Leverage for Liquidity Pools
Liquid Lama aims to provide leverage for Liquidity providers all across ApeChain . Liquid Lama will provide leverage not only for its own unique CLMM/DLMM Lama Pools but also for external pools that can be found on Camelot. At first we will experiment with some of the more liquid pairs before venture forth and really getting our hands dirty with some of the less liquid - more volatile tokens.
Below is a brief outline of how the interaction will look like on the platform.
Liquid Lama will have 2 types of users.
Lenders
Borrowers
Become a Lender. This is the easiest and safest way with predictable risks. By depositing assets, the user provides liquidity to be borrowed for Leverage. In this case, user’s APR depends on how much liquidity is borrowed (Utilization rate).
We use the following formula in order to calculate: Pool utilization = total borrow / total deposit *100%
The higher the Utilisation Rate is the higher the APR will be paid out by Leverage Farmers. Potential risks: during 100% of Utilization users are unavailable to withdraw funds until Farmers repay their debt.
Become a Farmer(Leverage Taker). This is a more sophisticated way that requires a deeper understanding of Liquidity Providing as it comes with greater returns and risks. Leveller Farmers(Leverage Takers) can open their positions on CLMM/DLMM pools with leverage by borrowing from Lending Pools. Farmers can open CLMM/DLMM positions within any range. To gain leverage on position Farmers have to select assets that they would like to borrow ( generally speaking borrowing an asset is essentially what creates a short position). Maximum available leverage is 5x. This creates a risk of liquidation when Farmer's debt is equal to 0.9 of their notional position.
Liquid Lama allows Farmer to open any CLMM/DLMM position with leverage so that farmers have access to a variety of strategies. Using USDT and Ape token as a trading pair pool the potential strategies are as follows:
Long Liquid Lama Farming: is created by borrowing USDT followed by a purchase of Ape with those same borrowed USDT assets.
Short Farming: is created by borrowing Ape Token followed by a sale to USDT using
borrowed Ape token assets.
Delta Neutral Farming: is created by proportionally equal borrowing of Ape token and USDT.
Wide-range Farming: is the safest strategy which requires low position management but on the other hand has reduced capital efficiency since capital is spread over a larger range.
Narrow-range Farming: is the most capital-efficient strategy but on the other hand has the highest risk of impermanent loss and requires high position management.
Creating out-of-range positions: has the biggest exposure to price change and is similar to leverage trading with ranged limit orders.
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