How to use Yield Protocol V2 for fixed-rate lending?
Fixed-rate project incubated by Paradigm.Source: Yield Protocol Blog
Compiled by: Hu Tao, Chain Catcher
Yield Protocol is a DeFi fixed-rate lending project incubated by the well-known venture capital firm Paradigm, which has raised $1 million in funding, with other investors including Framework Ventures, Variant, and DeFi Alliance. The project has not yet issued a token.
Recently, the official Yield Protocol blog released a guide on how to borrow, lend, and provide liquidity on Yield Protocol V2. Chain Catcher has compiled this article to help everyone use the product more conveniently.
1. Borrowing
Borrowing under the Yield Protocol framework is straightforward with a fixed interest rate. You can choose how much you want to borrow, select from several loan maturity dates, and provide collateral to support the loan.
Below we will guide you through the steps required to create a loan.
Please select the "Borrow" option to proceed with borrowing.
In the borrowing window, you first provide the amount of tokens you wish to borrow. For example, you can choose whether to borrow USDC or DAI from the dropdown menu. In the input box, you can enter the amount you want to borrow. As you update the amount, the user interface will recalculate the fixed interest rate you will receive based on your borrowing scale.
Next, you can choose the term for the loan. The maturity date represents the fixed interest rate period for the loan. The fixed interest rate you receive will be guaranteed until that series matures. After that, your borrowing rate will switch to a floating rate. You can repay the loan at any time. Repaying before the loan matures may affect the actual rate you receive.
3. Choose Collateral
First, from the collateral dropdown menu, you can select the type of collateral, such as ETH, WBTC, or USDC. Next, you can enter the amount of collateral you want to add or click max to use all available assets. A recommended collateral ratio of at least 250% is advised to avoid any liquidation risk. You can also click "Use Minimum Safe Value" to use the suggested value for the recommended collateral ratio. Remember, even within a safe minimum, you should regularly check to ensure you have enough collateral to avoid liquidation.
4. Review Transaction
Review the transaction. If everything looks good, click the "Borrow" button to confirm. Your transaction will then be submitted to the network for confirmation. After that, you will see a confirmation popup in the upper right corner, and your Vaults will be displayed in the lower right corner. You have now successfully borrowed through Yield Protocol.
Managing Debt Vaults
Debt positions in Yield Protocol are called Vaults. You can view your open Vaults by clicking on "Dashboard" or by checking the vault list in the lower right corner of the borrowing page. Each Vault has a randomly generated name and identifier to distinguish it from other vaults. Additionally, Vaults display a flag for borrowed assets, surrounded by a color representing the Vault's maturity date. A flag representing the collateral is embedded within the flag. Each Vault has a single type of collateral and a specific series of a single underlying asset's debt.
To manage your debt Vaults, click on the vault option in the lower right corner of the "Borrow" screen.
On the Vaults page, you can perform the following actions:
Repay Debt: Repay any outstanding debt plus interest. You can choose to repay early, but early repayment may prevent you from receiving the original fixed rate.
Extend Debt: You can extend the debt to a later maturity date to prolong the loan term. You will receive a new fixed interest rate for that term.
Add More Collateral: Add more collateral to your position to reduce liquidation risk.
Remove Collateral: Remove collateral to lower your collateral ratio.
View Transaction History: View the transaction history of your Vaults.
2. Deposits
When you deposit in Yield, you are purchasing future cash payments from borrowers at a discounted price. These future cash payments are represented by "fyTokens." fyTokens are a type of token that can be redeemed for the underlying asset on a one-to-one basis at a future date. fyTokens themselves do not pay interest; the interest earned is determined by the difference between the face value of the fyToken and the price you paid.
fyTokens are fungible and can be bought and sold at any time. This means you can exit or close your position early by selling your fyTokens. However, changes in interest rates may affect the actual rate you receive upon early redemption.
Users can lend Dai or USDC at a fixed rate until maturity through the "Lend" option.
Please select the "Lend" option to proceed with lending.
3. Choose Asset Type
From the dropdown list, select the asset you wish to lend. Then enter the amount you wish to lend in the input box. As you update the amount, the user interface will recalculate the fixed return rate you will receive based on your loan scale.
Next, select the maturity series you wish to lend to. Each series will offer a different fixed interest rate until maturity. You must hold the loan position until maturity to earn interest at the quoted rate.
Finally, click next.
4. Check Transaction
Review the transaction, and if everything is correct, click "Supply XX …". Your transaction will then be submitted to the network for confirmation. After that, you will see a confirmation popup in the upper right corner. You have now successfully lent through Yield Protocol.
Managing Loan Vaults
After successfully creating a deposit position, you now have deposit Vaults with a single asset type and maturity series. You can view the maturity date, portfolio value at maturity, and current value by clicking on Vaults.
To manage your debt status, click on the lend option in the lower right corner of the screen.
From the Vaults page, you can perform the following actions:
Redeem DAI: Close your deposit position by redeeming fyDAI for DAI.
Extend Position: You can extend the deposit to earn additional interest by delaying to a later maturity date.
View Transaction History: View the transaction history of your Vaults.
3. Liquidity Pools (Liquidity Providing Strategies)
By concentrating your liquidity in Yield Protocol, you can earn fees from borrowers and lenders.
Yield Protocol offers separate liquidity pools for different maturity dates, allowing users to exchange assets at a fixed rate for relatively stable returns until the agreed maturity date. Yield Protocol v2 has improved the experience of providing liquidity. When the maturity date of a liquidity pool is reached, the strategy automatically rolls the liquidity from one pool to the next without user intervention.
Various liquidity strategies extend in a predefined manner. The "Six-Month" strategy rolls liquidity into the next six-month pool upon maturity. At the launch of v2, there are two six-month strategies, one rolling in March/September each year, and the other rolling in June/December each year. It is recommended that you provide liquidity for strategies that align with the time you expect to provide liquidity. Generally, you should be able to remove your liquidity at any time.
Select the "Pool tab" option.
Choose the asset you want to provide as liquidity. During the testing phase, you can provide liquidity to earn fees in USDC and Dai.
Enter the amount of liquidity you want to provide. Please note that during the testing phase, the debt limit may restrict the amount of liquidity you can provide. The protocol will use the maximum indicated amount but may require less, depending on the protocol conditions.
Choose the strategy for providing liquidity.
Click "Next" to bring up the confirmation screen.
Choose a method to add liquidity. The two available methods are:
Buy and Provide Liquidity: This strategy is best for users who need to add a small amount of liquidity. It minimizes gas fees while maximizing the number of liquidity pool tokens received. This is the recommended strategy for most users.
Loan and Provide Liquidity: This strategy is best for users who need to add a large amount of liquidity to the pool. While it may use more gas fees, this strategy does not affect the current interest rate.
In special cases, only one method may be available.
- Review the transaction, and if correct, click the "Pool" button to submit the transaction to the network.
Managing Liquidity Pool Positions
To manage liquidity pool positions, click on the liquidity pool option in the lower right corner of the screen.
Once opened, you can select "Remove Liquidity" to withdraw your liquidity.
