The Swell Earn page showcases different opportunities to use your swETH in DeFi.
To celebrate its recent launch, we invited five of the most popular protocols that have integrated swETH.
Read on to explore the top DeFi opportunities for swETH holders, as described by Anton from Pendle, Mathew from Maverick, Tritium from Balancer, Josh from Sommelier, and Maje Style from Gravita and Bunni.
Pendle
Pendle enables the tokenization and trading of yield by taking any yield bearing asset and splitting it into its principle and yield components, allowing it to be traded by Pendle’s AMM.
If we take swETH as an example, we can split this into two new tokens: one that represents the yield (YT) and another that represents the principle (PT). In general, this allows users to develop strategies around the underlying yield volatility. swETH is one of our most liquid and traded assets.
What makes Pendle a compelling place to earn yield on swETH?
The simplest way to earn additional yield if you are holding swETH is to LP on Pendle or add liquidity into any of the swETH pools. Your LP position consists of swETH and PT and this position earns the fixed yield of PT, which is the underlying yield of swETH itself. In addition, you earn trading fees from the AMM and Pendle token incentives which are channeled from vePENDLE. As a bonus, if you LP in either of the swETH pools you will earn Pearls for Swell’s Voyage campaign. Like any ve token model, if you hold Pendle and decide to lock it up you can also boost your yield up to 2.5x.
Like any AMM, if you withdraw before maturity you will be subjected to some impermanent loss (IL), however this IL is insignificant given how strong the correlated PT is with swETH.
There are currently two swETH pools on Pendle, the swETH pool with a Dec2024 maturity date, and the swETH pool with a Jun2024 maturity date. You can enter either of these pools based on your risk appetite and time horizon.
What is least understood about Pendle?
One thing that confuses most users when they see the APY is “where does the yield come from?”. On top of the yield of the underlying asset such as swETH, you earn more on Pendle. Pendle is all about the tokenization and trading of yield, and opportunities present themselves based on how users express their opinion on the direction of yield in the Pendle markets, therefore implying what the future APY will be.
For example, if you take a fixed yield position with PT at the current implied yield as indicated by the market, you will make a profit if the future yield goes down. Conversely you can make a loss if the future yield goes higher than the fixed position you initially entered.
The number one product of crypto is yield, and APY is one of the most understood terms in crypto. Yield trading is a useful skill and a type of utility that we try to give back to the greater DeFi community.
If you want to learn more about Pendle you can visit Pendle Academy, which consists of a set of tutorials you can go through to learn more on yield trading.
What is your advice for users LPing swETH in Pendle?
If you are starting your journey on Pendle and zapping into the swETH pools, it is good to check what the current implied yield is with respect to the underlying yield of swETH. Implied yield is what other users are trading or expecting the future yield to be on Pendle, and since your LP position contains roughly half swETH and half PT, then a portion of your LP is short yield.
If you do not agree with that implied rate you can always mint PT and YT with your underlying swETH and LP afterwards. We have a ‘zero price impact mode’ toggle that you can set which does this automatically for the user.
Swell is also providing Pearls for votes on the swETH pools on Penpie and Equilibria. These incentives encourage users on those platforms to vote for the swETH pools therefore channeling more incentives and making it more attractive to LP in the pools.
The swETH pools are currently the second and third largest pools on Pendle, so there is a lot of liquidity for those who want to try yield trading on swETH.
Maverick
Maverick is an innovative set of smart contracts built to provide a new infrastructure to make DeFi even more interesting for everyone involved. Maverick AMM is a new kind of automated market maker contracts that we like to call a dynamic distribution AMM.
Maverick AMM was the first AMM capable of natively moving liquidity to follow price, and through this mechanism Maverick AMM is very good at keeping liquidity active and available which means better pricing for traders and more fees for LPs. Together with the movement modes, Maverick AMM also provides a new design of customization in terms of the way you shape your liquidity. Rather than distributing it across a flat range, Maverick makes it easy for any LP to organize their liquidity in more interesting shapes which are natively enabled through the smart contracts.
We have a new product called ‘Boosted Positions’ where we take the innovative, easy to use customized liquidity and allow you to put incentives on top of it. This is a way for projects to shape their token liquidity by choosing a highly customized range, shape and mobile pot liquidity that will suit the needs of the token. This is used to attract LPs to that position, so rather than incentivizing liquidity across a whole pool you can incentivize only the liquidity you want and need.
Between these two products, we haven’t just enhanced capital efficiency, we have also enhanced incentive efficiency. With all of these options available to LPs and projects we like to think we have made liquidity modular, in that you can plug and play the different types of liquidity you need to get your token where you want it to be.
What is least understood about Maverick?
The least understood concept is how the movement modes work. There are three modes that you can choose when you add liquidity to Maverick: Mode Both, Mode Left and Mode Right. Simply put, ‘Mode Both’ will have your liquidity move in both directions as the price moves and if you want to only follow price movement in a single direction, you can choose ‘Mode Left’ or ‘Mode Right’. This is a novel concept as an automated strategy and one that most users don’t grasp immediately.
These movements represent a kind of novel primitive where if you were to take an ETH/USDC pool as an example, you are expecting the price of ETH to rise. Assuming a movement to the right means the price of ETH is going up, what you will do in ‘Mode Right’ is take a position in USDC and follow the price right with a bin of USDC. This may seem non-intuitive but the idea is that as the price moves in a certain direction, you have a bin of USDC that rides close to the price in order to capture trade activity. There is detailed information and examples in our Docs that walkthrough how the modes work that we encourage users to read through.
How do the different modes apply to liquid staking tokens?
It is a little bit different for liquid staking tokens. One of the first tokens that people will look to pair or LP swETH with is ETH. swETH and ETH are more highly correlated so they maintain more of a relationship to one another opposed to ETH and USDC.
Highly correlated pairs like swETH and ETH are likely to use ‘Mode Both’ which does a good job at keeping your liquidity right where the trading activity is happening. Mode Both is especially useful for the swETH/ETH pool because we expect swETH to gradually increase in value against ETH.
What can we expect from Maverick in the coming months?
We are currently running the Maverick Incentives Program with Phase 3 to launch in the coming months. Phase 3 is going to add the full features to our veMAV mechanics where we will have a system that allows users to use their veMAV to direct further incentives to boosted positions, potentially increasing the rewards to LPs.
In preparation for Phase 3 we are tracking all activity on the protocol, primarily LPs, so if you LP in the swETH/ETH pool it will be logged and used as a basis for future rewards. Maverick is also included in the Swell Voyage so on top of the native yield of swETH and the fee APR from LPing the swETH/ETH pool, you are earning an additional stream of potential rewards when you LP in Maverick.
Balancer
Balancer is a DEX that offers a range of different AMM types to manage liquidity. The big distinction between Balancer and other DEXs is that we are focused on lazy LPing. Balancer is focused on how we can enable DAOs to create liquidity positions that are attractive to users, where they deposit their asset and forget it. For protocols such as Swell, we offer two types of curves: Classic Stable Swap and Gyroscope ECLP Pools.
A classic stable swap curve is where there is liquidity concentrated around the peg. The concentrated liquidity can be defined but it trades with very low slippage over a wide range which then drops off quickly. If we take swETH as an example, the longer you hold swETH the more ‘interest’ you are earning due to its native yield accrual. Every time a swap is initiated we take the number, look at the current rate and peg, and see that the crux of that stable swap curve is always at the same rate. If the rate is moving smoothly in one direction, then IL is either eliminated or minimized.
The Gyroscope ECLP pool curve uses a formula to draw and take a range from any curve. This is similar to how Uniswap v3 works, the difference being that with Balancer the DAO pool creator sets a range that allows them to have deeper liquidity under peg.
Balancer is also running an incentives program. We have a ve system where a portion of protocol fees collected are recycled back in to pay vote incentives for users who vote on Balancer pools.
Gravita Protocol
Gravita is a collateralized debt protocol (CDP) platform that enables the usage of yield generating assets as collateral, and was the first protocol to accept swETH as a collateral asset to borrow Gravita’s native stablecoin: GRAI.
When you deposit your swETH in Gravita, you are required to pay a 1% one time fee in exchange for GRAI that is collateralized by your swETH and can be used anywhere in DeFi.
Gravita’s mission is to be a compelling place to enable LST usage, but to also be a venue that exists to empower decentralization in Ethereum by giving utility to minority LSTs. Out of all of the protocols here today, Gravita is the only one without a governance token. Not only do we offer extremely compelling borrowing conditions, but we also have a points program called Gravita Ascend where users can complete tasks to earn Marks.
What is least understood about Gravita?
The least understood concept of Gravita is the redemption mechanism. It is guaranteed that 1 GRAI will always be redeemable for a dollar's worth of collateral inside Gravita. This means that when the price of GRAI goes under its intended value, some users are redeemed. This generally is thought of as something bad, but it serves a lot of hidden purposes that are misunderstood.
In the case where the ETH price is going down users may be redeemed before they are liquidated, so instead of losing 15-20% of their net worth, they will only lose close to 0.5%. Because the user is holding a stablecoin as the ETH price is falling, it allows them to buy back with the GRAI that got redeemed. Through the redemption mechanism and stability pools that intervene when liquidations happen, you always have insurance and the guarantee that GRAI will be backed by collateral on the platform; both on mainnet and Arbitrum.
What is your advice to people who are looking to collateralize swETH on Gravita?
Anyone who opens a Vessel on Gravita is eligible to earn Pearls towards the Swell Voyage, as well as Marks for Gravita Ascend. You can push this further by using the GRAI you borrowed to provide liquidity in the swETH/ETH pool on Bunni, where you will earn additional Pearls for the Voyage and Marks for Gravita Ascend on top of your open position.
Sommelier Finance
Sommelier is a protocol for super intelligent vaults that ingest real time market information.
The Turbo swETH Vault accepts WETH as a deposit asset which is then converted into half WETH and half swETH to form the LP position. The vault tracks the market price of swETH and provides concentrated liquidity to help accrue trading fees and manage IL.
What is least understood about Sommelier?
Our vaults are unique in that when it comes to LP opportunities, IL is taken into account. In theory, with stable pairs the IL should be minimal but sometimes whether or not swETH is gaining towards peg can impact the performance. Because the vault accepts WETH as the deposit asset, the accounting is in ETH and that is technically IL that is sometimes not obvious to everyone because other opportunities do not take that into account.
What is coming next at Sommelier?
We have been very grateful to be part of the Swell ecosystem and we are continuing to find ways to serve your community. There have been talks to provide capabilities to accept swETH as a deposit asset, or create a vault that accepts swETH directly. We can also get more DeFi composability for the Turbo swETH vault which will integrate it as collateral for either borrowing against it on an AMM or minting a stable coin.
We will be launching our vaults on Layer 2 networks such as Arbitrum, Optimism and Polygon in 2024. As Swell continues to grow and go multichain, we would love to continue contributing with the Turbo swETH vaults wherever there is strong swETH liquidity in the L2 landscape.
Bunni Protocol
Bunni is a reward layer for Uniswap positions that enables a whole new level of opportunities by leveraging what already exists on Uniswap. When you LP in Bunni you will need to navigate to the pool, select a range and then deposit your liquidity that will be traded in that concentrated range. When you LP you will receive an NFT that represents your position. This position earns swap fees as well as emissions that compensate for any IL you may be subjected to.
What is least understood about Bunni?
veLIT is the least understood concept in the Bunni ecosystem. Once you hold veLIT you are benefiting from a long list of yield earning advantages such as:
- Yield in the form of ETH that comes from oLIT redemptions
- Over 80% APY on protocol bribes
- Increased yield on your position
Read more about veLIT in the Bunni docs
What is your advice to people who are looking to LP swETH on Bunni?
There is a GRAI/swETH pool on Bunni which enables a lot of opportunities for users. When you LP in the GRAI/swETH pool on Bunni you will receive oLIT. oLIT is an omission token that represents your deposit and enables you to earn additional yield on your position, and in some cases can offset IL.
When you deposit in the GRAI/swETH pool on Bunni, you are earning yield from swETH, as well as oLIT omissions, Pearls for Swell’s Voyage campaign and Marks towards Gravita Ascend.
Swell is also a launch partner of Liquis, a convex layer built on top of Bunni that allows users to earn even more yield on their position without the need to hold veLIT.
Super swETH
Super swETH is a vault that we launched in partnership with Enzyme. It is a unique first of its kind place to stack ETH, and one of the best places to build a position on Ethereum before the bull market hits. The vault accepts stETH or ETH as a deposit asset and this stETH will be unstaked and used to either buy swETH off the secondary market or stake into swETH.
The yield from the vault is a mixture of staking rewards and Swell’s DAO revenue. You can view the vaults weekly yield APY on the Earn page. In addition to these sources of yield, the vault is also earning Pearls for the Swell Voyage, at the highest Pearl multiplier we have distributed since the start of the campaign.
The earlier you deposit in the vault, the higher the Pearl-earning multiple you will lock in for the entire 180 days. The base Pearl-earning multiple of 1x is the same rate that you earn for LPin in swETH liquidity pools, and this increases up to 3x for early depositors.
Thanks to everyone who attended the event!
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