Archimedes is an experimental protocol and carries significant risks: Smart contract risk, economic model risk, risk that the protocols Archimedes introduces and many other types of known and unknown risks. Archimedes' team never provides investment advice. This article is NOT financial advice. DYOR. Participate at your own risk.
Why Providing Liquidity to Archimedes
DeFi investors that manage large positions often ask the following questions:
- How do I find an investment that can absorb a large position without breaking (or driving APY to 0)?
- How do I find a relatively safe and market-natural position with decent returns?
- How do I find a position that doesn’t require a lot of on-going management?
- How do I find a position that pays above market average APY for a long time period?
Archimedes experiment, if successful, is set to answer these questions.
How to Provide Liquidity to Archimedes
The 3CRV/lvUSD Liquidity Pools
Most Curve pools are unable to absorb a lot of liquidity without the APY plummeting.
That is true for the all the Curve pools as a group. Fixed CRV emission is limiting Curve total APY. Deploying large amounts of capital to Curve is going to affect CRV based APY.
Archimedes is working on top of Curve. We allow Curve to scale and support more liquidity than what CRV emission can support.
Our goal is to provide better than market average APY to the largest LPs out there. We aim to do it regardless of CRV emission and to support a very large pool size.
That begs several questions
Q1: Where is the APY coming from (if it isn’t from CRV emissions)?
When you provide liquidity to our 3CRV/lvUSD pool, you are lending your funds. You lend it to our leverage takers - supporting our leveraged stablecoins positions.
Leverage takers borrow funds for a limited amount of time. They also pay all the interest upfront. On top of it, there is a performance fee on the leverage position. These are the main sources of APY for LPs.
Leverage takers borrow funds to buy appreciating stablecoins (a pegged asset that pays interest). They believe that the interest on these stablecoins will go up in the future. If they are right, they end up with an ultra high APY position (that they can keep or sell for a premium).
It also worth noting that all positions are over-collateralized
Q2: How much APY am I going to get as a LP?
This is hard to predict.
Platforms like AAVE and Compound generate APY from wide range of borrows. These borrows have more or less optimistic point of view.
Archimedes generate APY only from the most optimistic investors.
These investors are looking to leverage stablecoins and pay upfront for that. Also, these investors buy leverage through a Dutch auction, which helps price discovery.
Also, we don’t rely on CRV emissions that change every two weeks. That allows us to potentially beat “market average”.
Q3: Does the size of the pool affect APY?
Our pool APY is tied to how much pool liquidity we put to work, and not to how many CRV tokens we get.
The more liquidity we have in the pool, the more leverage we can offer. The more leverage we can offer, the easier it is to attract leverage takers. The more leverage takers we attract, the higher the APY for our liquidity providers.
This is a positive flywheel.
Q4: Is there a risk in providing liquidity to Archimedes Curve pool?
The short answer is: Yes. There is always risk. Moreover when dealing with experimental protocol like Archimedes.
We want to reiterate that this is not investment advice and you must always do your own research.
There are many types of risk in this kind of investment.
Here are some of them:
- Protocol risk: There is always a chance that something is wrong with the smart contracts involved. That is why we audit ours with Halborn and we build on top of the battle tested Curve. But there is never 100% certainty.
- Over leverage and de-peg: If we offer too much leverage, our Curve pool will go out of balance. That means that investors won’t be able to withdraw their entire investment, until the pool is balanced again. To mitigate this, we gate the amount of leverage available.
- Underlying assets go bad: Leverage takers borrow from the Curve pool to create leveraged positions on pegged assets (like OUSD). While these assets are considered by some to be mature, we’ve witnessed stablecoins go bad.
- Other types of risk: There are always other known and unknown elements that might go bad.
Q5: How do you maintain the lvUSD peg?
There are two de-pegging scenarios
- lvUSD >> $1: There is more 3CRV than lvUSD in our pool. So, we can increase our leverage cap and offer more leverage. Offering more leverage increases the amount of lvUSD in our Curve pool, which helps re-pegging it.
- lvUSD << $1: In this case, there is less 3CRV compared to lvUSD. To prevent that, we are actively capping the available leverage. In this case, leverage takers would have a strong incentive to close their position. Leverage takers can buy lvUSD for less than $1 and return their debt for cheap. This motion pushes the amount of 3CRV back up and reduces the amount of lvUSD.
The ARCH/lvUSD Liquidity Pools
ARCH is our governance and utility token. It is used to gain access to leveraged positions.
So why ARCH/lvUSD and not ARCH/ETH or ARCH/3CRV?
The short answer is that it helps stabilize the 3CRV/lvUSD pool. It shifts some de-peg pressure from 3CRV/lvUSD pool to ARCH/lvUSD pool. Since ARCH isn’t a stablecoin it has lesser effect on ARCH/lvUSD pool.
It serves as another safeguard on the entire protocol.
Providing Liquidity: A step by step guide
Q: How are you different from other lending and borrowing protocols?
- Higher APY: If Archimedes experiment is successful, we expect higher returns than other Curve pools. Please take a look at the “How much APY am I going to get as an LP?” section.
- Risk mitigation: We mitigate risk by supporting over collateralized tokens only. Additionally, we take steps to maintain peg and pool liquidity:
- Carefully regulate the leverage cap: When we allocate more leverage it is always a small percentage of the total 3CRV in the pool
- Treasury: Archimedes Treasury can be use to replenish liquidity in our pool
- Diversification: As we grow, we will support more protocols. That will diversification. We envision a basket of stablecoin meta vaults that is relatively low risk and high yield.
- Original protocol and real team: Archimedes is an original protocol. We are not a fork of any existing one.
Q: How can I be sure that lvUSD will remain pegged?
Please read more about how we maintain the peg for lvUSD here.
Q: How do I provide liquidity?
If you would like to provide liquidity before we launch, please contact email@example.com.
Once Archimedes launches, you can go to Curve and provide liquidity to our pool like any other Curve pool.