pickle.finance

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Pickle Finance auto-compounds rewards to boost yields

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What is Pickle Finance?

Pickle Finance is a Yield Aggregator

  • Pickle aggregates and compounds yield from other protocols
  • It saves you time and money compared to doing it yourself.

Yield Aggregators exist for yield farmers (like you) who want to invest money and maximize profits by leveraging different DeFi protocols and strategies for elevated returns. Pickle Finance makes it easy for you to earn great compounding yields on your deposits when you don’t have the time to compound it daily or the gas fee is too high for frequent compounding to be done. In short, Pickle Finance is always on the lookout for opportunities to generate yield on your assets for all risk tolerance levels.

How Does it Work?

  • Pickle Finance has Jars and Farms
  • Jars compound your returns from other protocols for you.
  • Farms provide you extra rewards for staking your jar token

There are a constantly evolving series of opportunities for yield farming across the DeFi ecosystem. Pickle Finance provides a tailored selection of Pickle Jars and Pickle Farms that have been custom-built to earn yield from specific assets and through specific DeFi protocols.

Pickle Jars

Jars are the Pickle equivalent of yearn.finance’s vaults. A jar receives a specific asset (usually an LP token), such as SLP ALCX/ETH (Liquidity provider token for the ALCX/ETH pair on SushiSwap), and utilizes a strategy developed by the Pickle Finance team to earn a yield on that asset. Your asset will auto-compound to earn more of itself, meaning your holdings of that asset will only increase. However, jars don’t prevent your asset from losing value relative to USD.

Pickle Farms

Farms are the “next step” after putting an asset into a jar. When you deposit an asset into a jar, such as sLP ALCX/ETH, you will receive a number of pTokens (in this example, pSLP ALCX/ETH) that represent your share of the tokens in the Jar. These pTokens can then be staked in the appropriate farm to earn additional PICKLE rewards on top of your existing rewards. Your PICKLE rewards can be boosted by locking existing PICKLE tokens for DILL for up to four years.

Why use Pickle Finance?

  • Pickle Finance allows you to set it and forget it
  • Pickle Finance may be tax-efficient when used long term
  • Pickle Finance is gas efficient
  • Boosts for farm rewards are available if you lock PICKLE for DILL

While there are a few yield aggregators out in the market to choose from, Pickle Finance is uniquely positioned within the Yearn ecosystem to scout the most promising protocols, build partnerships, and bring those opportunities to our users. The development team continues to push the envelope, crafting some unique and exciting strategies to complement the proven and battle-tested options already in the marketplace.

Pickle Finance also offers you several benefits. First, you don’t need to compound your returns manually. In times of high gas costs, this can be either cost or time prohibitive, so you won’t have to wake up at weird hours of the night to get acceptable gas fees. In periods of low gas costs, however, yields throughout the DeFi ecosystem also tend to fall, leaving Pickle Finance as a viable and gas-efficient alternative no matter what phase the market is currently in.

Pickle Finance also offers you a ‘set-it-and-forget-it’ convenience. You can trust that your returns are being compounded for you in the background.

Finally, in some tax jurisdictions, blockchain tax analysis reports will mark any harvesting of a reward token as a taxable event. Since the pickle jar is doing the harvesting and compounding for you, these events are likely to not be taxable until you withdraw from the jar. (Do your own research if this analysis matches that of your tax jurisdiction.)

These benefits should be enough for most people, but Pickle also offers farming rewards which can juice your returns substantially as well.

The Pickle DAO

Pickle is governed by a DAO (Decentralized Autonomous Organization). Holders of “DILL”, a representation of a PICKLE token that has been time-locked on the platform for a set duration, receive voting rights to make changes to the protocol, emissions, and more. No single person is in charge. We’re all in this together.

Where does Pickle Finance operate?

  • Pickle Finance is a multi-chain, multi-layer yield aggregator

Pickle Finance was launched on the Ethereum MainNet network. Like most projects launched during the “Summer of DeFi” in the Summer of 2020, Pickle was limited to farming other DeFi protocols and had to operate where those protocols lived. That place was the Ethereum network.

Today, many lower-level protocols have expanded to many different networks and Yield Farmers have followed them. Pickle Finance has expanded onto these networks namely Polygon, Arbitrum, Okex, Moonriver, Aurora, Metis, Moonbeam, Optimism, and Fantom. We will continue to expand to other networks and L2’s that we believe provide the best yield Jars for our users.

What types of Jars does Pickle have?

Pickle Finance has Pickle Jars for several different underlying protocols. The most common underlying protocols that Pickle helps users compound the rewards for are liquidity pools. These liquidity pools may exist on Curve, Uniswap, Sushiswap, or elsewhere, but these liquidity pools are often providing liquidity for very different protocols and tokens. Pickle Finance prefers to offer Pickle Jars only for protocols that we think are good ideas, have longevity, and are likely to succeed at growing their platforms.

There are a few main types of DeFi platforms that may be included in these liquidity pools. We will discuss these below.

Lending Platforms

Lending Platforms like AAVE, Liquidity, or Alchemix, lend out users’ deposits to generate yield, returning much of that yield to the user in one way or another. Pickle Finance may have Pickle Jars for compounding liquidity pools based on platforms like these.

Liquidity Pools

A liquidity pool is a smart contract that acts as an Automated Market Maker (AMM), trading both sides of any pair of coins. Liquidity pools make money for their depositors when those tokens oscillate up and down in value, allowing the pool to collect trading fees over a long period of time. The user also profits if the value of the tokens goes up.

Liquidity Pools are a staple feature of Decentralized Finance and are worth a deeper look into how they work. While there are a few different formulas in use for these pools, the general concepts are the same. A user deposits a ratio of two (or more) tokens (for example, Dai and Ethereum). The pool does not know an official price for the two tokens. The pool only knows that it currently holds some number of each token and that they are in some targeted ratio to each other. When the market prices of these tokens change on other exchanges, arbitrageurs will come and trade with the pool, either buying the tokens from the pool when the market price is higher than the pool price, or selling the tokens to the pool where the market price is lower than the pool price.

For example, if the price of Ethereum goes up on centralized exchanges, an arbitrageur will come and buy some Ethereum from the pool, paying in Dai. This adds Dai to the pool (the buyer has paid in Dai), and removes Ethereum from the pool (the buyer has purchased Ethereum). The pool recognizes the change in the ratio of its tokens and adjusts the price accordingly.

The important thing to note here is that as one of the tokens goes up in value, traders will come and buy that token from the liquidity pool. As token drops in value, traders will come and sell that token to the pool. In effect, a liquidity pool will always “buy the dip” and “sell the pop”. It will buy more of the token that is falling and sell more of the token that is rising.

Users should consider providing liquidity for a pool when they are neutral or bullish on all tokens in the pool, are uncertain which token will outperform the other, and accept that they will not achieve huge profits if only one of those tokens goes sharply up.

Other types of investments

There are many other types of DeFi projects, with new classes entering the market almost every day. The majority of these projects will generate yield either via a lending platform, a liquidity pool, or a staking mechanism, but all of these options can include, depend on, or be exposed to tokens from almost any type of project.

One example of an asset class that Pickle Finance provides liquidity to is synthetic stocks, or “Synths”. Synths replicate real-world stocks on the blockchain, enabling them to be traded like any other token. With each new class of investment being created, users are encouraged to really dig down and do their research to determine whether the investment fits their personal risk tolerance.

Risks of Yield Farming

Introduction

Yield Farming, and DeFi in general, contains risk. There are many different types of risks, and as a participant in this space it is your duty to be as aware of these as possible. This is not an exhaustive list, but the most common or notable risks associated with Decentralized Finance.

  • You could lose your keys or get hacked.
  • The protocol could get hacked
  • A wave of defaults could hit a lending platform
  • A stablecoin could lose its peg and become not-so-stable.
  • Liquidity Pools are advanced (but important) topics and you should fully understand them.
  • Any project, or any Liquidity Pool with that project’s token, could turn out to be a rug-pull or scam.

Losing your Keys / Getting Hacked

Losing your seed phrase, private key, or getting hacked and having those critical credentials stolen are risks that anyone involved in DeFi or Cryptocurrencies more generally should be aware of. The loss of these credentials will cause you to permanently lose access to all of your funds, with absolutely no method to reclaim them. Much has been written about these topics, and we encourage all of our users to do their research on how best to protect themselves against permanent and catastrophic loss.

Protocol Hacks

Any protocol can be hacked. Savvy hackers can analyze a contract for any opportunity to steal funds. Users should be aware that while Pickle Finance is audited and takes every possible step to secure user funds, the unthinkable can and has happened throughout the DeFi ecosystem.

Pickle Finance is currently working on a “Safety Module” / insurance program to help insure against losses. It is not yet released, however, even when it is released and fully functional, there is no guarantee all funds will be returned in a timely manner.

Lending Platforms and Defaults

Lending Platforms make loans to other customers, usually based on some deposited collateral. If the value of the collateral drops below a certain Loan-To-Value ratio, these lending platforms will engage several mechanisms to liquidate the collateral and reclaim the value. Each lending platform may perform this task differently, and each platform may be more or less subject to losses during bear markets. Users are encouraged to be aware of which lending platform they are interacting with, become familiar with their liquidation procedures, and decide if they are comfortable with the liquidation procedures or the trustworthiness of the platform generally. While most lending platforms today have procedures that can withstand even significant market downturns, each of these platforms may be affected differently by flash crashes or severe downturns.

Stablecoins – Loss of Peg

Whether they are involved in a liquidity pool or just a general stablecoin lending platform investment, users should be aware that all stablecoins may theoretically be at risk of going off the peg for a period of time. This “loss of peg” occurs when the stablecoin fails to maintain the value it is designed to match. If a stablecoin fails to maintain a peg or fails to quickly regain a peg after such an occurrence, the token may begin to lose favor in the marketplace or depreciate rapidly. When involved in any stablecoin investment, users should be aware of how the stablecoin works, what the collateral or reserves in its treasury are used for, and the mechanism the token uses to maintain its peg. Investing in all stablecoins carries some level of risk. Investing in novel stablecoins with untested mechanisms to maintain their peg likely carries more.

Liquidity Pools: Impermanent Loss Divergence Loss

Divergence Loss is the much more accurate name for what many are calling “Impermanent Loss”, and is defined as “the difference in profit between holding an asset versus providing liquidity in that asset.” In short, Divergence Loss is how much you make (or lose) when joining a liquidity pool for two tokens, compared to how much loss or gain you would have had if you had simply held the tokens directly. The reason this is appropriately called “Divergence Loss” is that this difference in value gets larger as tokens diverge from each other compared to when liquidity was initially provided. The more two tokens move relative to each other, the larger the difference in value between holding the tokens versus providing liquidity to those tokens.

As a quick example, take the case of a user that has $500 in Ethereum, and $500 in DAI. If Ethereum goes up 500%, and DAI stays flat (as stablecoins do), simply holding these tokens would result in the user having $3000 in Ethereum, and $500 in DAI, for a total value of $3500 and a gain of $2500 (or 250%). If, on the other hand, the user deposits these tokens into a DAI-ETH liquidity pool, the user would have a total value of only $2482.47, representing a gain of $1482.47 (or 148%).

The DIFFERENCE between these two values is the divergence loss. In the above case, the user has experienced a divergence loss of $1017.53. Divergence loss does not imply a real loss has occurred (but it also does not mean a real loss has NOT occurred either).

Any loss other than one calculated as above is not an “Impermanent Loss” or a “Divergence Loss”. They are more likely to be a loss in “Opportunity Cost” (“I had money in Pickle-Eth liquidity pool, but if I had only ETH I would have made way more money!”) or normal losses on tokens depreciating (both Pickle and ETH dropped and I lost money).

Remember, Divergence Loss is the difference in profit of holding tokens versus providing liquidity for those tokens. Divergence loss is directly caused by the liquidity pool function of “buying the dip” and “selling the pop”. As a token goes sharply up, the liquidity pool is selling it (and thus, not capturing the full rise of the token). As a token goes sharply down, a liquidity pool is buying more of it (and buying the dip when more dips are coming can lead to larger losses).

This does not mean Liquidity Pools are bad investments. It just means that investors should be confident in your choice of which pools and which tokens you want to provide liquidity too. You should also stay vigilant for developments in these tokens and know under what circumstances you would no longer be willing to provide liquidity for the pair. In short, if you like both tokens, and want to buy the dips and sell the pops, and get paid fees to do so, a liquidity pool might be right for you.

Liquidity Pools: Normal Losses On Tokens

When entering a liquidity pool, your losses are not limited to “Divergence Loss”. While “Divergence Loss” is defined as the difference between holding two tokens and providing liquidity for them, normal losses on tokens also occur. If you simply held the equal value of two tokens outside of a liquidity pool (for example, $500 worth of DAI and $500 worth of ETH), and one of them drops by 50%, you will lose 25% of your investment. If both tokens drop, you may lose more. The same is true when you provide liquidity for a pair. Your tokens may lose value and you may experience losses.

Liquidity Pools: Getting Rugged

Users should be aware that losses in a liquidity pool are not limited to only the “volatile” token. Some users believe that investing in a liquidity pool consisting of a volatile token paired with a stablecoin limits their losses to only half of their investment. This is not true.

Because a liquidity pool will consistently “buy the dip” if a user enters a stablecoin-shitcoin liquidity pool, and one token enters a downward spiral to zero, the user’s entire investment is likely to be held in that decreasing coin. The liquidity pool will buy the dip over and over and over until all of its funds are either gone or invested in a coin that is headed to zero.

Users should not be scared of liquidity pools in their entirety, but rather should carefully analyze the tokens they are investing in and whether one of those tokens may be subject to such a downward spiral.

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