Exotic trading strategy to earn 4500% APY with NFT Yield Farming
This is a speculative piece of research and tutorial on a degen trading strategy. You should not place life savings in this trade, and it’s only for education purposes.
For this strategy we are using Solvent Protocol a platform to fractionalize NFTs to fungible tokens known as droplets and Atrix a platform to add liquidity on the Serum Order Book.
Also note that this works with any NFT pools available on Atrix, I use a DeGods NFT as it is among those with highest APY.
Setting up the trade
Go on Solvent (https://app.solvent.xyz/) and choose the $DGOD Bucket.
Click on the “owned” tab and find your beautiful NFT, now click on “Mint 100 $DGOD”
Remember once you deposit your NFT in Solvent, it ends up in a bucket with all the other DeGods NFT. Any other users owning 100 $DGOD can burn the tokens and withdraw 1 NFT, yours included
So be sure to use a floor NFT or one you don’t mind about too much.
Once you minted the tokens, head over to Atrix Pools (https://app.atrix.finance/#/pools) and find the DGOD-USDC pool. Now add liquidity for both the $DGOD tokens and USDC, deposit and confirm the transaction.
Now move to Atrix Farms (https://app.atrix.finance/#/farms) and finally stake your LP tokens obtained above.
Rewards start accruing immediately and they are paid out in SRM + SVT + LP trading fees.
Main risks
1) By providing liquidity on $DGOD-USDC you are in practice short selling an ATM straddle on DeGods NFT betting that its price won’t change too much. You are thus short vega and short gamma.
In DeFi this is called impermanent loss. I’ve already talked extensively about what it is and what it implies, you can find my Twitter thread here.
In theory you could hedge that risk by trading the delta, how? If the NFT price goes down you sell some fractions, whereas if the NFT price keeps rising you need to buy more (negative gamma). However this requires you have other fractions to sell or spare capital to buy more. Unfortunately, NFT markets are not so developed yet and there are no liquid instrument to do this trade without paying too much slippage so you have to bear most of the risks described above. Floor perpetual contracts might solve this.
2) Size risk. The more liquidity is added to the pool the faster the reward drops, you can call this “APY Decay”. Keep this in mind before adding $10M to a NFT-USDC yield farming pool. I leave to the reader the exercise of finding out the exact mathematical relationship between the allocated reward and the the liquidity in the AMM.
This list is not exhaustive and there are other risks that might show up, when trading you need to be aware there exist both known risks (which we can hedge) and unknown risks (by definition we can do less against it).
FAQ
- Do I need to own a “whole” NFT to do this?
No, you can provide liquidity with just 1 share of the fractionalized NFT. If you decide to do so, you don’t need Solvent and you have to acquire the droplet via Jupyter or some other venue.
Conclusions
That’s it, lads. You just learned how to do fractionalized NFT yield farming, this is a very speculative trade and the total amount of capital deployed on this strategy is less than 2.5M USDC, still I find it intellectually stimulating and hope you will too.
DISCLAIMER: WE OR A COMPANY OR PERSON CONNECTED OR ASSOCIATED WITH US HOLD A LONG POSITION AS A PRINCIPAL IN SRM AND SVT. ALSO YOU MIGHT LOSE YOUR SHIRT AND YOU NFT WHEN TRADING SO BE SURE TO UNDERSTAND WHAT YOU ARE DOING BEFORE TRADING.
