DJED and SHEN and Concentrated LP Yield Farming on MuesliSwap | by MüsliSwapTeam | January 2023
The launch of DJED powered by COTI is imminent. As the second stablecoin pegged to USD enters the Cardano ecosystem, we are excited to announce that MuesliSwap will be offering yield farms for the stablecoin pools and the reserve coin SHEN.
TL;DR:
- DJED/ADA and DJED/iUSD will be concentrated liquidity pools based on recently audited contracts developed by MuesliSwap
- DJED/ADA, SHEN/ADA, and DJED/iUSD liquidity pools will have yield farms that will bring users MYield tokens.
Learn more about DJED on their website: https://djed.xyz/faq
Since December 7, 2022, MuesliSwap has been running a yield farming program on the iUSD/ADA liquidity pool and rewarding players with MYield tokens. If you want to learn more about the program and how you can earn yield farming rewards on MuesliSwap, read this Medium article: https://medium.com/@muesliswap/launching-iusd-ada-organic-yield-farming -f7080802d645
Starting with the launch of the DJED token, an over-collateralised stablecoin pegged to the US Dollar, there will be three more yield-farmed liquidity pools on MuesliSwap. One of them is a traditional AMM pool that pairs reserve token SHEN with ADA. It will actually be a concentrated pool, but with such generous limits that suppliers in particular will benefit from the improved liquidity.
The second pool is a concentrated liquidity pool that pairs DJED and ADA in a price range between 0.1 and 2 ADA/DJED. The smaller price range brings much higher trading fees and deeper liquidity than traditional AMMs, which range from negative to positive infinity.
The third pool is also new to MuesliSwap: a concentrated liquidity pool that pairs iUSD/DJED with a price range of 0.8 to 1.2. Since these two tokens are pegged to the US dollar, the price range here can be chosen to be very small, resulting in immensely enhanced liquidity and trading fees.
What are concentrated liquidity pools?
Concentrated liquidity pools spread all liquidity across a spread between two fixed limit prices. The price provided by the Automated Market Maker of a Concentrated Liquidity Pool may only be between these two fixed prices. The liquidity supplied to the pool is thereby strengthened – since the liquidity is now not available for trading between price and infinity, but only up to a specified limit, the liquidity is used much more efficiently.
The difference is most drastic for tokens intended to maintain a stable bond. For example, with iUSD and DJED, both tokens should be worth the same amount, around one US dollar. We can therefore limit the prices provided by the pool to a small margin around this 1:1 correlation. In theory, if $1 million of liquidity is allocated to the pool, a trade for $200,000 DJED would move the price only slightly towards 1.1. In a traditional liquidity pool, this would shift the price to infinity, resulting in huge losses for the trader.
More details can be found on UniSwap’s website, where concentrated liquidity pools have been implemented as part of UniSwap V3. Note that the concept of ticks does not apply directly to MuesliSwap – here a single pool has a fixed price range. Different pools implement what is called ticks in UniSwap: https://docs.uniswap.org/concepts/protocol/concentrated-liquidity
Benefits for liquidity providers include:
- Higher trading volume and more trading opportunities
- Potential for higher profits from trading fees
Merchant benefits include:
- Faster, cheaper and more efficient trades
- Improved pricing and reduced slippage.
Essentially, concentrated liquidity pools provide a more efficient marketplace for buying and selling assets, benefiting both liquidity providers and traders by allowing for more trades and reducing friction in the trading process.
How is yield farming designed?
Initially, the yield farms will start as normal yield farms with a fixed emission, since the pools will be in direct competition with other farms from the start. After a management period of 5 days, the pools will be converted to organic yield farms to attract long-term liquidity.
Details on the concept of organic yield farming can be found here: https://medium.com/@muesliswap/launching-iusd-ada-organic-yield-farming-f7080802d645
Sounds good! where to start
From the launch of DJED, the pools and farms will be available on MuesliSwap. They appear along with the other yield farms here: https://muesliswap.com/earn/farms
Most likely you will need to provide liquidity for the pools first, which you can do here: https://muesliswap.com/earn/liquidity
You can find out more about liquidity pools here.
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