Making advanced yield farming easier to manage and more resilient to market volatility
Labs offers DeFi strategies that generate higher returns with low gas costs while removing operational complexity. In a volatile market environment, Labs will manage the positions automatically to reduce losses that would have incurred if the positions were managed manually.
Access is now open to all with a $5,000 deposit allowance per vault, adding up to a total of $15,000 across three vaults.
To reward our most committed DAO members, those holding 500+ Gro DAO tokens (GRO) on Ethereum mainnet will get $25,000 deposit allowance per vault, adding up to a total of $75,000. For this calculation, we include GRO tokens in your wallet, in liquidity pools, and in your vesting contracts. We take snapshots weekly, typically in the beginning of the week at midnight UTC; access will then be granted the day after.
This cap is imposed since there are limited funds available for borrowing on Alpha Homora v2. As Alpha’s lending program expands, Gro will be able to remove the cap to allow higher initial deposits.
Click below for a step-by-step guide on how to deposit into Labs on Avalanche.
Since Argent wallet does not support Avalanche yet, users will need to switch to Metamask (or other wallets that connect to Metamask) to access Labs. If you’re an Argent wallet holder with 500+ GRO, please reach out to us in this Discord channel for support.
The first strategies in Labs are Alpha Homora v2 on Avalanche. They offer higher returns through leveraged yield farming and low gas costs as it operates on Avalanche. Users can deposit stablecoins on Avalanche network (USDC.e, DAI.e, or USDT.e).
Unlike in PWRD or Vault, you need to choose which of USDC, USDT, or DAI you’d use in Labs and the yield will be accrued in that specific stablecoin. You can also choose to deposit with more than one type of stablecoin but you’ll need to deposit separately. The positions across these three options will be managed separately as they are in different vaults. This is also why you’d see different APYs and strategy metrics.
These funds would then be used as collateral to borrow AVAX and the stablecoin required at 2x leverage on Alpha Homora v2 (using Iron Bank) to open new positions. These positions will be automatically opened, trimmed if AVAX price is out of a set price corridor, and closed based on market conditions.
When the market is unusually volatile and one-directional e.g., in a major pump (or dump) and AVAX price ventures outside that price corridor, Labs will close and reopen the strategy cycle. The position may not reopen if a sharp one-side price volatility continues and only resume until the market returns to bi-directional volatility. This helps limit losses that would have been incurred without active management, delivering higher returns than manual leveraged yield farming especially in an abrupt market downturn.
When a strategy cycle ends, AVAX exposure was set to zero after closing a strategy cycle in the original Labs. Labs reaches market neutrality over a period of 3 days after a cycle ends i.e. no exposure to AVAX price movement. The original Labs sold off AVAX tokens regardless of price at the end of a cycle, which could be sub-optimal as price may rebound soon. Instead, the upgraded Labs gradually sells off AVAX tokens in the 60 hours after closing a strategy cycle to enable better strategy economics.
Slippage would be reduced as we change AVAX exposure management outlined above. In the original Labs, selling all AVAX tokens in one go led to greater slippage as pools have limited depth (especially in AVAX/DAI), benefiting arbitrage bots that could then come in and swoop up AVAX at a lower price. The upgraded Labs now splits up transactions to sell AVAX tokens in portions, allowing AVAX price in the pool to recover through arbitrage in between transactions and reduce slippage.
In addition, when users request withdrawal or add assets to a position, Labs would also use that opportunity to adjust the position toward market-neutrality.
In summary, Labs enables users to earn higher yield at low gas costs while removing the operational complexity – such as the need to manually monitor their positions, calculate exposure changes based on market fluctuations, and open/close positions at the right time. With Labs, users would have their positions managed as if there was a full-time, skilled yield farmer looking after them while they sit back and relax.
You may notice that Labs presents a lot more data than PWRD or Vault. While Labs aims to remove operational complexity in advanced yield farming, we don’t want to sacrifice the transparency that comes with a more hands-on approach. Let’s step through the data from left to right on the dashboard together.
APY – this is the stablecoin returns to be expected if you deposit now. It is based on the vault’s performance in the past 3 days to give you the closest APY estimate for your funds if you deposit right now. Note that it reflects the returns of the total vault including the money that isn’t deployed to the strategy yet (i.e. reserve). This APY is also net of the 10% performance fees on yields earned that is sent to Gro DAO treasury for buying back GRO from the market.
TVL – this is the total dollar value of balance held in this strategy, including deposits and net returns from the strategy.
Reserve – this is the total dollar value of funds that are not yet deployed and thus not generating yield yet. It will be deployed automatically.
AVAX exposure – this is the net % of assets that either hold a long or short position to AVAX due to AVAX price changes after the position was opened. We aim to be market neutral without holding a net long or net short position, so this figure should stay close to zero. This means the strategy would be resilient to one-sided price movement (either pump or dump) — such as when AVAX price dropped by 25% in the first weekend of December.
All time APY – this represents the average realised stablecoin returns since the inception of this Labs strategy. It reflects the returns of the total vault including the money that isn't deployed to the strategy yet (i.e. reserve). It could diverge from the APY shown on the left since they include performance of different time windows. This APY is also net of the 10% performance fees on yields earned that would be sent to Gro DAO treasury for buying back GRO from the market
Sortino (coming soon) – this is similar to Sharpe ratio but only adjusts for downside risk. This is done by treating any upside risk (returns in excess of portfolio mean) to have zero variance when calculating the denominator i.e. standard deviation of yields. For benchmarking purposes, a Sortino ratio of 2 and above is considered ideal.
It documents the currently opened position ("current strategy cycle") and recently closed ones, showing the realised stablecoin gains and annualized yield.
The yield displayed in each position only includes funds that are deployed for that time window i.e. excluding reserve. This also hasn't taken out the 10% performance fees from Labs yields earned.
When the returns from a strategy cycle realises, it is stored in a profit reserve that would be distributed to Labs users over the next few days. This presents a possibility where some users could withdraw funds before a negative strategy cycle ends and crystallises loss, effectively front-running the losses.
To mitigate this, when a user withdraws from Labs at a negative cycle, Labs is designed to attribute the entire losses made at the currently open strategy cycle to that user. When this happens, you would see the below warning as you click open the withdrawal screen.
This mechanism is designed to deter users from front-running the losses (whether intentionally or not) of the currently open strategy cycle. It is not recommended to withdraw in this scenario and rather wait for the current strategy cycle turning positive or when it ends.
While Labs actively manages leveraged yield farming positions based on market conditions, there are still risks involved. Make sure you do your own research before depositing into the strategy.
- AVAX exposure due to one-sided market price movement (limited by Labs strategy, which would trim positions when price exceeds a certain % of when the position was opened)
- AVAX borrowing cost (interest rate) exceeding yields earned from leveraged farming
- Liquidation risks as collateral falls below the required value (mitigated by Labs strategy)
- Smart contract risks on the underlying strategies / protocol: Alpha Homora v2 on Avalanche (audited by Peckshield) & Trader Joe
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DeFi is still a very new space, and while that’s exciting, it comes with risk. Make sure you do your own research and invest responsibly to avoid severe losses. Always exercise best security practices when it comes to wallet and private key management.