Rapid development of projects in the DeFi sector is attracting more and more attention and becomes a constant source of fintech innovation.
Today we are going to review the beta version of a new interesting DeFi service DeFireX. The service offers a decentralized functionality for accelerating (boosting) the receipt of COMP tokens from the largest DeFi project Compound, which is almost risk-free and provides an average yield of about 43% per annum.
How it works and what pitfalls there are in the process.
At the end of June 2020 the second-largest DeFi service Compound issued its governments COMP token that is required for participation in the project management and is credited to all Compound users who place funds and receive secured loans.
Let’s have a look at a simple example
You placed funds on the Compound in the amount of 1000 USDC at 3.2% per annum, and you will also receive a certain amount of COMP tokens, which is determined by the size of your share in the sum of all funds placed on the Compound. At the moment the Compound distributes 1445 COMP to everyone per day. If the sum of all funds placed is 10.000.000 USTC, and you have placed 1000 USTC (0.01% of the total amount), then, accordingly, you will receive 0.01% out of all COMP, which equals to 1445 * 0.01% = 0.01445 COMP. The current rate of the COMP token is $134.5, therefore, you will receive an additional $134.5 * 0.01445 = $1.94. If you recalculate $1.94 per day to annual interest, you will additionally get more than 700% per annum.
Indeed, in the early days after token accrual launch, compound users received a very high percentage of the additional profit that exceeded 100%. But since the volume of distributed tokens is fixed, and the size of funds on the Compound exceeds $500,000,000, now the additional average yield from the received COMP tokens does not exceed 6% per annum. That, together with the total balance interest in USDC gives 6% + 3.2% = 9.2% per annum on the dollar balance, which is also a very good result.
But, of course, users always want more and this is possible.
Step 1: let’s place funds in the amount of 1000 USDC and make it a collateral.
Step 2: let’s receive a loan of up to USD $700 (in DAI tokens) on the Compound at a small interest rate, which will give you the opportunity to receive COMP tokens for the amount of the loan taken, according to the scheme that we discussed above using the example of a created balance.
Step 3: let’s create another account on the Compound and place the loan received in DAI inside the new compound account on a balance that will allow you to receive the main 3.2% and an additional ~ 6% interest on it in COMP tokens.
Step 4: again, let’s take a loan for the second balance we created in the amount of up to $490 and get COMP tokens for it as well.
As a result of these steps (you can complete more than 10 of them, as the reasonable number of steps depends on the size of the initial balance), you can increase the total amount of the balance and a loan on the Compound by about 3.2 times, which means that the initial interest of 6% will be increased by 3.2 times.
6% * 3.2 = 19.2%
+ 3.2% on the balance = 22.4%
-4.8% loan repayment = 17.6%
Total: 17.6% per annum on a dollar account. This is just an outstanding result.
What are the risks and specifics?
All these steps will require payment of the Ethereum network commission, and since these are quite complex operations, you will spend from $35 to $60 for 5 to 6 steps. You need to correctly calculate and select tokens for the balance using the average % values for the balance and a loan, otherwise a significant part of the profit can be spent on paying off the high % for the loan. If you take the maximum possible loan amount close to 75% of the balance amount, then in the event of a significant fluctuation in the exchange rate of your chosen tokens or an increase in the loan interest, there is a risk of liquidation of your collateral, which may lead to the loss of 13% of your balance.
After placing funds in 5–7 steps, you need to regularly request COMP tokens on your own, which also implies payment of a commission to Ethereum network; each withdrawal will cost from $15 to $25, and it is better to request and sell COMP tokens regularly, since their cost has been gradually decreasing recently.
It turns out that in order to maximize the COMP’s profit, the initial balance amount must be more than $4,000, otherwise the network’s commissions and the reduction of the cost of COMP will eat up all the additional profit.
How can I receive a high interest without paying network commission?
All risks and high commissions are excluded only if you use a specifically created and configured service that:
– takes into account all these specifics
– can work directly with the compound smart contract
– and most importantly, uses its advanced features that are not available to a common user.
This service allows you to make just 1 step and increase the total position size by 6.95 times, which means that you can increase the interest rate more than twice from what you can receive doing it manually.
The DeFireX project uses the so-called flash loan that is available only in DeFi, to increase the position at the first step, so that it borrows the amount necessary to maximize the balance and immediately after maximizing it, returns it as a loan.
Also, DeFireX is decentralized and aggregates the profit from the received COMP tokens up to several times a day, fixes it in USDT, which allows you to avoid the risk of a drawdown of profitability due to the decline in the COMP rate; and the withdrawal of profit costs only from $2 to $4 depending on the network load.
Low commissions on DeFireX for placing a position and for profits withdrawal make it cost-effective to make a profit through COMP tokens, even for users with small balances.
Namely, it is possible to place a position on the Compound and get 40–50% per annum, with almost no risks, in the worst case, your annual % of profit will be lower, but you can take your initial funds in full at any time.
Also, some new functions for maximizing (boosting) profit from other popular DeFi projects are being developed, so very soon profit boosting for Balancer, Uniswap, Curve and other popular projects will become available.
The project team plans to release a token, which will allow to maximize profit from the best DeFi projects in one action, automatically receive and fix profits by performing minimum actions without need to entrust their funds to a third party, since the project is completely decentralized.