Today, I decided, as per a viewer’s suggestion, to take a look at an upcoming protocol with a unique strategy where investors can benefit from compounding interest, liquidity providing fees, and arbitrage while avoiding impermanent loss (ImpL).
For a simple visual walkthrough of the protocol, please feel free to check out my video here.
This protocol is called Growth Defi and can be found at https://growthdefi.com/
Growth Defi interacts with several solid protocols already quite active in the Etherum ecosystem; AAVE Compound Finance, Curve Finance, Balancer and Mooniswap. The first two are lending/borrowing platforms that allow users to reap the benefits of lending and borrowing cryptos in a decentralized manner without the need for personal interaction. The latter three are decentralized Automatic Market Makers (AMM) that allow for the swapping of different tokens also in a completely decentralized manner via the construction of liquidity pools (LPs).
In these types of images, you can see some feedback from the Owner of the official TG channel
I will not get into all the fine justifications for Growth DeFi's choices in protocols they will interact with (for a full explanation, one can find the white paper here. Although, it does not give mention of either Compound or Curve)
Growth Defi has chosen to use lending platforms in order to grant $gTOKEN holders the benefits of lending interest, in an automated manner. Also, Growth Defi has selected Mooniswap, over Uniswap, because the former offers liquidity pool providers (LPPs) a level of protection from ImpL that the latter does not.
The risks of ImpL are beyond the scope of this article, but it is encouraged that an investor in LPs should have a fair grasp of this concept. And for a better understanding of what Mooniswap does differently can be found by reading up on "Front Running" and how this is avoided on Mooniswap
THIS concept has yet to be implemented, as all the liquidity is currently found solely on Balancer
There are two token types in this ecosystem that make up the major consideration (at the time of writing) that an investor needs to understand. Here we start with the $gTokens and later we will look at the governance $GRO token
For the remainder of this article, the $ will be removed from token names for style and flow.
gTokens are minted in the user interface on the main site. Currently, there is only the option to mint gcDAI and gcUSDC which requires some DAI or USDC tokens.
Note: that a lowercase "c" is used to signify that Compound was utilized, and an "a" is used for AAVE.
Let's use DAI in the following example, simply because it has three letters.
When a user mints a gcDAI, their DAI is sent over to Compound and deposited in the protocol to receive cDAI (an interest bearing token), this cDAI is then locked into gcDAI for a small fee (currently 1%). Half of this fee is used to mint more gcDAI to increase liquidity in the GRO/gcDAI LPs while the other half is burnt.
The redeeming (burning) of gcDAI will have the reverse flow and have the same fee structure. So every time someone mints or redeems gTokens they are increasing the value and liquidity of that gToken.
It is important to note, that these LPs, in theory, will never be drained as there is no entity that has a claim to the liquidity provided by the fee structure via an LP token.
This comment is quite IMPORTANT. Basically, the protocol is lending DAI to Compound, then borrowing DAI and re-lending that DAI back into Compound up to about 3.5x . It also comments on the point above BOLD
As mentioned above, the minting of gTokens will automatically contribute to the LPs, and assuming there is some measure trading volume between the pairs, there will be fees accruing. These fees would be paid in the tokens supplied, and, periodically, Growth DeFi automatically will burn them thus decreasing the circulating supply of those particular gTokens and adding value based because the cTokens locked in remain constant
So let us summarize the value proposition for gTokens.
- gTokens gain interest by being built with interest-bearing tokens from either AAVE or Compound.
- gToken minting/burning increases liquidity of that gToken.
- ImpL is offseted by the creation of "extra" token in the pools.
- trading of the gTokens has a deflationary effect on the gToken supply.
Manually Providing to Liquidity Pool
Hodling your gToken is a great way to build value for holders already, but some in the crypto world, investors are always looking for more ways to put their value to use. To earn some extra yield, hodlers can elect to provide the gTokens they have minted to the GRO/gToken LPs directly.
More on the GRO token below in the following section
Doing so will gain investors the following extra benefits on top of the inherent features of gTokens.
- Half of the LP is made of GRO, and since GRO is found in all the LPs, it's value and use case will grow.
- 0.3% of the trading volume is collected by Mooniswap and claimable by LPPs
Growing the GRO via Governance
As mentioned above, the GRO token is used in all the LPs that are contributed to by Growth DeFi. There may be other LPs popping up as anyone can make any LP they want. However, there is also the use case of governance. Growth DeFi is a Decentralized Autonomous Organization (DAO) in the since that modifications and improvements will be put to vote. GRO holders will have the right to help decide what changes are made and which are abandoned.
For example, the minting and burning fees might be found to be more beneficial if changed, or perhaps new gTokens might be proposed and the DAO can vote. Another proposal is the idea that LPPs could be rewarded in GRO tokens, probably via the staking of LP tokens on the platform.
This protocol is quite interesting to me. I think the simplicity of it will appeal to many investors. One simply mints gcDAI from their DAI and they know they are gaining value. Simple, straight forward. There are a lot of competing protocols already trenched in the wider ecosystem, but none that have the same use case as Growth Defi. I think that this is a project worth watching and I plan to do so.
If you would like to see more, please check out my video here.
Thanks for reading.