What to do with your DPI
For many DeFi Pulse Index holders, the DPI token represents diversified exposure to the blue-chip tokens of the current DeFi ecosystem. DPI holds up well as a passive investment, as it is built off of the traditional finance model of index investing which historically has outperformed more active strategies.
For new investors, one of the safest bets for participating in a financial market is to hold an equally weighted basket of companies, picked by a credible research firm. This model is very efficient and comfortable, as holders don’t have to worry about constantly researching and rebalancing the portfolio.
For many crypto investors, DPI does just that. However, because this index is built on Ethereum, it acts as a DeFi money lego which unlocks new and innovative ways to allocate capital and earn yield. DeFi also allows users the opportunity to take advantage of a myriad of services only found in traditional finance. Because of this DPI investors can enhance the productivity of their tokens through some of the following actions:
- Liquidity provision (LP) — Becoming a market maker by providing DPI and ETH liquidity for trading activity
- Yield farming — Staking your LP position in a platform to earn an additional yield
- Borrowing and Lending — Providing lending collateral for borrowing demand
- Collateral Debt Position (CDP) — Taking a loan against your crypto asset
Liquidity provision
Liquidity provision gives DPI holders the unique opportunity to become market makers for DPI. Thanks to the business model of decentralized exchanges, anyone that holds an equal amount of each asset can facilitate trading on the platform and earn passive income on their deposit. When tokens are deposited into a liquidity pool, the platform automatically generates a new token that represents the share the depositor owns of that pool. These generated tokens are known as Liquidity Provider (LP) tokens, and they can be used for a multitude of functions both within its native platform and other decentralized finance apps. The LP position allows the DPI holder to earn trading fees for any trades that take place within this pair. DPI currently has two main liquidity pools.
Uniswap V2
APY: 8.77%
Sushiswap
APY: 5.34%
Yield farming
Yield farming allows an investor to maximize their profits even further, after having deposited their assets into a liquidity pool, and receiving LP tokens, a DPI holder can stake the LP tokens they receive in order to earn additional rewards. Currently, users can stake their ETH/DPI LP tokens from Uniswap and Sushiswap on multiple different farms in order to earn rewards. For example, users can stake their DPI/ETH LP tokens on Index Coop to earn INDEX.
Index Coop
Uniswap LP APY: 10.15% (INDEX rewards)
Furthermore, additional opportunities exist if you would like to earn other platform tokens with your DPI/ETH LP. For example, earning ALPHA tokens on Alpha Homora V2, FARM tokens on Harvest Finance, or IMX tokens on Impermax. Below are the additional yields you can earn by staking on these platforms.
Alpha Homora V2
Uniswap LP APR: 20.21% (ALPHA), 20.59% (INDEX)
Sushiswap LP APR: 20.21% (ALPHA), 23.53% (SUSHI)
Harvest Finance
Uniswap LP APR: 1.5% (FARM), 7.36% (INDEX)
Imperamax
Uniswap LP APR: 62.14% (IMX)
Borrowing and Lending
Decentralized finance has revolutionized the financial sector in many ways, and one of them is the easy accessibility to lending and borrowing of capital. You can easily deposit your crypto in a lending and borrowing platform and earn yield from borrowing demand on the asset. Currently, DPI holders can deposit their DPI tokens to earn a yield on two protocols:
CREAM Finance
APY: 0.60%
Alpha Homora V2
APY: 7.16%
Collateral Debt Position
One of the advantages of holding DPI is the fact that you do not need to sell your assets if you need liquidity. A DPI holder has the ability to borrow stable coins against their DPI position. This means a holder can put up DPI as collateral to take out a loan in stablecoins and use this liquidity for various cases outside and inside crypto. In finance this is called collateralized debt position (CDP) and is available for DPI holders on the following platforms:
Unit Protocol
Loan to value: 64%
Debt: USDP Coin
Interest rate per annum: 10%
Sushiswap Kashi
Loan to value: 75%
Debt: sUSD
Interest rate per annum: 0.25%
What are the risks?
Before exploring the above opportunities we recommend that you do your own research. Make sure you deep dive into the project’s Gitbook and documentation to understand how the protocol works and how to use it. Jump into the project’s Discord and follow their Twitter to keep up to date with any news in relation to the protocol so you are not surprised by any changes that may affect your assets. Lastly, make sure you understand the risks involved with using these platforms. We have highlighted a few of them below you should be aware of.
Smart contract risk — whenever you are interacting with a smart contract there is always a risk of exploits that can put funds at risk. Most credible platforms conduct security audits that are crucial to getting an outside view on the code to make sure everything is doing what it is supposed to and that there are no edge cases, overflows or other issues hackers can take advantage of.
Market Risk — if you are using a lending market, there is a chance that in the event of a market downturn, the protocol no longer is over collateralized and is in debt. This means your principal may no longer be safe.
Liquidation Risk — if you are using a CDP there is always the event of liquidation, should the value of your collateral decrease, and you violate your collateral ratio.
To conclude, we will be releasing a 4 part series that goes into detail for each productivity opportunity for DPI. What users should look out for and how to take advantage of each opportunity. So keep your eyes on the Index Coop nest for more information.
For more information read the original forum post: https://gov.indexcoop.com/t/what-you-can-do-with-your-dpi-extrinsic-productivity/160
