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Leverage is a decentralized lending protocol where users can participate as lenders or borrowers in isolated lending pools. The Leverage Protocol facilitates a new kind of leveraged yield farming experience for borrowers, with enhanced farming and vault rewards, while enabling lenders to earn significant yield on supplied tokens without the risk of impermanent loss.
Liquidity providers supply tokens to decentralized exchanges (DEXs) and other DeFi protocols.
When you provide liquidity to a DEX, you receive LP tokens as proof of contribution. For example, if you supply Canto and Note to Canto DEX, you will receive Canto-Note LP tokens in return. These LP tokens represent your proportional share of the total liquidity in the DEX for the token pair.
Impermanent loss is one of the principal risks associated with being a liquidity provider.
The value of an LP token is always backed 50-50 by the underlying tokens in the token pair. Due to the nature of AMMs / constant-product market makers to uphold this ratio, a significant swing in the price of the underlying tokens relative to each other can result in a greater loss to liquidity providers compared to simply holding the tokens, assuming the liquidity is removed at that moment. (Hence, the loss is “impermanent.”)
Leveraged yield farming is a mechanism in Leverage that allows liquidity providers to use their LP tokens to borrow and acquire more LP tokens, with the expectation that the rewards from having more LP tokens (adding more liquidity to the DEX and earning additional yield and farming rewards) will exceed the borrowing cost.
Leverage’s unique LP token collateralization model and liquidation mechanics enable significantly leveraged yield farming positions. The risk of impermanent loss is also amplified with leveraged yield farming.
Lenders in Leverage indirectly provide liquidity by making their tokens available to borrowers for leveraged yield farming. Lenders do not risk impermanent loss with their supplied tokens, as the risk of impermanent loss is transferred to borrowers in the Leverage Protocol.
Total value locked (TVL) is a useful metric for DeFi protocols. TVL measures the amount of tokens locked in a protocol at a given time. Leverage includes the following elements in TVL calculations:
- Total collateral in lending pools (including initial collateral and leveraged positions)
- Total excess supplied tokens (i.e. that are not borrowed, since borrowed tokens are already accounted for in total collateral or not locked in the protocol)
There are various factors to the leveraged APR calculations in the UI, such as the current price of earned reward tokens (from Leverage Vaults, plus Leverage Farming Rewards, if applicable), earned trading fees, and borrows due to pool utilization. These are all factored into the estimated leveraged APRs.
If the leveraged APR calculation was relative to the total collateral, rather than your LP equity, the displayed APR wouldn’t change much as leverage is increased.
Imagine you deposit 100 LP tokens that earn 90% APR.
Borrowing 200 additional LP tokens, with 10% borrowing costs, results in 300 LP tokens (total collateral) earning 90% APR. The 3x leveraged APR would be displayed as 250% (270% yield, minus 20% in borrowing costs) on the original 100 LP tokens.
Most likely, the tokens you supplied are fully utilized by the lending pool.
The interest rate model dynamically adjusts rates by increasing the Supply and Borrow APRs during periods of high utilization. Supplied tokens may be temporarily unavailable for withdrawal when utilization is high, since they’re all borrowed. In the meantime, you’ll continue to earn the Supply APR.
Deleveraging breaks down your collateral into its constituent tokens and uses them to repay the outstanding borrowed amounts. If you deleverage the maximum amount, then your collateral will be broken down into the underlying tokens to repay your borrow balance, and any remaining tokens are returned to your wallet as tokens in the token pair, rather than as LP tokens.
If you wish to deleverage and keep the remaining collateral as LP tokens, choose a smaller deleverage amount that still corresponds to the “0 - Infinity” range for liquidation prices (1x leverage).
If the borrowed amounts for your position are lopsided or not equal, then it’s possible that deleveraging won’t be able to repay your entire borrowed balance for one of the borrowed tokens.
In this situation, you may need to repay some of the borrowed tokens individually, as deleveraging gets tokens via the breakdown of LP collateral (which is always backed 50-50 by the underlying tokens in the token pair).
There are two types of fees paid by borrowers to lenders in the Leverage Finance. There is a fixed, one-time borrow fee of 0.1% whenever a borrower takes out a new loan. There is also the interest on borrowed tokens that accrues over time, according to the interest rate model.
There are no fees paid by lenders for supplying tokens, and no deposit or withdrawal fees. Please refer to the Fee page for more detailed information.
Every borrow or leveraged position in Leverage has a liquidation price range. If the time-weighted average price (TWAP) reported by the price oracle goes outside the liquidation price range, the position is insufficiently collateralized and in a liquidatable state.
A volatile price swing in either direction may cause a borrower’s position to become liquidatable. LP tokens are always backed 50-50 by the underlying token pair, so when the price for the token pair goes up or down, the protocol needs to ensure there is sufficient collateral (in the form of LP tokens) to cover the borrowed amounts of both tokens.
For example, if the price for the token pair decreases and the position becomes liquidatable, this means the collateral is at-risk of being worth less than required to repay the borrowed tokens.
Similarly, if the price for the token pair increases and the position becomes liquidatable, this means the value of the borrowed tokens is at-risk of being too high to be repaid with the collateral. In both situations, to protect lenders, the loan may be repaid by a liquidator and the liquidation incentive is deducted from the borrower’s initial collateral.
When a borrower is liquidated, the collateral is used to repay supplied tokens to the pool. Some or all of the borrowed amount is repaid, plus a liquidator receives the liquidation incentive. The borrower keeps any remaining collateral after liquidation.
By design, there is no frontend to perform liquidations as the process should be handled automatically via liquidator bots to ensure the stability of the protocol. Liquidation is permissionless and can be invoked by anyone willing to repay a liquidatable position and receive the liquidation incentive.
The reinvestment process for Leverage Vaults is permissionless, so anyone can invoke it to compound an entire vault and receive the reward bounty. This process, along with the low transaction fees on Fantom, results in Leverage Vaults automatically compounding (up to) many times per hour.
Even without leverage, Leverage Vaults are one of the most competitive auto-compounding vaults on Fantom, with no deposit or withdrawal fees and much lower reinvest fees than similar auto-compounding farms.
It’s possible for RPC issues due to network congestion to result in outdated information in the UI. If your transactions have gone through , it will eventually display properly.