icymi @AaveAave has just voted in a liquidity incentives program

sharing my thoughts on strategies in a quick thread

1/

first lets take a look at stablecoins

USDT and GUSD are not accepted as collateral, so you'll need to base your farm on either DAI or USDC

USDC's 80% max LTV allows for 5x leverage, while DAI's 75% limits you to 4x leverage

2/

the formula below can help you cross compare and determine the best option

total return = (supply_rate + supply_rewards)/(1 - max_LTV) - (borrow_rate - borrow_rewards)*(max_LTV)/(1 - max_LTV)

3/

currently returns top out around 55% for $DAI and 65% for $USDC, showing the impact of higher available leverage on farming yields

if you're feeling brave you can even go long DAI short USDC for an ~80% return, although this increases risk of liquidation from price vol

4/

these same recycling strategies work for ETH and WBTC as well, with both earning around 15% APY

but is this the best we can do for these assets?

nah fam we can do much better :)

5/

instead of using your unstable asset's borrowing power for recycling (eg borrowing ETH against ETH), you can use it to anchor a stablecoin recycling strategy

for example you can supply ETH, borrow USDC, and then resupply the borrowed USDC

6/

when you resupply the USDC, its 80% max LTV also comes into play, allowing for greater leverage

so returning to our earlier example of ETH and WBTC farming what could we earn if we wanted our position to withstand up to 50% price fall?

7/

ETH has 80% max LTV, so lets use 40%

With USDC you can lever the recycling strategy up 5x, so you'd essentially be borrowing and resupplying 200% of your ETH value

total returns = ETH supply rate + 2x USDC supply rate - 2x USDC borrow rate + all stkAAVE incentives

8/

you can generalize the profit function for any collateral asset

simply adjust the multiplier for USDC borrow and supply rates based on your base collateral's max LTV and your preferred safety margin

with this adjusted strategy both ETH and WBTC are earning over 25%

9/

im expecting significant yield compression as users get wise to the opportunity

also feel like there could be a cottage industry of vaults building on top of this, as you can earn currently add 0.3% or more in returns per 1% in asset LTV

fin/