Balancer LP Farming Strategy

TLDR: Proposal to add pickle jars that take advantage of high yield LP on balancer.exchange, starting with wBTC/wETH

Balancer is a unique AMM that allows for multiple tokens to be added to one pool in a certain percentage and presents arbitrage opportunities for people to keep tokens in this range. This means that one can create a pool with more than one pair of tokens, presenting a large area of potential yield farming opportunities.

Balancer incentivizes LPs by distributing BAL governance tokens once a week based on providing liquidity to whitelisted tokens, as well as harvests fees for LPs. This proposal is to create a new strategy that hasn’t been seen in any vault products before - utilizing the balancer pools as a vault strategy, starting with the uncapped wBTC / wETH pool.

Time for the numbers:
wBTC / wETH Pool

  • Volume: $2,315,665.27 / 24hr
  • Total APY: 28.14%
  • Total Liquidity: $84,900,082.69
  • Total Factor (multiplier for BAL rewards - 1 is best): 0.99

This pool has sufficient volume and liquidity to support a pickle jar, and an untapped market allows for pickle to be a differentiator in the aggregator scheme. My proposal is to create a simple Balancer strategy which would follow the below workflow:

  1. User deposits into wBTC / wETH pool and receives a BPT token (a BPT token is the LP token for balancer)
  2. User deposits BPT token into pickle jar
  3. Pickle jar polls balancer reward contract when block_count % 6609 == 0 (Once per day) to see if there are rewards available, these rewards are claimed and sold for 50/50 wBTC/wETH and restaked to the balancer pool, increasing the BPT amount

Risk

  • Any non-like pair (and like pairs but not to any real effective point) that is on a AMM has some form of impermanent loss. If the price of bitcoin or ethereum moves in a significant way without the other following, the LP will face impermanent loss which may be disadvantageous to using the pickle jar
  • wBTC is a centralized solution which has some risk of the central authority locking funds or losing peg.

Discussion Points:

  • Should BAL tokens be sold and restaked or should these be held to claim?
  • Is IL a big issue, or is the automatic reinvesting of BAL and the potential PICKLE / BAL rewards enough to cover this?

Path Forward
To create this pickle jar, we will need to create a base strategy for balancer that includes an interface for the below implementations:

This seems like a low-risk, big time win for Pickle, which would allow for further iterations down the road to have a symbiotic relationship with other yield farming aggregators which do not take advantage of balancer at this time. Please let me know what you all think and if this is worth pursuing further!

5 Likes

I like it, I personally have WBTC/ETH that was staked in the Pickle UNI pool that I did not want to swap into another asset as the outlook for both BTC and ETH was bullish. It’s now parked in Sushiswap but would prefer automatic harvesting and reinvestment and the returns are good but not as good as what is being proposed. I believe there is significant WBTC/ETH out there in a similar position which we would immediately capture.

1 Like

Great idea! A BTC-friendly jar with a high APY we can collect fees from :slight_smile:

@Larry_Cucumber is this technically feasible?

Thank you for making this proposal - I see this token pair as being a very attractive one which could entice a lot of users to deposit their assets with us. The first to market aspect of this is appealing as well. So overall, I would like to see this happen.

However, I had a couple additional concerns I was hoping you could address:

  1. BAL rewards are rewarded once a week. Would you bake in a solution to avoid a whale depositing just before the epoch ends and getting a full week’s share of rewards (i.e. a sandwich attack)?
  2. Since there’s no history of other projects farming BAL, do you see a risk that Balancer doesn’t take kindly to us dumping their token and react like they did here?

On the development side, you may be interested in looking our existing strategy code, if you haven’t already done so.

@yyctrader the technical feasibility of this would be @mitche50’s job if they’re vying for those fees :wink:

1 Like

Noted! This would be great to see…our first community strategist!

#1 is not applicable afaik - the BAL rewards are accumulated continuously, per block. And I don’t think the BAL team frowns upon anyone that dumps BAL token right after they were claimed. That is why the BAL incentives are better/ increased for LPs to provide BAL token to WETH pool to encourage holders.

After some discussions in discord, a simple vesting solution would be the most straightforward way to ensure that BAL claimed rewards are not exploited by large deposits and withdraws.

To move forward with this pool, it would need to have a vesting period of 1 epoch + the current epoch. Epochs for balancer last approximately 1 week, so the minimum vesting period would be 1 week and maximum would be 2 weeks. In order to achieve this, we would need to track the deposit block for each deposit and the amount that was deposited. A view function would be provided to calculate the amount of p tokens that are unvested, and the claim function would only work for an amount <= the claimable amount.

As @Anoniminis mentioned, the balancer team frowns upon immediate dumps, so an alternate strategy may be to single asset deposit into the BAL/wETH pool to add double BAL rewards and increase yield.