Engagement Strategies

How Can Users Engage with Potions

Introduction

Potions by their nature offer several ways for users to engage with the product. Potions are designed to allow users to take advantage of market volatility (how much and how quickly prices change in the market).

Under the hood, potions facilitate a secondary market with liquidity and assets backed by different types of tokens. To create a secondary market and price differences, we introduced derivatives (e.g., lYEL), which are backed by the Original asset(s) (e.g., YEL) (they could be backed by multiple assets). Any market fluctuations create arbitrage opportunities between lYEL and YEL. As lYEL are created, we need to incentivize users to add liquidity to these assets to minimize high slippage on larger transactions. Therefore, we share the revenue generated from wrap/unwrap fees with the users that provided liquidity and staked it.

Since there are several ways for users to engage with the potions product, they naturally have the opportunity to implement their farming strategy. Therefore, we would like to provide you with the available strategies that users can take advantage of.

Strategy Types

There are 4 types of strategies users can engage with potions: (i) Wrap & Hold; (ii) Wrap, Create LP & Stake; (iii) Arbitrage Hunter; and (iv) Combined Strategies. Below is in-depth review of each strategy.

Wrap & HODL

Brief Description

Simply wrap your YEL into a potion and receive an lYEL to HODL. Limited earnings, low-effort HODL strategy.

Explanation

There is a user who wants to utilize their asset, forget about it for a while, and additionally farm tokens. They engage with a potion by wrapping their original asset (e.g. YEL) and receiving derivative asset (e.g. lYEL) instead. This user farms Holder’s APR because of the lYEL burn mechanism. This APR is passive by nature, as the user simply needs to hold lYEL, which will increase in value relative to YEL. To check the wrap/unwrap ratio, you need to look at the Backing Ratio coefficient. The burn mechanism works as follows: a portion of lYEL is burned with every new user engaging with the potion, and thus, each lYEL represents a larger share of the YEL in the potion over time. In other words, farming in such a way increases their stake in the pool of YEL as they can swap lYEL to YEL at a better rate and take profit from their Holder’s APR. .

Suitable For

HODL users, those who want a simple entrance into potions.

Pros & Cons

• Pros: Participating in Holder’s APR; efficient HODL of interested tokens; no impermanent loss.

• Cons: Limited earnings.

Example

A user does not know how to utilize his Token B, which he firmly believes will benefit him as it will increase in price over time. He sees that there is a potion with his Token B. He wraps his Token B into lB. He can unwrap it at any time. His wrapped Tokens B earn him a Holder APR, which derives from burning lB automatically when users engage with the Token B potions.

Wrap, Create LP & Stake

Brief Description

Wrap your YEL into a potion, receive an lYEL, use lYEL and a paired token to create LP, and stake it. Medium risk-reward ratio, where users farm Holder’s and LP APRs, while limited only by impermanent loss risk.

Explanation

There is a user who is used to provide liquidity and gain profit from it. They engage with a potion by wrapping their YEL, receiving lYEL instead, and creating a Liquidity Pair with received lYEL and relevant paired token. They already earn Holders APR, as they wrapped their YEL. Additionally they receive LP APR, which derives from fees generated by users' engagement with potions (wrap/unwrap).

This strategy has pending rewards to claim.

Suitable For

Experienced yield farming users, LP providers.

Pros & Cons

• Pros: Enjoying both Holder’s and LP APRs instead of a single Holder APR; rewards are distributed automatically and eligible for reinvestment or taking profit.

• Cons: Might be affected by impermanent loss; less maneuverable.

Example

A user is used to providing liquidity to gain profit. He sees that by providing liquidity in a relevant potion, he can receive a bigger LP APR, as he participates in revenue sharing from the fees generated by the potion. Additionally, he can receive Holder APR.

He sees that there is a Potion of Token B, which he already holds or provides liquidity for. He takes his Tokens B and wraps them. In return, he receives lB. He can unwrap it at any time.

lB is paired with Stable Coin C. He then takes his lB and either (i) trades 50% of lB for Stable Coin C through Swap page, or (ii) takes additional funds to buy the corresponding amount of Stable Coin C to Token B.

Further, he creates an LP with lB and Stable Coin C, and automatically stakes them, receiving a stakedlBC token as proof of his deposit.

His wrapped Tokens B earn him a Holder APR, which derives from burning lB automatically when users engage with the Token B potions. And his LP earns him an LP APR, which derives from potions fees.

Arbitrage Hunter

Brief Description

Take advantage of arbitrage opportunities, which arise from price discrepancies on the Swap router and/or Arbitrage Feed.

Explanation

There is a user who looks for instant profit and is ready to take action and risk at any time. Moreover, he is an active user, meaning that he constantly researches profit opportunities.

He can engages with potions through its side products - Swap Router and/or Arbitrage Feed.

Swap Router. He does so via the following steps: (i) analyzes whether there is an arbitrage opportunity by browsing possible swap options between original token (e.g. YEL) and derivative (e.g. lYEL); (ii) whenever he finds a possible arbitrage opportunity, he analyzes price discrepancy and profitability of the trade, taking into account additional factors such as slippage, wrap, unwrap, protocol, and/or blockchain fees, and all other possible risks, including those of being outrun by other arbitrage hunters; (iii) executes the arbitrage opportunity and takes instant profit. This strategy has no APRs or pending rewards to claim.

Arbitrage Feed. He gets access to arbitrage feed by aquiring sufficient amount of YEL Tokens. Arbitrage Feed provide real-time arbitrage opportunities. He simply executes arbitrage with few clicks.

Suitable For

Experienced, risky users, arbitrageurs.

Pros & Cons

• Pros: Effortless and instant profit that can go up to 25% of the arbitrage opportunity sum; no barriers of entry into arbitrage for regular users; secures arbitrage profits manually.

• Cons: Active asset management that requires constant time resources and fast decision-making; can be outrun by a more active user in a competitive environment; no guarantee of constant profit.

Example

User browsers Swap router for arbitrage opportunities and he sees that if he sells Token A for lToken B he can earn 150 USD. He calculates wrap and unwrap fees, as well as blockchain fees, and realizes that he can secure up to 140 USD profit. He executes a trade and realizes the profit by unwrapping lToken B to Token B.

Or, alternatively, user can aquire sufficient amount of YEL tokens to gain access to Arbitrage Feed and hunt that opportunity there with a few clicks.

Combined Strategies

Brief Description

Split your funds into several strategies or use revenues from one strategy to engage in other strategies.

Suitable For

Users who like to balance their risks.

Pros & Cons

• Pros: Balance all risks and enjoy the benefits of several strategies.

• Cons: Depending on the amount and types of strategies, it requires additional time and effort.

Example

A user might be engaged in a Wrap & HODL strategy; however, anticipating higher rewards, finds out that the APRs for staking LP have increased significantly. In response, he could use his LTKN to create LP and stake it in a few steps to participate in those APRs.

Alternatively, the user could create an LP and stake it, earning rewards from revenue sharing type APR in YEL tokens. Afterward, the user could use those rewards in different ways:

• Wrap them into a potion and use the Wrap & HODL strategy.

• Increase their staked LP position.

• Use those rewards to find arbitrage opportunities, employing the Arb Hunters strategy.

• Implement all three strategies in proportions that suit them the most to be more flexible in their decisions and mitigate the drawbacks of different strategies.