Idle Finance: One Place, All Yields

TL;DR

• Idle Finance provides users to earn yield with various lending protocols to maximize their returns;
• Idle introduced the so-called Yield Tranches, a Senior-Junior mechanism to provide different risk exposures;
• IDLE tokens can be used in staking and liquidity provision;
• Notum offers various options to delve into Idle with ease.

About Idle Finance

Idle DAO is a decentralized protocol with a set of products to create a unified source of yield. It helps users optimize their digital asset allocation across leading DeFi protocols, whether they want to maximize it or keep tabs on their risk-return profile.  

Source: DefiLlama

The protocol is divided into two main parts:

A lending aggregator that automatically analyses supply rates across integrated protocols and total funds in the pool to rebalance capital across any number of protocols to earn the highest interest rate possible with very high precision. 

It is currently running on the Ethereum network. 

Source: Idle Docs

A tranching mechanism that automatically tranches yields and risks on different strategies, such as Institutional credit lending, leverage staking, and overcollateralized lending.  

Best Yield

The Best Yield Vaults are single-sided liquidity pools offering the highest yield for supported stablecoins at all times. This is achieved by allocating these assets across different lending pools.

Source: Idle app

Best Yield brings profit to users through socializing gas costs, automating the yield generation and rebalancing process, and shifting funds when beneficial opportunities appear. Everything is automated and programmed, so users don’t need to monitor and actively manage its investments.

Users' funds are pooled together in the main contract (one for each supported token) to lower gas expenses for reallocating funds and simultaneously provide the highest aggregated APY for all provided funds.

Interest rates are always monitored, and an off-chain algorithm computes the exact allocations to maximize aggregated APY. If the current on-chain allocations differ from the newly calculated ones, the smart contract gets new allocations so that the pool can be rebalanced.

The strategy has been rather simple yet battle-tested since mid-2019. It’s considered one of the most sturdy in the current DeFi space.

Yield Tranches

“In the financial world, a tranche represents a product split that carries specific features like risk, yields, and duration. Tranches are often arranged together to create pools of diversified products or baskets of investments with similar risk-return characteristics”.

Idle decided to use the concept and launched its own tranches primitive: Yield Tranches.

Each tranched pool is supplied with its own yield source and two risk-adjusted investment profiles — Senior and Junior.

Source: Idle Docs

Here’s the stETH Yield Tranche based on the Instadapp stETH pool as an example. stETH deposited into the Senior and Junior classes of the Instadapp-based strategy are batched in one pool and then deployed into the Instadapp Lite market. This lets users enjoy leverage staking while offering them two different risk-return profiles.

Source: Instadapp Docs

Tranches bring users DeFi yields with built-in protection on deposits for Senior depositors or maximized yield for Junior ones.

• Junior YTs provide maximized returns, as they are rewarded with a bigger share of the underlying yield in exchange for taking on potential losses;
• Senior YTs give a lower APY but have built-in protection on funds, given by the Junior Class’ deposits.

Users decide the strategy depending on their risk profile: they can deposit their crypto into two different tranches — Senior or Junior — and get a token verifying their claim.

$IDLE: Use Cases

Liquidity Pool provision

A liquidity pool is a core mechanism of AMM (Automated Market Makers), where at least two assets are deposited to create a trading pair.

Learn more about providing liquidity with our article on the topic.

When liquidity is deposited into an AMM pool, particular tokens (liquidity providers tokens (LP tokens)) are minted and sent to the provider’s address. 

The proportion of the pool’s liquidity provided defines the number of liquidity tokens the provider gains.  Idle DAO currently supports two markets one of Uniswap and one of Ajna. 

Staking 

Staking empowers users to lock their IDLE for a flexible period to gain some gain discount on the fees applied to each strategy. The contracts for IDLE staking are based on the Curve Voting Escrow contracts, decisions are made through a community vote.

Source: Idle App

You can start staking in 3 steps by visiting the stake page in the idle.finance dashboard. The process is as easy as follows:

1. Approve the IDLE staking contract to start staking;
2. Lock your IDLE. You should set two variables:

• Lock period duration: from a minimum of 2 weeks to a maximum of 4 years. 
• $IDLE amount: based on your balance choose how many IDLE you want to lock.

1. Tap on ‘Lock’ and process the transaction.

Depending on the lock time, a user gets a particular amount of stkIDLE their locked IDLE tokens. The lock scale is as follows:

Source: Idle Docs

stkIDLE directly decreases from the lockup date to the end date. A user can withdraw the starting locked IDLE tokens at the end of the lock time. The general formula to count the stkIDLE balance at any point in time is:

Source: Idle Docs

Notum x Idle

Notum supports various strategies on Idle. Here are two options that could draw your attention thanks to their TVL, APY metrics, and low-risk level.

USDC lending:

Follow Idle on Socials

Website | X | Discord | Docs

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.