The Comprehensive Guide to DPI - ETH Liquidity Mining on Polygon

The Comprehensive Guide to DPI - ETH Liquidity Mining on Polygon

By insidetrader | HODL the Universe | 20 Oct 2021

Greetings Publish0x community, today on 17.00 UTC, $QUICK incentives for DPI/ETH liquidity providers went live. As some of you may notice, I've consistently published some resources related to Index Coop and its native crypto index products. $DPI is the first product ever created by Index Coop methodologists, contributors, and devs. It's designed to catch the uprising trend of decentralized finance through making a basket including major DeFi protocols built on the Ethereum chain. Until today, we've seen some liquidity incentives rewards in $INDEX on Uniswap, both on V2 and V3, at different times. But as you may notice, crypto users try to find ways to minimize the risks and costs while maximizing the yield. So, Index Coop and QuickSwap have partnered to reward DPI/ETH LP stakers with $QUICK tokens. In this article, we'll review DeFi Pulse Index, Polygon chain, QuickSwap exchange, then I'll show you how to pair ETH & DPI to be a liquidity provider. Now, please keep reading...


What's DeFi Pulse Index, briefly?

The DeFi Pulse Index is a digital asset index designed to track tokens’ performance within the Decentralized Finance industry. It's the first index launched by Index Coop cooperatively by Set & DeFi Pulse teams. It's launched on the 8th of September, 2020. DPI includes 17 DeFi protocol tokens, including $INST, the latest member of DPI. Mainly, it's designed for investors who are looking for an easy, accessible, and fast way to get exposure to the DeFi ecosystem collectively. 

DPI is the S&P 500 of decentralized finance.

DeFi Pulse Index or DPI is maintained and rebalanced every month according to methodology. After the 2021 September Rebalance, DPI includes 17 tokens with different allocations. The upper allocation limit for a single token in the index is 25%, and $UNI has reached 6 times in a row in this year. To overconcentrate in Uniswap token, the allocation of more than 25% is re-allocated to other members of the index. Below is the latest allocation scheme of the DeFi Pulse Index.


Shortly, you have the right to get exposure to all these tokens written on the table above just holding 1 ERC20 token, DPI. Please check my previous article about Index Coop & DPI and Thomas Hepner's personal blog ''Why I Invested in DeFi Pulse Index and Index Cooperative''.


What's Polygon Chain and Why We Use It?

Polygon is a suite of projects aimed at scaling Ethereum. Scaling Ethereum means reaching lower transaction costs while fastening the overall transaction speed. Until February 2021, Polygon was named MATIC Network. In February 2021, it has rebranded to Polygon Chain. Please be advised that Polygon is a side-chain external to the Ethereum network. To access this side chain, users on the Ethereum chain must stake their assets on the relevant contracts to mint the same assets on the Polygon side chain. This is achieved by Plasma Bridge or Polygon Bridge protocols. By moving into the Polygon, it's expected to reduce the congestion of the current Ethereum network. Additionally, providing a better experience to users. 

After the 4th of September, 2021, DPI/ETH liquidity providers are no longer incentivized. For now, there's still over $16m liquidity on Uniswap V3 even though the new incentives were announced less than 12 hours ago. The total removed assets from the Uni V3 DPI/ETH pool is less than $60,000

For more information about Polygon side chain and implementations, please refer to the article published on the DeFi Pulse website, here

As I said above, you should stake some assets and mint the same ones on the Polygon chain to use them. It's true for any ERC20 token & Ethereum. So, you should move every single token you want to utilize on the Polygon chain from the Ethereum network. So, we must need both Ethereum & Polygon chain-supported wallet, ERC20 token (DPI, specifically), and some ETH to cover transaction fees. Please note that you can use Metamask wallet to create both Ethereum and Polygon wallets with the exact same addresses. 


Step 1. Wallet Setup

Most cryptocurrency holders put their tokens into private wallets. For a web extension wallet, Metamask is one of the well-known and trusted wallets. It supports a wide range of chains including Binance Smart Chain, Avalanche C-Chain, Ethereum network, and many more. If you've not installed one, go to the Chrome extension page, search for it, and download. If you have a Metamask wallet already, go to the ''Custom RPC'' section to add Polygon chain. Enter the relevant information to set up the Polygon chain. Please check this guide published on the Metamask community server. 


Now, you're ready to receive Polygon-native tokens for your wallet. It's time bridge from Ethereum!


Step 2. Bridge ETH & DPI From Ethereum to Polygon

Both ETH and DPI are ERC20 tokens, which means that they run on the Ethereum network. To utilize them on another chain, we need bridges. Today, it's recommended to use, to bridge any asset. Now, please switch to the Ethereum mainnet on the Metamask wallet and connect to the Polygon Web Wallet. And select ''Polygon Bridge'' shown below. 


After that, search for the DPI token on the right side of the screen. Then put the amount you want to transfer interchain. I've 3.4 DPI in Ethereum wallet, found DPI by searching it, and pressed the MAX button to move all of them to Polygon. After selecting and deciding the amount, you should complete 3-step process one-by-one. Firstly, the token must be approved for use to transfer funds from the Ethereum network. It requires a successful Ethereum transaction, costing around 20-25$ with today's price & gwei. 


Wait till the transaction approves by Ethereum miners. Then, you should execute another Ethereum transaction. This time the transaction will stake your DPI so that new assets can be minted on Polygon. This transaction requires a little more Ethereum, costing around 40-50$ with today's ETH price & gwei. 


Just click ''Continue'' and wait till transaction #2 approval. After the second transaction is approved, you should wait 7-10 minutes to get your DPI available. You will see 3 ✅ on the screen after everything is done. 


To bridge ETH to the Polygon network, you don't need to approve the token for bridging. So, ETH is sent only by confirming the deposit on the screen just like DPI. I selected 0.28 ETH to be transferred into the Polygon. And clicked the DEPOSIT button, then waited until it got confirmed on the Ethereum chain. 


Now, we're ready to pair ETH & DPI and receive 0.25% trading fees on the QuickSwap platform


Step 3. Pair ETH & DPI on QuickSwap

As I mentioned first, LP rewards will be $QUICK. $QUICK is the native token of the QuickSwap platform, the main AMM of the Polygon chain. Please assume that QuickSwap is Uniswap of Polygon. Now, we must pair ETH & DPI on QuickSwap. At the time of writing, 1 ETH is paired with 11.7285 DPI. I had 3.4 DPI and achieved to pair 3.35 of them with 0.28 ETH successfully. 

Before pairing them, you must obtain some MATIC tokens to cover the transaction fees. On the Polygon chain, the transactions cost about 0.01 MATIC, around $0.02. So, even 1 MATIC will be enough to cover many transactions. To pair them, you must approve ETH and DPI to spend by QuickSwap contracts. After that, please head to the relevant page, put the numbers you want to pair, and execute the transaction.


At the time of writing, there is nearly $600,000 liquidity for DPI/ETH pool on QuickSwap, and I have a 0.38% share of the total pool. After that, every swap makes the pool bigger by collecting fees and distributing them to shareholders. 

For the last step, users must stake their Pool tokens/LP tokens to QuickSwap reward contract to start gathering additional $QUICK rewards. See step 4 below. 


Step 4. Staking LP Tokens

To gather dQUICK rewards, you must stake your LP tokens. Please head to the LP Mining page, approve your LP tokens, and execute another transaction to deposit them. It's up to you how much LP to stake...


After that, everything is completed. The LP position is collecting fees + gathering dQUICK rewards at the same time. 


Bonus Step. A Hint For Early Adopters

If you're lucky and fast enough to provide liquidity in the first $2m TVL, you'll be rewarded with something special. Check below for more...

*This article is created to spread the awareness of DeFi Pulse Index & Index Coop and its features by utilizing my own experiences and Index Coop Medium Blog. None of the words above contain any kind of investment advice! Please DYOR (Do Your Research) before investing.
**If you are interested in writing articles about ANYTHING on Publish0x, you can follow this link.

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