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
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
Sushiswap DPI/ETH Pool - Onsen program additional rewards in SUSHI
Loopring v2 DPI/ETH Pool - ZK roll up L2 meaning less gas fees
Source: Loopring Exchange (DEX)
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.
APY: 12.3% (INDEX)
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.
APY: 1.38% (FARM), 7.35% (INDEX)
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%
APY(DPI/ETH LP): 216.97%
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.
Alpha Homora V2
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.
Loan to value: 64%
Liquidation Ratio: 65%
Interest rate per annum: 10%
Loan to value: 75%
Interest rate per annum: 0.25%
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.