Velodrome Yield Farming Research – Leech Protocol

About Velodrome

The Velodrome-AMM DEX offers swaps high liquidity and low slippage. In other words, it gives us the opportunity to trade crypto with less slippage, which means we get better prices.

According to Defilama, the project has existed for less than a year but has already become a central figure in the Optimism ecosystem, seeing its TVL increase fourfold.

Velodrome Finance distributes rewards with the same two tokens you provide to the liquidity pool plus $VELO. Trading commissions for these pools range from 0.02% to 0.05% and $VELO rewards depend on governance votes.

research summary

The optimal deposit amount and token type

This behemoth in the Optimism ecosystem can be of use to us not only with its large TVL, but also with its excellent farming tools. Here we can start farming from as little as $500-$20,000. As always, risk management is one of the most important aspects of any strategy.

For this research we have selected the sAMM-USD+/LUSD pool where we are willing to deposit our stables ourselves. Because this pool consists only of stable assets, we eliminate the risk of a temporary loss.

This pool consists entirely of super secured stables.

LUSD is a stablecoin on the ETH network that requires 110% ETH collateral to mint.

USD+ is a stablecoin on the Ethereum network that is 100% backed by a delta-neutral strategy on various DeFi platforms.

Why do we call this a stable tool? It allows users to generate returns using the OVERNIGHT protocol.

Here, the TVL represents the amount of USD+ in circulation.

Velodrome APR

This platform makes it possible to achieve such high APRs as it is the central index of the ecosystem. Most of the liquidity in Optimism flows through Velodromes

Because we use our funds in liquidity pools, the project alongside us generates revenue by charging commissions on every transaction.

Why does the project share the revenue with us?

A significant amount of liquidity is required for the project to function properly. Without liquidity nobody could trade and the project would fail. To incentivize liquidity providers, the project shares a percentage of its revenue.

Diploma: Through our commitment, the project generates profits and we also benefit financially.

Commission statistics

Velodrome profitability

Approximate return on a $20,000 deposit:

To many, this profitability isn’t surprising, but it’s always a good idea to spread your funds across reliable stables.

Step by step instructions:

1. Sign up for KuCoin
2. Withdraw your USDC and some ETH to your wallet
3. Choose a liquidity pool
4. Take a look at what proportion of stalls you need for farming
5. Trade your USDC for the required stables here
6. Deposit liquidity into the pool on Velodrome

If your stables are already in your wallet:

1. Withdraw some ETH on the Optimism network with KuCoin
2. Use Stargate to broadcast USDC to the Optimism network (skip this step if your stable is already running on Optimism). Check out what percentage of stables you need for farming
3. Trade your USDC for the required stables here
4. Add liquidity to the pool on Velodrome

Entry and Exit Fees (for $20,000)

Sign up with KuCoin:

1. Withdraw USDC from the exchange – $3
2. Withdrawing ETH from the exchange – $1.6
3. Optimism Transaction Fees – $2
4. Price impact of exchanging USD+LUSD ±$15

Approximate costs: $20 to $25

If your stables are already in your wallet:

1. Withdrawing ETH from the exchange – $1.6
2. Use of the Stargate Bridge – $32
3. Optimism Transaction Fees – $2
4. Price impact of exchanging USD+LUSD ±$15

Approximate costs: $16 to $52

Approximate payback period: 2.5 to 12+ days depending on your input method and the size of your deposit.

Note: We trade from USDC to LUSD and USD+ on Velodrome as these pairs have high liquidity and therefore little impact on price on large swaps. The bigger your deposit, the more important this is. Before withdrawing USDC you can check the price impact on the swaps and choose a different initial stable if you get a better swap rate.

risks

• chain risk – Optimism is a fairly new chain; It doesn’t present any problems at the moment, but should still be treated with caution (just check out Solana)
• token risk – These stables are fairly new and although they are fairly well secured, we cannot rule out possible Black Swan events.
• liquidity problems – An unlikely scenario given the current TVL, but a possibility nonetheless.
• platform risk – Velodrome is checked and has no problems so far, but hacks do occur.
• wallet risk – Real swords do not exclude such risks.
• Risk of non-compliance: If Velodrome is found not to comply with applicable laws or regulations, it could expose its users to significant legal risks. For example, if the protocol is found to work without the necessary licenses or permits, users could face legal consequences for using the protocol. To avoid legal risks, it is important for users to ensure that Velodrome is compliant with all applicable laws and regulations before using the protocol.
• Securities risk: Velodrome’s tokens may be classified as securities by securities regulators in some jurisdictions. If so, Velodrome may need to comply with securities laws and regulations. Failure to comply with these laws and regulations could result in serious legal consequences, including fines and penalties, and the possibility that Velodrome is unable to continue its operations or meet its obligations.

Don’t forget that risks are multiplied in Defi, so keep an eye on your positions.

This research is brought to you by Leech Protocol Team And Epee Hustle Researcher

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