Don-key’s innovation in action: Social Rebalance Pools
Having launched the starting batch of copy-farming pools, and positioned itself at the frontier of social farming, Don-key Finance is now in the unique position to experiment with the fundamentals of yield farming! Today, to those community members who read this, the team is rolling out a stealth experimentation on something they have decided to call “Social Rebalancing Pools.”
The basic idea is as follows: In order to drastically reduce impermanent loss, Don-key will open two single token copy-farming pools, per each liquidity pair used by underlying farms.
For example, with AVAX and USDT, each user will invest their preferred token to either copy farm and the platform will pair them together and provide liquidity with these two tokens in an external pool (AVAX-USDT.) From here, Don-key can rebalance the holdings as needed in order to hugely cut down impermeant loss, thereby offering sustainable APYs not offered anywhere else on the market for single staking pool’s.
Impairment Loss Estimation Model:
To better illustrate the advantages of Social Rebalance Pools, below is an example of how impermeant loss would work in an average paired pool:
Given that impermanent loss happens when the price of one of the assets in the pool change, the following table is an estimation of percent loss as a function of price change:
- 1.25x price change = 0.6% loss
- 1.50x price change = 2.0% loss
- 1.75x price change = 3.8% loss
- 2x price change = 5.7% loss
- 3x price change = 13.4% loss
- 4x price change = 20.0% loss
- 5x price change = 25.5% loss
For the math savvy here is an equation:
Modeling How Social Rebalance Pools Mitigate Impairment Loss:
Based on the Impairment loss estimation model above, the following table is an estimation for the AVAX-USDT pool given seven scenarios of price changes for the AVAX token.
Notice in the table below that as the AVAX price increases, the amount of AVAX tokens decreases to maintain the 50–50 USD value between AVAX and USDT within the farming pool. This is the impermanent loss.
- assumption: AVAX spot price is 100 USDT
Compare Impermanent Loss with and without Don-key:
While in a normal liquidity pool, the depositor would have to break up their AVAX, and distribute 50% of it into USDT in order to farm, with Don-key’s copy-farm the user can choose to deposit all of it into either AVAX or USDT.
- Option A -Without Don-key ,staking directly on the pair pool. User A initially holds 10 AVAX and in order to participate in any LP pool he is required to swap 50% to USDT. When the user leaves the pool he would swap back the USDT to AVAX.
- Option B- The user invests 10 AVAX in Don-key’s single pool.
Now lets look at it from a USDT holder point of view
- Option A -without Don-key ,staking directly on the pair pool. User A initially holds holds 1000 USDT and in order to participate in any LP pool he is required to swap 50% to AVAX. When the user leaves the pool he would swap back the AVAX to USDT.
- Option B- The user invests 1000 USDT in Don-key’s single pool.
As the table demonstrates, in an extreme scenario, such as Scenario G, a user would be exposed to ~30% impermeant loss on USDT holdings or scenario D ~18.3% on AVAX holdings without Don-key’s Social Rebalance Pools. However, with Don-key, the same scenarios result in a dramatically reduced level of impermanent loss, at only ~4.5% and ~1.6% respectively. With impermanent loss reduced by such a significant order of magnitude, Don-key’s community can enjoy a significantly higher sense of overall APY.
How farmers can use this tool?
Any farmer suggesting or biding a strategy can use this tool in order to achieve APY. There are many consideration to take into account when choosing the paired asset for example higher correlations between the two, can improve the reduction of IL. Who know where Don-key’s farmer will take it. Enjoy!
About Don-key Finance
Don-key.finance is building the first social trading platform for yield farming, bringing together liquidity providers and yield farmers alike. For this reason, the community refers to Don-key as the eToro of Yield Farming, which is a title the team embraces wholeheartedly.
The goal of the platform is to eliminate yield farming’s infamous complexity and replace it with a seamless retail experience, streamlined to offer the most profitable and adaptive product on the market.
With just one-click users can route their liquidity — in whichever token they chose — through professionally designed strategies that are updated to chase the highest available APY while minimizing risk.
Competitive Yield Farming is a full-time job; Don-key does it, so you don’t have to.