDC while farming COMP on top.

At this point, with Price Stability Module (PSM) enabled in Maker, the volatility between the two is greatly reduced, so I’d probably go with farming CRV like the current ETH vault model.

Particularly given Compounds DAI price feed being primarily based on coinbase with low DAI liquidity. This had recently wrecked DAI/USDC COMP loop farmers when the price of DAI spiked to 1.30 on Coinbase, causing liquidations.

9 Likes
9

Hope the price feed will be more smooth.
Thank for the info

10 Likes
12

Gateway is currently running on Ethereum’s Ropsten network as a testnet, and audits will be carried out before the mainnet launch.

8 Likes