The Power of Indirect Liquidity Providing
Indirect Liquidity Providing is a new approach to yield farming on automated market makers (AMMs) like Uniswap, Sushiswap, and Pancakeswap. It has shown exceptionally high potential returns relative to traditional methods, it offers full protection from impermanent loss, and it offers a simple set-and-forget experience to the user. Indirect Liquidity Providing is the complete package that farmers have always wanted, and it promises to accelerate growth of the entire liquidity providing industry.
If you need a refresher on AMMs, how they generate profits for yield farmers, and the dangers of impermanent loss, it may be worthwhile to review them.
Indirect Liquidity Lets You Transfer Risk To A Borrower
With an Indirect Liquidity market like Impermax, you can deposit tokens that will be loaned to other yield farmers. The borrowing farmers deposit them into AMM liquidity pools and use them to increase their yields. In doing so, they assume all the impermanent loss risk and share a percentage of their yields with you until the loan is repaid. That’s a major advantage not available on any basic liquidity providing platforms.
The Unstoppable Growth Of Automated Market Makers
Uniswap’s liquidity providing model opened up a new category of automated market makers when it launched in late 2018. Since then the category has grown to more than $20 billion in liquidity and billions more in daily trading volume. AMMs are growing fast by every metric — users, liquidity, and exchange volume. AMM growth rates suggest they may even overtake commercial exchanges as Ethereum and layer 2 solutions mature and network congestion eases.
New Models Ignite Growth
This was all made possible by the basic model of liquidity providing, pioneered by Uniswap and centered on LP tokens. Indirect Liquidity providing represents an important step in overcoming the weaknesses of basic liquidity providing and it’s really a milestone in the capabilities of AMMs. It completely eliminates the need for farmers to use LP tokens (or analogous tokens in Uniswap V3, to be supported soon.)
Simplicity Is A Major Advantage
Indirect Liquidity providing is easier than most traditional yield farming. Decentralized exchange farming projects are always improving and becoming more sophisticated. Uniswap V3 in particular offers a deep variety of options for liquidity providers to customize positions and maximize capital efficiency. But the downside is that these platforms are increasingly difficult to understand and intimidating to new users. The growth of liquidity providing depends on onboarding new farmers, who often feel uneasy about the number of steps and decisions required. The success of aggregators like Zapper.fi has shown there’s high demand for easy-to-use entry points to yield farming. We see this discussed often in social media channels.
Liquidity Providing That Feels Like Staking
Most casual users want a basic staking-like experience — just deposit your tokens and come back later to check your earnings. This really hasn’t been available with basic liquidity providing methods, but it’s very straightforward with Indirect Liquidity. Just pick a pool, make a single token deposit, and you are now earning yield indirectly — from an AMM, through a borrower, to you.
Some Of The Best Passive Returns In DeFi
As explained above, Indirect Liquidity allows you to supply tokens for lending to other farmers who use them to increase their yields. The borrower automatically pays a portion of these profits to you. Since profits are dynamically calculated based on supply and demand, the returns often rank among the best yields available for passive returns in DeFi, especially for stable coins like USDC and USDT. Of course there are no guaranteed return rates, and there is always risk in DeFi, but the model of indirect farming by lending to other farmers is proving extremely powerful compared to other options.
Over the past few months since Impermax was launched, no other DeFi platform has been able to beat Impermax’s Indirect Liquidity providing yields for the USDT/USDC pair.
A Key Future Use Case
The Indirect Liquidity providing model is positioned to become a key future use case throughout the yield farming industry across all DEX platforms and networks. It can be expected to grow quickly as more yield farmers become familiar with its advantages and see its impressive results.