Posted August 3, 2020 by Matt Taylor
We are thrilled to announce that several new tokens are available to trade on Matcha including LEND (Aave), BAL (Balancer), YFI (yEarn), and AMPL (Ampleforth). These are among the most requested tokens from the DeFi community due to their use in yield farming (YF). For those that don’t frequent crypto Twitter or the 4chan biz forum, yield farming is a recent trend where crypto traders seek to earn additional tokens by providing capital and liquidity to protocols via structured incentive programs. Development teams create these programs in order to attract capital to their pools and distribute their project’s token in order to decentralize ownership.
This post gives an overview of how traders can use Matcha to increase their yield farming returns, as well as brief descriptions of the newly listed tokens that explain their function within their respective protocols.
Warning: Yield farming includes a nascent set of strategies that can be extremely risky. These liquidity programs often advertise very high interest rates and token compensation incentives that can be misleading. Yield farming presents a whole host of new economic risks, in addition to current DeFi risks like smart contract security, liquidations, etc. Matcha does not endorse yield farming strategies or the tokens themselves. Proceed with extreme caution.
Rotating crops on Matcha
A core part of a yield farmer’s strategy is to quickly and cheaply swap for tokens that take advantage of changing market conditions including:
- Increases in interest rates: Many of these tokens have constantly adjusting interest rates which farmers can exploit. As an example, the DAI interest rate on Compound started the month of July around 0.75% and is now over 8.25%, while the USDT lending rate decreased from 3.13% to 2.02% during the same period. A simple YF strategy would be to swap USDT for DAI to earn the higher rate, all while earning COMP tokens (more on Compound later).
- Updates to incentive programs: Dev teams change their incentive schemes to attract more capital to their protocols. For instance, Aave is introducing a new token distribution mechanism dubbed “Aavenomics”, which will include awarding users for supplying and borrowing assets from the protocol.
- Speculating on token prices: Recently, certain tokens have increased in value substantially due to sudden swings in demand. For instance, YFI is up almost 11000% from its all-time low of $32 a couple weeks ago. Farmers may then start allocating more funds to yEarn pools where they may be able to receive additional YFI, if voted in by the YFI tokenholders.
- Selling into stable assets: Farmers often want to trade into stablecoins like USDC, USDT, and DAI to take profits from their yield farming rewards or protect their portfolios against falling prices.
Matcha offers farmers and DeFi users the best prices on every token trade, as we aggregate liquidity and scan across decentralized exchanges so traders don’t lose money on slippage or rising gas fees. Farmers can securely trade in seconds on Matcha because no sign up is required and token swaps are executed completely peer-to-peer. Matcha is simply the best place for farmers to quickly trade tokens, as we now offer all of the most popular YF tokens including LEND, BAL, YFI, AMPL, UMA, COMP, SNX, etc. and are frequently adding new tokens and liquidity.
Get to know the tokens
Before jumping into the newly listed tokens, let’s start with Compound, which popularized and kicked off the yield farming mania. Compound Labs issued COMP tokens (which have been listed on Matcha since launch) to users who supply and borrow tokens through their protocol. COMP is a governance token that enables community members to vote on proposals to change the system. Governance is a core function with many of these yield farming tokens and a primary reason why these token distribution programs started in the first place.
Aave, a flash loan and money market protocol, is in a transition period with their token economics. LEND is the protocol’s current token, which will be phased out and redeemed 100:1 with the soon-to-be-released AAVE token. Holders will be granted the ability to vote on Aave Improvement Proposals (AIPs) that can change both market policies (determining new asset listings, loan-to-value (LTV) ratios, and interest rate modeling) and protocol policies (e.g. bug fixes, platform incentives, etc.).
Read more about LEND, AAVE, and “Aavenomics”.
Yearn.finance is an DeFi yield aggregator that automatically allocates user funds between dYdX, Aave, Compound, and other interest-generating protocols to find the highest rates. YFI is the system’s governance token which is being distributed to users who supply liquidity to various yEarn pools, as well as a Balancer pool.
Dig into the details of yEarn and YFI in this post on the Deribit blog.
AMPL is a new type of cryptocurrency where the supply of tokens fluctuates daily, but holders’ overall ownership percentage doesn’t become diluted or change. While AMPL is not a stablecoin, the goal of Ampleforth is to create a token which is soft pegged to the 2019 US Dollar in terms of purchasing power and to create a token that is uncorrelated with other cryptoassets. AMPL wallet balances automatically change every day based on demand for the token and the current price compared to a targeted price. This daily adjustment is known as the rebase.
To accelerate the growth of the system, the Ampleforth development team is currently offering additional AMPL tokens for providing liquidity through their Geyser program. To learn more about how Ampleforth works under the hood, check out the video below.
Balancer is another AMM protocol similar to Uniswap, except the system's liquidity pools are highly customizable and include a self-adjusting distribution mechanism. BAL is the native token currently being awarded through an incentive program to users who provide liquidity. Like the previous tokens, the main function of BAL is to grant governance rights to the community in order to decentralize ownership of the protocol.
Learn more about Balancer and the BAL token.