Extra Finance Review: A Community-Driven Lending & Leveraged Yield Farming Protocol Built On Optimism?
Extra Finance review is a leveraged yield farming (LYF) protocol built on Optimism. By offering up to 7x leverage, Extra Finance enables users to farm a diverse range of farming pools with customized farming strategies. Extra Finance also functions as a lending protocol, users can deposit funds to earn lending interest.
What is Extra Finance?
Core Features:
1) Flexible & powerful leveraged liquidity providing
- With 3x and higher leverage factor, users could tailor their farming strategies through options such as re-investing, market-neutral, or farming with a long/short viewpoint.
- Users can choose any paired asset to deposit, or borrow a customized ratio of the paired asset to implement a leveraged strategy. A real-time position simulation will be shown accordingly.
2) Lend to earn passive income
Users can deposit assets into lending pools to earn interest on their deposited assets. It provides users with a way to earn passive income.
3) Stablecoin & LST Optimized leveraged yield farming
By implementing a new interest rate model, the protocol will serve as an innovative platform to optimize earnings by minimizing borrowing costs and reducing interest rate fluctuations.
Smart contracts of Extra Finance are audited by PeckShield.
How Extra Finance Works?
Leverage Farming Workflow
Let’s consider the example of Alice, who wants to open a 3x leveraged farming position on $ETH/$USDC to take advantage of the high yield rate. Here’s how she can proceed:
- Alice needs to provide collateral, such as 100 $USDC, to borrow more from the lending pool and leverage her position. Extra Finance allows users to provide single or dual assets as collateral, so Alice can choose to provide either $USDC or $ETH, or both.
- Alice selects the leverage factor she wants to apply. Extra Finance offers leverage ratios like 3x and higher, depending on the risk level of the underlying pools. The assets provided by Alice, along with the borrowed assets, are swapped into an appropriate ratio for the automated market maker (AMM) to accept and mint LP tokens. The swap(or ZAP) process is handled automatically by the protocol with the best route, and Alice’s position starts generating farming rewards.
- Where do the rewards go? On Extra Finance, reward emissions are automatically converted and reinvested into LP tokens, maximizing the yield rate. Instead of having a separate claim button, the protocol periodically collects the rewards, leading to a continuous increase in the amount of LP tokens held by the user.
- And finally, how is APR/APY calculated? If the farming APR of $ETH/$USDC on Velodrome is 20% and the borrowing interest of $ETH is 8%, then the APR of 3x leverage farming position = (20% * 3) – (8% * 2) = 44%, and the corresponding APY is around 54.05%! (under a monthly compound frequency)
Benefits:
Leverage farming and lending on Extra Finance offers several advantages:
- Liquidity providers enjoy a multiplied APR. And users could implement different strategies (like long/short or delta-neutral farming) by borrowing different assets to leverage.
- High APR for Lending. As there are at least one related farming pools that frequently borrow assets from the corresponding lending pools, it results in higher lending interest and utilization compared to typical lending protocols – these assets are in constant demand.
- Amplify low-risk yield for stable & LST assets. Leveraged farming amplifies the low-risk stable pool farming performance. For stable pools like the $USD+/$DOLA or wstETH/WETH, as long as the paired assets remain pegged, the risk of liquidation is relatively low.
Risks to Be Aware Of
While Extra Finance helps yield farmers amplify their yield rate, users should be aware of the following risks:
- Impermanent Loss: Farmers must understand the concept of impermanent loss, which occurs when the price of one token in the liquidity-providing position fluctuates compared to another token. The greater the difference, the higher the vulnerability to impermanent loss, resulting in less valuable assets upon withdrawal.
- Liquidation: If the debt ratio (debt value/position value) of a farm exceeds the liquidation threshold, the position will be liquidated. This means that borrowed funds will be returned to the lender, and any remaining portion will be returned to the user. It is crucial to monitor the debt ratio and ensure it stays within safe levels to avoid liquidation. In the case of stable pools, as both paired assets are stablecoins/LST assets, the chances of liquidation are lower. However, in the event of a de-peg between the two assets, liquidation could theoretically occur.
Introduction to Leveraged Yield Farming
Leveraged Yield Farming (LYF) is a key feature of Extra Finance, which allows users to amplify their returns on investments by borrowing additional funds to invest in a liquidity pool. This is achieved by using the funds as collateral to borrow stable/non-stable coins, which are then used to purchase additional tokens. These tokens are then added to the liquidity pool, increasing the overall value of the pool and providing additional returns to the user.
Practically, LYF is one of the most efficient ways to maximize your capital efficiency. It requires no additional asset as collateral, which means you can enjoy the full earning amplification from the leverage. And also, a well-designed LYF strategy can greatly reduce the effect of impermanent loss (IL).
Example from Luca:
To make those points clear, let’s take an example: Luca has $1000 ETH and $1000 USDC. He deposit and stake those tokens into the ETH-USDC pool to enjoy a 20% APR liquidity farming return. However, he is not satisfied with a 20% return regarding long-term volatility. So he starts to reinvest his earning interest into the pool. The reinvesting can help boost the 20% APR to reach a maximum…… 22.1% APY.
Now Luca is happy with the APY, but another issue begins to bother him — the infamous impermanent loss (IL). With 3x leverage, not only the return but also the potential IL will be larger. IL is a long-standing problem with AMM, many tried to solve but yet no perfect solution.
However, with LYF and a smart strategy, you can actually turn this disadvantage into an advantage. Luca predicts the price of ETH will keep rising in the next three months (this Luca is smart), so instead of borrowing the equal value of two assets ($2000 ETH and $2000 USDC), he decides to remain the same leverage rate (3x) but only borrow USDC ($4000 USDC). Why is that? Because borrowing more USDC than ETH is actually creating a long position of ETH!
Tokenomics
ve-Mechanism
Extra Finance uses two tokens to manage its utility and governance:
$EXTRA— ERC-20 utility token of the protocol$veEXTRA— ERC-20 governance token of the protocol
$EXTRA is used for rewarding liquidity providers through emissions.
$veEXTRA is used for governance. Any $EXTRA the holder can vote-escrow their tokens and receive a $veEXTRA in exchange.
The lock period (also known as the vote-escrowed period, hence the ve prefix) can be up to 1 year (52 weeks), following the linear relationship shown below:
- 100
$EXTRAlocked for 52 weeks will become 100$veEXTRA - 100
$EXTRAlocked for 13 weeks will become 25$veEXTRA
The longer the vesting time, the higher the voting power (voting weight), and rewards the $veEXTRA holder receives.
Governance
Vote & Governance in the Community.
$veEXTRAis the voting power in Extra Finance’s on-chain governance process. Users could use it to initialize a proposal, or cast for/against community proposals.
Utility
By holding $veEXTRA, users can unlock the following benefits and features:
1. APR rewards, sourced from both protocol fees and $EXTRA token incentives.
The protocol fee comprises various tokens collected into the treasury and is shared once per epoch. It is used to buy back $EXTRA tokens from the market and then distribute them to holders of $veEXTRA tokens.
A portion of the $EXTRA tokens allocated to the community will also be assigned to $veEXTRA token holders, subject to a specific emission plan.
At the end of each epoch, rewards will be collected for distribution.
2. Unlock higher leverage for yield farming pools.
3. Gain access to lending pools with a high utilization rate.
Lending pools may experience high demand and potential shortages when implementing leverage farming. However, holders of $veEXTRA will have the privilege to borrow from these pools.
4. Priority to more coming features and benefits, including:
- Advanced facilities including one-click position-rebalance tool.
- Automatic strategy vaults.
Allocation
The $EXTRA token has a hard cap of 1,000,000,000 tokens, with the following allocation:
The owner authority of the EXTRA token contract has been destroyed. Verify here. No more EXTRA can be minted.
* 60% (600,000,000) for the community
Monthly unlock for a period of 3 years. Monthly emissions start at 20M $EXTRA (2% of the total supply) and decay at 1% per month.
Emissions are planned to be allocated to:
- Procotol Incentives, eg. lending pools, farming pools on Extra Finance
$EXTRAtoken liquidity pools on mainstream DEXes like Velodrome$veEXTRAholders ($EXTRAtoken staking users)
According to a well-defined plan that aligns with the stage of protocol development.
For instance, during the early stages of the protocol, emissions primarily focus on lending pools on Extra Finance. This ensures that liquidity providers can borrow their desired amount of assets to implement leveraged farming.
* 26% (260,000,000) for ecosystem growth and partnerships
Quarterly unlock for a period of 3 years. Each quarter unlocks 2% of the total supply.
This section primarily focuses on protocol-to-protocol collaborations, protocol grants, and business development initiatives.
* 10% (100,000,000) for team
6-month cliff period + 30-month vesting period under a quarterly unlock plan. (After 6 month locking period, each quarter unlocks 1% of the total supply.)
* 3% (30,000,000) for airdrop
A comprehensive airdrop plan will be unveiled through our official blog, outlining the specific details and schedule. The airdrop itself will be executed in a series of sequential batches, with allocations designated for the community, ecosystem participants, and early users of the protocol. The initial airdrop will be carried out by the team, while subsequent airdrops will adhere to established governance procedures.
* 1% (10,000,000) for initial liquidity
To create liquidity pools for $EXTRA tokens on mainstream DEXes. The initial liquidity pool would be EXTRA-USDC on Velodrome.
Airdrop Scope
- Testnet early users with valid feedback (including randomly selected Galxe OATs holders)
- Top Optimism ecosystem delegators
- Extra Finance Community OG & Zealy Adventures
- TVL Contribution Event winners (Rounds 1&2)
- Velodrome Users: both a liquidity provider AND a veVELO holder
- Leverage yield farming enthusiasts
Vesting Schedule
$EXTRA token vesting plan is as follows, all tokens with a cap of 1,000,000,000 will be unlocked by the end of 36 months since its token launch.
Roadmap
2023 Q1:
- ✅ Testnet Release – Leverage Yield Farming on Velodrome
2023 Q2:
- ✅ Mainnet Launch – Leverage Yield Farming on Velodrome
- ✅ Tokenomics
2023 Q3:
- ✅ One-click Yield Farming Templates
- ✅ Optimization for Stablecoin & LST Leveraged Farming Pools
- CLAMM Liquidity Pools Integration
- ✅ Yield Farming Simulation & Calculation Tool
2023 Q4:
- Release of Advanced Strategy Vaults
2024 Q1:
- Social Farming: User-to-User Yield Strategy Following
- Extra Finance V2
Conclusion
Extra Finance emerges as a dynamic and innovative player within the cryptocurrency landscape. Its robust features, user-friendly interface, and commitment to security stand out, offering users a comprehensive and rewarding experience. With a clear focus on DeFi solutions and a growing community, Extra Finance showcases its potential to contribute significantly to the evolution of decentralized finance. As the crypto market continues to evolve, Extra Finance remains an intriguing platform to watch, with its unique offerings poised to make a lasting impact.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
Author
Uncategorized
Extra Finance Review: A Community-Driven Lending & Leveraged Yield Farming Protocol Built On Optimism?
Extra Finance review is a leveraged yield farming (LYF) protocol built on Optimism. By offering up to 7x leverage, Extra Finance enables users to farm a diverse range of farming pools with customized farming strategies. Extra Finance also functions as a lending protocol, users can deposit funds to earn lending interest.
What is Extra Finance?
Core Features:
1) Flexible & powerful leveraged liquidity providing
- With 3x and higher leverage factor, users could tailor their farming strategies through options such as re-investing, market-neutral, or farming with a long/short viewpoint.
- Users can choose any paired asset to deposit, or borrow a customized ratio of the paired asset to implement a leveraged strategy. A real-time position simulation will be shown accordingly.
2) Lend to earn passive income
Users can deposit assets into lending pools to earn interest on their deposited assets. It provides users with a way to earn passive income.
3) Stablecoin & LST Optimized leveraged yield farming
By implementing a new interest rate model, the protocol will serve as an innovative platform to optimize earnings by minimizing borrowing costs and reducing interest rate fluctuations.
Smart contracts of Extra Finance are audited by PeckShield.
How Extra Finance Works?
Leverage Farming Workflow
Let’s consider the example of Alice, who wants to open a 3x leveraged farming position on $ETH/$USDC to take advantage of the high yield rate. Here’s how she can proceed:
- Alice needs to provide collateral, such as 100 $USDC, to borrow more from the lending pool and leverage her position. Extra Finance allows users to provide single or dual assets as collateral, so Alice can choose to provide either $USDC or $ETH, or both.
- Alice selects the leverage factor she wants to apply. Extra Finance offers leverage ratios like 3x and higher, depending on the risk level of the underlying pools. The assets provided by Alice, along with the borrowed assets, are swapped into an appropriate ratio for the automated market maker (AMM) to accept and mint LP tokens. The swap(or ZAP) process is handled automatically by the protocol with the best route, and Alice’s position starts generating farming rewards.
- Where do the rewards go? On Extra Finance, reward emissions are automatically converted and reinvested into LP tokens, maximizing the yield rate. Instead of having a separate claim button, the protocol periodically collects the rewards, leading to a continuous increase in the amount of LP tokens held by the user.
- And finally, how is APR/APY calculated? If the farming APR of $ETH/$USDC on Velodrome is 20% and the borrowing interest of $ETH is 8%, then the APR of 3x leverage farming position = (20% * 3) – (8% * 2) = 44%, and the corresponding APY is around 54.05%! (under a monthly compound frequency)
Benefits:
Leverage farming and lending on Extra Finance offers several advantages:
- Liquidity providers enjoy a multiplied APR. And users could implement different strategies (like long/short or delta-neutral farming) by borrowing different assets to leverage.
- High APR for Lending. As there are at least one related farming pools that frequently borrow assets from the corresponding lending pools, it results in higher lending interest and utilization compared to typical lending protocols – these assets are in constant demand.
- Amplify low-risk yield for stable & LST assets. Leveraged farming amplifies the low-risk stable pool farming performance. For stable pools like the $USD+/$DOLA or wstETH/WETH, as long as the paired assets remain pegged, the risk of liquidation is relatively low.
Risks to Be Aware Of
While Extra Finance helps yield farmers amplify their yield rate, users should be aware of the following risks:
- Impermanent Loss: Farmers must understand the concept of impermanent loss, which occurs when the price of one token in the liquidity-providing position fluctuates compared to another token. The greater the difference, the higher the vulnerability to impermanent loss, resulting in less valuable assets upon withdrawal.
- Liquidation: If the debt ratio (debt value/position value) of a farm exceeds the liquidation threshold, the position will be liquidated. This means that borrowed funds will be returned to the lender, and any remaining portion will be returned to the user. It is crucial to monitor the debt ratio and ensure it stays within safe levels to avoid liquidation. In the case of stable pools, as both paired assets are stablecoins/LST assets, the chances of liquidation are lower. However, in the event of a de-peg between the two assets, liquidation could theoretically occur.
Introduction to Leveraged Yield Farming
Leveraged Yield Farming (LYF) is a key feature of Extra Finance, which allows users to amplify their returns on investments by borrowing additional funds to invest in a liquidity pool. This is achieved by using the funds as collateral to borrow stable/non-stable coins, which are then used to purchase additional tokens. These tokens are then added to the liquidity pool, increasing the overall value of the pool and providing additional returns to the user.
Practically, LYF is one of the most efficient ways to maximize your capital efficiency. It requires no additional asset as collateral, which means you can enjoy the full earning amplification from the leverage. And also, a well-designed LYF strategy can greatly reduce the effect of impermanent loss (IL).
Example from Luca:
To make those points clear, let’s take an example: Luca has $1000 ETH and $1000 USDC. He deposit and stake those tokens into the ETH-USDC pool to enjoy a 20% APR liquidity farming return. However, he is not satisfied with a 20% return regarding long-term volatility. So he starts to reinvest his earning interest into the pool. The reinvesting can help boost the 20% APR to reach a maximum…… 22.1% APY.
Now Luca is happy with the APY, but another issue begins to bother him — the infamous impermanent loss (IL). With 3x leverage, not only the return but also the potential IL will be larger. IL is a long-standing problem with AMM, many tried to solve but yet no perfect solution.
However, with LYF and a smart strategy, you can actually turn this disadvantage into an advantage. Luca predicts the price of ETH will keep rising in the next three months (this Luca is smart), so instead of borrowing the equal value of two assets ($2000 ETH and $2000 USDC), he decides to remain the same leverage rate (3x) but only borrow USDC ($4000 USDC). Why is that? Because borrowing more USDC than ETH is actually creating a long position of ETH!
Tokenomics
ve-Mechanism
Extra Finance uses two tokens to manage its utility and governance:
$EXTRA— ERC-20 utility token of the protocol$veEXTRA— ERC-20 governance token of the protocol
$EXTRA is used for rewarding liquidity providers through emissions.
$veEXTRA is used for governance. Any $EXTRA the holder can vote-escrow their tokens and receive a $veEXTRA in exchange.
The lock period (also known as the vote-escrowed period, hence the ve prefix) can be up to 1 year (52 weeks), following the linear relationship shown below:
- 100
$EXTRAlocked for 52 weeks will become 100$veEXTRA - 100
$EXTRAlocked for 13 weeks will become 25$veEXTRA
The longer the vesting time, the higher the voting power (voting weight), and rewards the $veEXTRA holder receives.
Governance
Vote & Governance in the Community.
$veEXTRAis the voting power in Extra Finance’s on-chain governance process. Users could use it to initialize a proposal, or cast for/against community proposals.
Utility
By holding $veEXTRA, users can unlock the following benefits and features:
1. APR rewards, sourced from both protocol fees and $EXTRA token incentives.
The protocol fee comprises various tokens collected into the treasury and is shared once per epoch. It is used to buy back $EXTRA tokens from the market and then distribute them to holders of $veEXTRA tokens.
A portion of the $EXTRA tokens allocated to the community will also be assigned to $veEXTRA token holders, subject to a specific emission plan.
At the end of each epoch, rewards will be collected for distribution.
2. Unlock higher leverage for yield farming pools.
3. Gain access to lending pools with a high utilization rate.
Lending pools may experience high demand and potential shortages when implementing leverage farming. However, holders of $veEXTRA will have the privilege to borrow from these pools.
4. Priority to more coming features and benefits, including:
- Advanced facilities including one-click position-rebalance tool.
- Automatic strategy vaults.
Allocation
The $EXTRA token has a hard cap of 1,000,000,000 tokens, with the following allocation:
The owner authority of the EXTRA token contract has been destroyed. Verify here. No more EXTRA can be minted.
* 60% (600,000,000) for the community
Monthly unlock for a period of 3 years. Monthly emissions start at 20M $EXTRA (2% of the total supply) and decay at 1% per month.
Emissions are planned to be allocated to:
- Procotol Incentives, eg. lending pools, farming pools on Extra Finance
$EXTRAtoken liquidity pools on mainstream DEXes like Velodrome$veEXTRAholders ($EXTRAtoken staking users)
According to a well-defined plan that aligns with the stage of protocol development.
For instance, during the early stages of the protocol, emissions primarily focus on lending pools on Extra Finance. This ensures that liquidity providers can borrow their desired amount of assets to implement leveraged farming.
* 26% (260,000,000) for ecosystem growth and partnerships
Quarterly unlock for a period of 3 years. Each quarter unlocks 2% of the total supply.
This section primarily focuses on protocol-to-protocol collaborations, protocol grants, and business development initiatives.
* 10% (100,000,000) for team
6-month cliff period + 30-month vesting period under a quarterly unlock plan. (After 6 month locking period, each quarter unlocks 1% of the total supply.)
* 3% (30,000,000) for airdrop
A comprehensive airdrop plan will be unveiled through our official blog, outlining the specific details and schedule. The airdrop itself will be executed in a series of sequential batches, with allocations designated for the community, ecosystem participants, and early users of the protocol. The initial airdrop will be carried out by the team, while subsequent airdrops will adhere to established governance procedures.
* 1% (10,000,000) for initial liquidity
To create liquidity pools for $EXTRA tokens on mainstream DEXes. The initial liquidity pool would be EXTRA-USDC on Velodrome.
Airdrop Scope
- Testnet early users with valid feedback (including randomly selected Galxe OATs holders)
- Top Optimism ecosystem delegators
- Extra Finance Community OG & Zealy Adventures
- TVL Contribution Event winners (Rounds 1&2)
- Velodrome Users: both a liquidity provider AND a veVELO holder
- Leverage yield farming enthusiasts
Vesting Schedule
$EXTRA token vesting plan is as follows, all tokens with a cap of 1,000,000,000 will be unlocked by the end of 36 months since its token launch.
Roadmap
2023 Q1:
- ✅ Testnet Release – Leverage Yield Farming on Velodrome
2023 Q2:
- ✅ Mainnet Launch – Leverage Yield Farming on Velodrome
- ✅ Tokenomics
2023 Q3:
- ✅ One-click Yield Farming Templates
- ✅ Optimization for Stablecoin & LST Leveraged Farming Pools
- CLAMM Liquidity Pools Integration
- ✅ Yield Farming Simulation & Calculation Tool
2023 Q4:
- Release of Advanced Strategy Vaults
2024 Q1:
- Social Farming: User-to-User Yield Strategy Following
- Extra Finance V2
Conclusion
Extra Finance emerges as a dynamic and innovative player within the cryptocurrency landscape. Its robust features, user-friendly interface, and commitment to security stand out, offering users a comprehensive and rewarding experience. With a clear focus on DeFi solutions and a growing community, Extra Finance showcases its potential to contribute significantly to the evolution of decentralized finance. As the crypto market continues to evolve, Extra Finance remains an intriguing platform to watch, with its unique offerings poised to make a lasting impact.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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