What if we are able to go 1 step further utilising an autocompounder like Spectrum/Apollo? For the Liquidity Pools (LP) on Astroport that has vaults in Spectrum/Apollo, since utilisation ratio is rarely 100% as discussed in the linked thread, what if we could reroute a portion of the liquidty to the Autocompounders?
In a sense, we may get higher yields than Anchor APY and we dont really make their yield reserve drop faster.
But the cons about this is that
Additional smart contract risk that may be exploited
Needs to have a ?bot or something that constantly monitors the utilisation ratio
Increased in gas fees when LPs are move in and out of the autocompounding vaults to maintain the utilisation ratio
But pros include:
Higher yield for Astro LPs
Additional rewards in the form of Spectrum/Apollo tokens
This collaboration can serve to benefit both Astroport and Apollo/spectrum by increasing the autocompounder’s income with more profit and attract more users to deposit into Astroport LPs due to higher APY and deepening its Liquidity. Even if this idea is not feasible, it may kickstart an Idea Lego process!
Open to all feedback and constructive criticism!
Disclaimer: I have 0 knowledge with regards to smart contracts and coding so I have no idea if such a concept is feasible or not.
i do like the way you’re thinking but this is proposal is basically the same as looping as many of the vaults on Spec and especially Apollo are deposited by them as LPs on Astroport in the first place.
There would be a huge smart contract risk, where users who deposited their LPs on Astroport now have parts of their liquidity moved to another protocol with it’s own set of smartcontract-risks. Also when depositing LPs into say Apollo vaults you are basically just pumping Apollos profit while putting selling pressure on Astro or giving away Astro tokens to Apollo as you have the following flow → Users deposits into Apollo vaults → Apollo deposits LPs into Astroports dualgenerators → Apollo auto-compounds the the vaults profit by selling parts of the rewards from Token A(of Token A-UST LP) and either selling the Astro rewards or putting them in their warchest as part of their 30% performance fee → Astroport then deposits this liquidity back into an Apollo vault to generate yield → first of all this liquidity would have to be liquidity that was not supplied through Apollo otherwise you could get the following paradox that (Apollo deposits 10ANC-UST LP → Astroport deposits 10ANC-UST LP in Apollo vault → This goes back again to Astroport → now Apollo have a vault with 20ANC-UST LP(10LPs from users and 10LPs from Astroport) but Astroport only have 10ANC-UST LP meaning that Apollo could want to withdraw 20LPs and Astroport can only provide 10.
So if you disregard the possible SC risks, the price risk of Astro if Apollo just sells to auto-compound vault, the risk of one single protocol owning very much of Astroports governance token, then basically this strategy would only work on vaults that are on other dexes and it would also mean less liquidity on Astroport more liquidity on other dexes = less swap fees on Astroport which has it’s own risks as it’s not really the way Astroport is supposed to function…
Sorry don’t mean to sound negative. Really like the idea, but Astroport is a dex, having deep self-controlled liquidity on the protocol is first priority.
Thank you for taking your time to write to reply to me! Really appreciate it! These are all valid and important considerations which you have pointed out that didn’t come across my mind at the point of writing. Hopefully this idea can be further built on down the road such that there is a feasible and safe strategy that utilises part of the liquidity in the pools to increase APR for better efficiency.
Incidentally, I did have another idea. that is to utilise part of the liquidity in the pool to lend it out on Money Markets such as Edge Protocol for users to borrow. This can create another source of revenue in terms of borrow interest, driving up the overall yield of the liquidity pool. Hopefully this is a more feasible and safe idea? This idea was actually pioneered by Nexus Protocol in one of their upcoming product and a similar concept was also utilized by Curve for Aave.
Essentially Liquidity Pools are a good source of collaterals because:
Liquidity pools are able to generate a base yield based from the swap fees generated. This allows the collateral to increase in value over time, decreasing the risk of liquidation and also allowing users to borrow more
Because of the rebalancing mechanism, If the asset was paired with a stable coin ($LUNA - $UST), the total value of the asset does not drop as much as if just the main asset is used as the collateral. This essentially also reduces the risk of liquidation by having a less volatile asset as the collateral
I think this could be a really good idea!
i take it you mean lending out the LPs to money markets and not just the individual assets by themselves?
I’ve seen a lot of lending/borrowing protocols starting to take LPs as collateral lately, and it seems like something quite low risk, okay yield type of opportunity! As long as the liquidity on the DEX stays deep i don’t see a problem!
Put it up for a proposal and see what Stefan and the other devs think about it?