SNOWBALL - AUTO COMPOUNDING VAULTS
SNOWBALL - AUTO COMPOUNDING VAULTS
Introducing Snowball and covering the importance of why our sailors need auto compounding vaults
Disclosure: This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice. Please exercise extreme caution if you intend to participate in these opportunities.
Yield farming is currently the most significant growth driver of Decentralized Finance. It involves providing liquidity to high-yield liquidity pools and earning rewards.
This is similar to keeping your fiat in the highest interest savings account except in Defi your assets are held in smart contracts.
This removes the requirement of trust placed on intermediaries like banks. And the rewards are significantly better.
In essence, you’re basically making more tokens using your current tokens while yield farming.
Lucrative it might be, this process involves a lot of complex, time-consuming steps.
How does Yield Farming work exactly
Decentralized exchanges incentivize liquidity providers (LPs) to deposit their tokens in a smart contract-based liquidity pool. This incentive is a part of the total swap fees earned by the pool.
There might be an additional incentive of earning extra reward tokens by staking the LP tokens received on providing liquidity. LP tokens are proof of your share of the pool. The pools where you stake your LP tokens to earn extra rewards are known as farms.
The extra reward tokens are usually governance tokens of the DEX or of the protocols whose tokens are in the pool. They form the majority of the yield.
Your share of the transaction fees collected by the pool is paid to you when you withdraw your tokens from the pool. This is not the case with governance token rewards. They can be claimed without withdrawing liquidity.
To earn the best APY, you must constantly re-invest your rewards.
Annual Percentage Yield, abbreviated APY, is the annual compounded return, expressed in percentages. It takes into account the compounding effect of earning returns on already earned returns.
This is in contrast to the Annual Percentage Rate, abbreviated APR, which indicates the return one would earn without compounding.
Many yield farmers employ the strategy to claim their rewards periodically, convert the reward token to the pool tokens, provide liquidity, and stake the LP tokens again – compounding through a re-invest loop.
This long-drawn-out process is tedious and, most importantly, can be easily automated.
And that’s what we’ve been working on at the Bay.
Snowball
Snowball is an auto-compounding vault that helps automate the process of yield farming which we’re developing at the Bay.
So our sailors can sit back and relax while Snowball vaults will auto-compound their money in yield farms, thus maximizing their returns.
How does it work?
Snowball vaults will let you deposit the LP token that the underlying yield farm requires and stake it for you in the yield farm.
When the vault stakes your money for you, it allows the vault to claim rewards for you and then re-invest those rewards to compound the principal.
Let’s take an example to understand the effectiveness of our vaults:
Say a farm earns 80% APR. If we harvest and re-invest the rewards every day then the returns when compounded after 365 days using a Snowball vault, can easily provide 120%+ APY. That’s 1.5x the rewards without compounding.
But what if you don’t have the LP tokens you need to stake?
Here at the Bay, we’ve got you covered even then.
Keep following to find out more.
Note: Snowball is still under active development. Keep an eye on our twitter page and discord for updates on its release.
In case you haven’t, don’t forget to subscribe to The Bay Journal newsletter to stay up to date with dotsama farms and the happenings in the bay.
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