What you can do with your DPI - Extrinsic Productivity

Product Products
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Authors: @Mringz @oneski22

Feedback: @Lavi @overanalyser

With our business development activities we have been hard at work to create extrinsic productivity opportunities for our products. Extrinsic productivity can be viewed as a second use case beside the primary reason that users choose to buy our products. These extrinsic productivity opportunities are extremely important to the success of our products, as it improves retention and adds additional opportunities to earn rewards.

At Index Coop we have created a dedicated vertical within the business development group to create these opportunities, as well as identify existing opportunities. Recently there was a post in the Yearn forum that covers what a user can do with the YFI token in the Defi ecosystem. Myself and @oneski22 thought we should replicate the process by identifying all the extrinsic productivity opportunities that currently exist for DPI Token. This forum post will serve as a start, to educate the community as well as Index Coop token holders about the extrinsic productivity opportunities that exist in the DeFi ecosystem.

Primary Use Case

Sector exposure

The DPI’s primary use case is to give users diversified sector exposure to DeFi blue chips. The token is highly liquid on secondary markets and has out-performed both ETH and BTC on multiple occasions since inception. In the most recent correction, we have seen an increase in minting and trade volume of the token, which can be interpreted as users diversifying their positions to reduce the draw down on their portfolio from individual tokens.

Secondary Use Cases

Liquidity Providing (LP)

Providing liquidity for DPI/ETH on a decentralized exchange like Uniswap enables any DPI holder to become a market maker. In order to become an LP, you have to supply both DPI and ETH in equal value. Once you become an LP, you will earn trading fees off every transaction that occurs in the DPI/ETH liquidity pool, however, liquidity providers are susceptible to impermanent loss.

Uniswap v2 DPI/ETH Pool - Currently the largest liquidity pool for DPI

APY: 12.36%

Source: Uniswap Interface
Documentation: https://docs.uniswap.org/

Sushiswap DPI/ETH Pool - Onsen program additional rewards in SUSHI

APY: 16.87%

Source: https://app.sushi.com/yield
Documentation: Overview - Dev Hub

Loopring v2 DPI/ETH Pool - ZK roll up L2 meaning less gas fees

APY: 0.59%

Source: Loopring Wallet

Liquidity Mining

In addition to the trading fees added onto the LP position automatically, users can earn additional rewards by staking their LP tokens via the Index Coop website to receive LP rewards in INDEX tokens.

Index Coop

APY: 12.3% (INDEX)
Source: Index

Yield Farming

Users can also stake their LP tokens into yield aggregators like Harvest Finance to earn additional rewards on their LP tokens. Yield aggregators harvest reward tokens (INDEX) plus reward stakers in their native token (FARM) for staking their LP token on their platform.

Harvest Finance

APY: 1.38% (FARM), 7.35% (INDEX)

Source: https://harvest.finance/
Documentation: Harvest Finance

Leveraged yield farming

Protocols like Alpha Homora V2 and Impermax allow users to deposit DPI or the DPI/ETH LP token to earn leveraged liquidity rewards. The rewards are auto-compounded to generate additional yield for the user.

Alpha Homora V2

APY (Uniswap DPI/ETH): 73.21%
APY (Sushiswap DPI/ETH): 103.53%

Source: https://homora-v2.alphafinance.io/
Gitbook: What is Alpha Homora V2? - Alpha Homora V2 (Ethereum)

Impermax Finance

APY(DPI/ETH LP): 216.97%
APY(DPI): 79.32%

Source: Impermax
User guide: https://impermax.finance/User-Guide-Impermax.pdf

Lending and Borrowing Protocols

Users can also lend their DPI tokens in lending and borrowing protocols to earn yield from borrowing demand on the protocol.

Cream

APY: 3.83%

Source: https://app.cream.finance/markets/eth/DPI
Gitbook: https://docs.cream.finance/

Alpha Homora V2

APY: 5.83%

Source: Alpha Homora - Yield Farming on Leverage
Gitbook: What is Alpha Homora V2? - Alpha Homora V2 (Ethereum)
Risks: Impermax

Collateral Debt Positions (CDP)

The last secondary use case available for DPI is creating a collateralized debt position. In simple terms this enables a user to deposit their DPI as collateral and borrow a stable coin against it. Being able to borrow stable coins against your DPI position frees up liquidity for a user without having to sell their assets. This is beneficial for users as the stable coins borrowed can be use for various cases outside and inside crypto. For example, a user can create a leveraged long position on DPI as the stable coins can be used to purchase more DPI or use the stable coins to earn yield on DefI platforms like yearn.

Unit Protocol

Loan to value: 64%
Liquidation Ratio: 65%
Debt: USDP
Interest rate per annum: 10%

Source: Unit Protocol
Gitbook: https://docs.unit.xyz/

Sushiswap Kashi

Loan to value: 75%
Debt: sUSD
Interest rate per annum: 0.25%

Source: https://app.sushi.com/bento/kashi/borrow/0xa16c84206a6b69c01833101133cc78a47602349d
Gitbook: Kashi Lending - Sushi

Risks

Before exploring the above opportunities it is highly recommended that users DYOR, our recommendation would be to read the gitbook/docs before using each platform to get accustomed to how each platform works. The gitbook/docs will also have information on the audits that have been conducted on each platform. Smart contract risk is also a major consideration when allocating your assets to any protocol within DeFi. We recommend taking insurance to mitigate smart-contract risk. We recommend using Nexus Mutual and Cover Protocol. Another risk that is unique to CDP’s is the liquidation risk, if the value of your collateral ratio falls below a certain threshold your deposited collateral will be liquidated to pay off your debt.

Let us know if we have missed any extrinsic productivity opportunities that are available in the DeFi ecosystem and whether you would like us to include more information about these opportunities. We plan to release a medium article based on this forum post and the feedback in the comments.

Disclaimer: This post is not financial advice and purely for educational reasons. The information in this post was taken from 30/05/2021.

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First of all, as a relatively recent DPI holder of 3-4 weeks who has yet to do anything with the DPI this is an extremely useful read. So big thanks to the contributors.

If it is possible to do so without straying into financial advice, it would be great to know your thoughts on the relative risks of the different options.

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Has anyone performed an analysis on the amount of rewards one would have earned if they provided liquidity for DPI on Uniswap (since DPI token inception) versus the amount of impermanent loss they would have experienced? Put another way, is there a way to model historical performance for providing liquidity on Uniswap?

As a DPI holder, providing liquidity on Uniswap seems like an attractive option but I’d like to better understand the impermanent loss risk I would take on by doing so.

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Excellent summary and great for holders to have the latest opportunities all in one place, @Mringz and @oneski22. The more opportunities that exist across the DeFi ecosystem for DPI, the more attractive it becomes to both purchase and retain the product.

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I am not licensed in any way shape or form. This is not financial advice. Purely for educational purposes. This is not an offer to buy or sell any security.

With the legal stuff out of the way:

Risks

Smart contract risk - whenever you are interacting with a smart contract there is a trust you are placing in that code to operate in its intended way. Code will contain bugs, this is a near certainty (in the startup world we have the ethos of “move fast and break things”), in DeFi that can mean exploits that can put funds at risk.

Security audits are crucial to get an outside eye on code and to make sure everything is doing what it is supposed to and there are no edge cases, overflows or other issues hackers can take advantage of. Even then, issues still occur.

Multisig Risk - if a contract is upgradable, or a multisig is used in someway, make sure to understand the powers that multisig has. What the worst case scenario is should it be comprised, who are the signers and what are their jurisdictions.

Market Risk - if you are using a lending market, there is a chance that in event of market collapse, the protocol no longer is over collateralized and is in debt. This means your principal may no longer be safe.

Liquidation Risk - if you are using a CDP there is always the event of liquidation should the value of your collateral decrease and you violate your collateral ratio.

There are more risks that just these, always do your own research, don’t invest more than you are willing to lose. This is all experimental technology, there are no guarantees on performance etc. Stay safe and ape away!

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@4aquatic

@oneski22 has touched on the big main points.

I would add that there is always a risk of an exploit and / or a team doing a rug pull. I’ve suffered from both in the last 12 months.

Larger / longer established / higher AUM protocols MIGHT be safer as they will be more inclined to try and arrange some sort of compensation for an exploit (even so, it’s likely to cost you time / have a negative impact on your total value.).

That aside, providing liquidity adds divergence (“Impremenent”) loss if the prices move apart but gives higher rewards (particularly if staked). I think DPI will be fairly well correlated to ETH over the longer term (Look at a chart of DPI priced in ETH over the last 12 months).

While getting yield is good, I would say you should be planning to use larger allocations (> $5,000 ???) and longer time periods (> 2 months ???). Otherwise the majority of your gain will be spent on gas.

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Hi Rootulp,

I don’t think anyone has done a specific report on the pool.

For IL, for a first approximation you can look at the ETH:DPI price chart.:

image
image803Ă—511 20.2 KB

A x2 change in the ratio (in either direction) would produce ~5.7% Divergence loss.

I did a blog a while ago looking at Divergence loss and there is a spreadsheet to play with.

To compare fees and ILK, I would use:
https://croco.finance/dashboard/

or

If you put in an address of a staker, it should show the fees / IL / rewards.

The current staking contract for DPI was first used in December, so if you look at the early deposits, you may find someone who has been in since then to use in the above websites:

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@overanalyser @oneski22 - thank you both so much for those posts, they’re both extremely useful and point me in the right direction :pray:t5:

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Really enjoyed reading this and would love to see this as a monthly tweet storm, with updates! Nice one.

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Updating this will periodically be a bronze owl quest, so we hope to have it constantly updated.

cc: @Pepperoni_Joe

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Maybe other content forms too: written forms feel like a fit. Probably overkill to turn this into a video, as it’s not that evergreen.

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An observation:

We currently have ~$20 M of DPI on Cream (yields have vanished). Most controlled by a single wallet who is borrowing stable coins against it.