We previously revealed the initiation of Yield Farming, but given the intricacies of Spectrum Finance’s yield farming approach, which relies on smart contracts and functions in a fully decentralized way, thorough testing was crucial to guarantee the feature’s seamless operation without any losses. We are thrilled to inform you that all tests have been successfully conducted, and the feature is now available for use!
What is Yield Farming?
Yield farming, also known as liquidity mining, is a strategy widely used to bootstrap liquidity in DeFi protocols. The process is quite simple and involves the following steps:
- Users provide liquidity to a DeFi protocol, essentially adding liquidity to a liquidity pool.
- The users then stake (lock) their liquidity in a farming pool.
- The farming pool distributes rewards to users in proportion to their staked liquidity over a specific time period.
Here is a real-world example
Assume you have 10 ERG and 20 SigUSD in your possession, and the current liquidity pool ratio is 1 ERG to 2 SigUSD. You can choose to provide liquidity to the pool and start collecting swap fees.
Moreover, an ERG/SigUSD yield farming program distributes 1,000 XYZ tokens among its participants. Let’s say the entire liquidity in the pool is composed of 90 ERG and 180 SigUSD, all staked. By adding 10 ERG and 20 SigUSD to the liquidity pool and staking it in the farming pool, you would secure a 10% share in the pool, which entitles you to a reward of 100 XYZ tokens per block.
With this basic comprehension of yield farming, we can now delve deeper into Spectrum Finance’s utilization of yield farming on the Ergo blockchain.
Yield Farming implementation on Spectrum Finance
We have a basic understanding of how yield farming operates and know that it is a method for distributing tokens. There are various methods of distributing tokens via farms, such as using a centralized service that signs transactions to send tokens to users based on pre-defined rules. Centralized services are popular because they are easy to create, and the developers have complete control over the distribution rules. In contrast, decentralized options are also feasible, but they pose significant challenges in implementation and have certain limitations when it comes to applying distribution rules.
We at Spectrum Finance are committed to pure decentralization, open source, so anyone from the community can use all the DEX components, including yield farming, and benefit from it.
The technical scheme looks like this. There are 2 types of participants in the system. The first is the project that creates a yield farming program (farm) and operates off-chain bots that execute transactions to distribute rewards. You may notice that the system is not purely decentralized because the project controls the off-chain execution code. However, this is not a problem because a) the project has an interest in distributing tokens and b) the execution code is open-sourced. As a result, anyone, including you, can run the code and execute those transactions if the project cannot do so. The second type of participant are liquidity providers who stake liquidity tokens in farms and earn rewards.
It is important to note that the system works entirely autonomously and does not require any participation from the protocol development team or project. Once the farm is launched, no one can alter or impact its parameters in any way. Therefore, we advise projects to evaluate their token distribution in advance before commencing the YF program.
⚠️ Bear in mind that because of the decentralized nature of farm pools on Spectrum Finance, once a farm program commences, its parameters are immutable, and the program cannot be halted, paused, or canceled.
To encourage liquidity providers to contribute more liquidity to the Ergo AMM protocol, 1,000,000 SPF governance and utility tokens will be distributed via 3 initial yield farming programs. Starting from April 28th, 2023, at 9 am UTC, ERG/SigUSD, ERG/SigRSV, and ERG/SPF programs will be available for deposits. The distribution of rewards begins from block 995280 (~May 3rd, 2023, 6 pm UTC). These farming programs will run until block 1018300 (~90 days).
Rewards distribution in detail:
- ERG/SigUSD — 500,000 SPF
- ERG/SigRSV — 200,000 SPF
- ERG/SPF — 300,000 SPF
After 90 days of active farming, the Paideia DAO toolkit is hoped to be operational. At this point, the team plans to transfer all yield farming allocation tokens to the DAO treasury, allowing the community to determine the future distribution of SPF via yield farming.
Additionally, during the duration of the aforementioned farming programs, DexyBank will be launched, and an extra farming program will be established for the ERG/Gold liquidity pool.
To participate in Yield Farming on Spectrum Finance, see the guidelines.
How to launch a Yield Farming pool?
At the moment, users cannot create a farm through the user interface. However, we have provided Ergo-based projects with a guide on how to launch a yield farming program. If you are developing a project on Ergo and are interested in distributing your tokens through yield farming, we recommend reading these guidelines.
With the release of Yield Farming, we have prepared some more treats for the users of the protocol.
Firstly, the DEX transaction history in the interface now operates almost instantly, and it also supports swift transaction refunds in the event that the operation was not executed by off-chain bots.
Secondly, the SPF token now has real utility and can be utilized to pay swap fees, which are collected by off-chain operators — the individuals responsible for executing DEX operations.
And there are some user interface updates on the LP page:
- Added farming positions
- Added linear price chart
- Added locked liquidity block
If you’re interested in becoming a DEX off-chain operator and earning SPF and ERG fees from each swap, you can find a guide on how to do so here.
Spectrum Finance aims to be a one-stop shop for all your DeFi needs across multiple networks driving global decentralization. The yield farming launch on the Ergo blockchain is another successfully passed milestone on our journey!
Whether you want to trade, provide liquidity, farm tokens, or even execute DEX orders, you can do it all on Spectrum Finance now!
Interested in Yield Farming on Ergo? Visit https://app.spectrum.fi/ergo/farm and start 👩🌾 farming today!