With yields on WETH/USDC pairs staying strong, let's take a look at the options for leveraged farming so you can make the most out of it. 💡
Why leveraged farming?
Capital efficiency: borrow against the LP to increase the position size.
But that's not all, since Arcadia offers different numeraires to take debt in, positions can be set up to approach delta-neutrality.
And why delta-neutrality?
Capital preservation!
Usually, yield farmers rely on farming rewards to outweigh the potential loss of holding a volatile position. But for large cap pairs like ETH and BTC, that's not a viable path.
Instead, taking debt in the base asset (ETH or BTC) changes the PnL curve of the position to offer some interesting characteristics.
✦ Curve no. 1 (top)
A classic curve with debt in USDC. Upside is capped while downside steepens. Only useful if you have a bullish bias.
✦ Curve no. 2
Debt in WETH, with the Entry price at the geometric centre. Notice how PnL stays relatively flat close to centre. Suited for a rebalancing strategy when price moves x% from centre. Reduced volatility relative to curve 1.
✦ Curve no. 3
Debt in WETH, with the Entry price at the lower bound. This creates two breakeven points at each side of the range. In between, PnL is positive, while outside the range PnL tapers off. Very useful for timed entries/exits!
Understanding when to take which debt is crucial to building effective farming strategies. Join us on Discord for follow-up questions.