Sirwin
Sirwin

How to participate in crypto liquidations and earn crypto

By Austrian_Guy | Your-Lazy-Ape | 3 Mar 2022


This post aims at presenting you a selection of awesome projects in the crypto space right now. Disclaimer: It is in no way whatsoever advice to invest in DeFi protocols or in any other way financial advice. It reflects my own personal opinion and nothing less, nothing more. Thank you for your consideration. It is solely promotional.

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How to participate in crypto liquidations and earn crypto

b.protocol (backstop protocol) enables users to deposit funds that will be used for the liquidation process (V2 = Liquity Protocol, V1 = MakerDAO, Compound Protocol) in order to earn parts of the liquidation proceeds (thus becoming a keeper themselves).

These funds are being held after deposit in a yield-bearing platform, and are used to execute trades in connection with liquidations at a 5-10% profit when necessary. After that the proceeds are backfunneled to the originally deposited currency.

Users are free to import their MakerDAO/Compound account, or they can open a new account if they choose so.

If a user holds $LUSD stable coin, an added benefit of using b.protocol is that, after every liquidation, the earned ETH is converted to $LUSD without incurring gas cost and the hassle of a separate (manual) transaction. Funds are committed to an automatic rebalancing this way and add to overall capital effiency (via a novel AMM formula). Any user can choose to manage their stability pool deposits via b.protocol V2 (Liquity Protocol).

What is this B.AMM (Backstop Protocol Automatic Market Maker) we're talking about?

The Backstop Automated Market Maker (B.AMM) is an automatic market maker optimized for lending platform liquidations. It is a fully autonomous smart contract and can efficiently handle liquidations of big debt with smaller capital requirements.

In short: it's a system where users provide liquidity that is used for liquidations (e.g. repay $DAI debt in return to ETH collateral), and after liquidation happens, the automatic rebalancing process starts. The rebalancing process converts the seized collateral back to the original asset (e.g. the ETH collateral is converted to $DAI).

As user funds (deposits) are sitting idle for the majority of the time (when no liquidations happen), the system deposit the funds, on behalf of its users, into yield-bearing protocols, such as Uniswap, Yearn Finance or Compound, and withdraws only in order to facilitate liquidations.

OK, I got some stable coins I want to put to use - how do I proceed?

First, you might want to use an exchange (DEX) to convert your currency: Cowswap (MEV protection built-in) or 1inch (DEX aggregator) for example.

Second, you can use bprotocol.org GUI directly to deposit your funds.

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Or, use a protocol integration on pickle.finance to gain benefits. Such as: auto-compounding of rewards (all ETH liquidations are sold back into users' LUSD positions and all LQTY rewards are automatically staked in the relating Pickle Jar (which also auto-compounds ETH & LUSD rewards).

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This way, you'll earn liquidation fees, earn LQTY rewards (which auto-compound) and on top of it, you'll be earning $BPRO token & $PICKLE token rewards as well (if you stake). All by depositing in your original position (LUSD).

Sounds great, does it not?

What are the risks involved?

As this posting is no financial advice whatsoever, this question cannot be answered here in any way. But let me say this: personally (and this is not a recommendation by any means) I deem it a fairly low-risk deposit, because b.protocol has been around quite a while and its partner, pickle.finance, is a proven protocol as well. There is smart-contract risk involved, however. Do your own due-diligence and research.

On a bright side: by adding liquidity you'll earn liquidation fees, $LQTY token, $PICKLE token and $BPRO token rewards, coming in at approx. 20-25% APY (at the time of writing).

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Austrian_Guy
Austrian_Guy

messing around with crypto since 2013; mined a bit, traded a bit, bought in heavily in 2017, bled a lot until 2021 and now got into NFT and Defi. Enjoying it so far and am excited of what's about to come!


Your-Lazy-Ape
Your-Lazy-Ape

Mainly experiences in DeFi and Cryptocurrencies

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