AirPuff Points Earning Maximization Guide: How to Leverage for Increased Expected Returns

Original Title: “Leveraged Points Farming With Airpuff.io”

Author: THOR AND HYPHIN

Compiled by: Deep Tide TechFlow

Introduction

In the current DeFi activities, the strategy of leveraging exposure for airdrop points is likely the best strategy. Participants in Ethena's first season event received returns ranging from 100% to 500% based on their varying "shards" leverage exposure to Ethena. Many are looking forward to Eigenlayer and its LRT ecosystem to provide comparable returns, with the current value of EIGEN points ranging from $0.2 to $0.4. One way to acquire these points is through Airpuff.

Airpuff is a multi-chain money market that provides leveraged exposure for points projects such as Eigenlayer, Renzo, Etherfi, Kelp, and Ethena. Users can achieve up to 12.75 times leverage on points or trade by lending assets, which can yield over 50% annualized interest rates. Airpuff is preparing for their $APUFF TGE, with the Foundry LBP running until April 11 at 12 PM UTC. Today's report will analyze the Airpuff protocol, the $APUFF token, and finally provide specific strategies and expected returns.

Using Airpuff for Leveraged Points Airdrop Activities

The core of AirPuff consists of two key components that work together to facilitate leveraged points activities.

1. Lending

All necessary lending operations are executed through a lending pool that allows depositors to earn high yields across multiple networks by providing liquidity to the platform.

Deposits incur no fees, but withdrawing assets from the lending pool incurs a fixed fee of 0.2%.

The interest received from provided assets is determined by the utilization rate of the collateral pool, meaning it fluctuates based on demand. Interest accrual is snapshot every hour and allocated to the value of the borrowed tokens, enabling effective compounding.

In most cases, the demand for ETH is high, and the yields are the most attractive, primarily because borrowing non-ETH assets automatically converts collateral to ETH when opening a position, effectively going long and exposing borrowers to additional price risk.

Another benefit of participating in the lending market is that users can earn a share of all points obtained from using collateral.

WhalesMarket data shows that liquidity providers have collectively earned about $77,000 in points across all lending pools.

Borrowers are also eligible for AirPuff's points rewards based on the specific assets provided (ETH and stETH earn higher rewards), the duration, and the amount provided.

2. Airdrop

The protocol's native airdrop strategy, Buffs, can be used to obtain amplified airdrop rewards.

Currently, there are 12 different buffs available across 3 different networks, with most strategies related to providing EigenLayer points through LRT, while also offering native protocol incentives. However, there are also options that include additional unique ecosystem rewards (e.g., Mode points for strategies executed on Mode).

Depending on the strategy, users can leverage various collateral options to maximize potential rewards from activities (including AirPuff), with leverage up to 15 times. When borrowing any assets, it is essential to be aware of rates above normal and consider the complexities of using non-ETH collateral.

10% of all points earned from leveraged positions will be allocated to lenders, and an additional 5% will be allocated to veAPUFF participants. Closing positions also incurs a fixed fee of 0.2%.

For risk-averse speculators, non-leveraged airdrop options can also be chosen while taking advantage of the rewards and incentives provided by the platform.

Expected Returns

To illustrate the potential returns of the strategy, let's take a look at the rsETH liquidity restaking token from ++Kelp++. The chart below shows the vault on Airpuff. While it is nearly full now, future capacity is likely to increase.

In this example, 5 ETH is used as collateral to borrow wstETH at 10 times leverage. Each cycle then converts wstETH to rsETH. Since Airpuff extracts points allocated to veAPUFF holders and lenders, the effective points leverage is 8.5 times. The interest rates for various assets can be seen in the lower left corner.

Here are the return calculations for this strategy. The value of Eigen points and Kelp Miles is based on predictions of TVL and airdrop percentages from another post and should be viewed conservatively (though these prices lean towards the conservative side). As seen, by depositing 5 ETH, using 10 times leverage and a duration of 30 days while borrowing wstETH, the strategy yields a 16.94% ROI, equivalent to about 206% annualized return. Keep in mind that there are many assumptions here, so actual returns may differ from estimates.

Due to the utilization rates across various markets being above 80%, current borrowing rates are very high, negatively impacting returns (with nearly $6,000 paid in interest). More information on this is as follows:

• 0-80% utilization: Interest rates will increase linearly from 5% to 15%.

• 80-100% utilization: Interest rates will increase linearly from 15% to 45%.

Given that borrowing rates are much lower, why not borrow in USDC or ARB? Because you take on more liquidation risk. If the value of rsETH drops against USDC or ARB, you could be liquidated and lose your entire deposit. As leverage increases, the risk of liquidation also rises. Borrowing wstETH carries much lower risk since they both track ETH, but if rsETH decouples, you could also be liquidated. The returns from borrowing ARB compared to borrowing wstETH are as follows:

As seen, the returns are higher. However, it is important to note that the liquidation risk is also higher.

TGE & $APUFF

Early depositors of Airpuff can not only obtain base points through Eigenlayer and LRT but also earn "Airpuff points," which will convert into a $APUFF airdrop in May. A total of 7% of the $APUFF supply will be airdropped to protocol users over two seasons. Of this, 4% will be airdropped in the first season, and an additional 3% will be airdropped in the following season. For more information on how to qualify, please see this page.

Additionally, the $APUFF liquidity bootstrapping pool (LBP) is currently live on Fjord Foundry, running from April 8 at 12 PM UTC to April 11 at 12 PM UTC. As of the time of writing, Airpuff has raised $2.5 million in $APUFF in the LBP, which will give the token a market cap of $8.7 million and an FDV of $58 million. Click here to access the LBP website:

Once the LBP concludes, the $APUFF token will launch. The initial circulating supply will be 16% (15% from the LBP and 1% from private sales). Below are some comparative metrics between Airpuff, Pendle, and Gearbox.

$APUFF Tokenomics

Airpuff employs a dual-token model with $APUFF. Users can choose to lock $APUFF to receive veAPUFF (similar to vePENDLE), which will allow them to vote on token incentive allocations across various markets and earn rewards through bribery. These bribes come from the protocol paying Airpuff for formulating vault strategies and directly issued rewards as a means to promote its protocol growth and increase adoption.

To further strengthen the token holder community and qualify for $APUFF issuance, users must lock at least 5% of their holdings' value in veAPUFF. Finally, Airpuff extracts a 5% fee from all points earned from lenders and borrowers (Eigen points, LRT points, etc.) and allocates it to veAPUFF holders to further enhance the token's utility.

Conclusion

2024 is the year of points trading, and Airpuff achieves this uniquely with its money market and built-in leverage. In the coming months, Airpuff will integrate new vaults, launch more on-chain projects, and release the $APUFF token, allowing users to engage more with various points projects.