In this episode of the OPtimistic Podcast which took place on June 5th, Subli invites E8 to discuss Extra Finance, the advantages of Extra Finance, leveraged yield farming, and future plans. Read our notes below to learn more.
Background
- Subli (Host) – OPtimistic Podcast and Optimism Ambassador.
- Extra Finance – a leveraged yield farming and lending protocol built on Optimism.
Overview of Extra Finance
- E8 says that Extra Finance is a DeFi protocol that enables users to engage in leveraged yield farming. It’s designed to be user-friendly and aims to provide high capital efficiency and utilization rates.
- E8 says yield farming is a way to earn rewards by staking or lending cryptocurrency assets in a DeFi ecosystem.
- E8 says that leveraged yield farming is a more advanced form of farming that involves borrowing assets to increase the potential return on investment.
- E8 says that Extra Finance is designed to be user-friendly as it’s built with an interface that’s easy to navigate and understand, even for those who might be new to DeFi or leveraged yield farming.
- He says that in traditional finance, capital efficiency refers to how well a company uses its financial resources to generate profits. He says that in the context of DeFi and Extra Finance, it refers to how effectively the protocol uses the assets in its lending pool to generate returns for its users. He says that high utilization rates mean that a large portion of the assets in the lending pool are being used at any given time, which can lead to higher returns for users.
The Need for a Lending Pool
- E8 says that lending pools are a collection of funds deposited by users that can be borrowed by other users. These pools are a crucial part of the system because they provide the necessary liquidity for the protocol’s operations.
- E8 also says that lending pools are essential for supporting leveraged yield farming.
- He provides an example where users borrow funds to increase their investment and potentially their returns; if a user has $100 of their own money and borrows another $100, they can invest $200 into a yield farming opportunity. This is a “2x leverage” because they’ve effectively doubled their investment.
- However, he says that for users to be able to borrow funds, there needs to be a source of liquidity. This is where lending pools come in. Users deposit their funds into the lending pool, and these funds can then be borrowed by other users who want to engage in leveraged yield farming.
- E8 adds that their lending pools are designed to generate continuous interest. This is an advantage over some traditional lending protocols, where interest might only be generated when loans are repaid. In Extra Finance’s lending pools, as long as there are funds in the pools, they are generating interest. This can lead to higher returns for those who deposit their funds into the pool.
The Advantages of Extra Finance
- E8 says that Extra Finance is designed with a focus on user experience. They aim to make their platform intuitive and easy to navigate, even for those who might be new to DeFi or leveraged yield farming. He believes that this is important because it can lower the barrier to entry for new users and make it easier for all users to manage their investments.
- E8 says that Extra Finance provides different strategies for users, allowing them to tailor their yield farming experience to their specific needs and risk tolerance. He believes that this is a significant advantage because it gives users more control over their investments. For example, users can choose to take on more risk for potentially higher returns, or they can opt for a more conservative strategy if they prefer.
- E8 adds that Extra Finance’s lending pools are designed to generate continuous interest. This means that as long as there are funds in the pool, they’re generating interest. This can lead to higher returns for those who deposit their funds into the pool.
- E8 says that Extra Finance aims to make the most out of the assets in its system. High utilization rates mean that a large portion of the assets in the lending pool is being used at any given time, which can lead to higher returns for users.
- E8 adds that Extra Finance has plans for future features and improvements, such as the introduction of tokenomics and the launch of their tokens, integration of concentrated liquidity pools, and the provision of more one-click yield farming templates.
The Risk of Leveraged Yield Farming
- E8 says that there is always the risk of liquidation on leveraged yield farming protocols. He adds that when users borrow funds for leveraged yield farming, they are required to provide collateral. If the value of their investment falls significantly, it could reach a point where the value of the collateral is less than the amount they owe. If this happens, their position could be liquidated. This means that their collateral would be sold off to repay the debt.
- E8 adds that cryptocurrency markets can be highly volatile. Rapid and significant price changes can affect the value of the user’s investment and the collateral they’ve provided. If the market moves against their position, they could face losses or even liquidation.
- According to him, leveraged yield farming is a more complex strategy than regular yield farming. It requires a good understanding of the mechanics of DeFi protocols, borrowing and lending dynamics, and risk management. He says that users who don’t fully understand these aspects can make costly mistakes.
- He says that like all DeFi protocols, Extra Finance operates using smart contracts. While these are designed to be secure, there’s always a risk of bugs, exploits, or hacks that could potentially lead to losses.
The Future of Extra Finance
- E8 says that Extra Finance plans to introduce its tokenomics and launch its tokens in the summer.
- He adds that Extra Finance plans to integrate concentrated liquidity pools. He says that this is a feature that allows liquidity providers to specify a price range for their assets, which can lead to more efficient use of capital and potentially higher returns.
- He says that Extra Finance aims to provide more one-click yield farming templates. These templates would make it easier for users to set up yield farming positions, potentially attracting more users to the platform. He also says that Extra Finance plans to give professional users more flexibility to customize their strategies. This could include features like setting up stop losses and profit positions, setting time-sensitive parameters, or setting price-triggered actions.
- E8 says Extra Finance plans to introduce tools that allow users to simulate and calculate their potential returns. This would give users a better understanding of their potential earnings before they commit their funds.
- He believes that one of the most exciting plans for Extra Finance is the introduction of social farming. This feature would allow users to post their yield farming strategies on the platform, and other users could follow these strategies. E8 believes that this could potentially create a more collaborative and interactive community within the Extra Finance ecosystem.
- E8 says that Extra Finance is currently running a campaign for their beta version. As part of this campaign, they are sending airdrops to users based on their Total Value Locked (TVL) contributions. TVL is a measure of the total assets deposited in the protocol. By rewarding users based on their TVL contributions, Extra Finance is incentivizing users to deposit more assets into the protocol.
Important Links
Information
- Medium: Twitter Spaces
- Show: Optimistic Podcast
- Show Title: Extra Finance <> The Optimistic Podcast
- Show Date June 5th, 2023