What are the smart ways to enhance and farm liquidity on Ethereum?

In this episode, Imran of [Kyber Network]( is joined by Carvas from [Lido Finance]( to discuss maximizing $ETH liquidations, concentrated liquidity, $wstETH trading pair, partnership and more.


Read our notes below to learn more.


**About Lido Finance**

* The liquid staking giant in [Ethereum]( network that provides a cutting edge liquid staking mechanism power in both CeFi and DeFi apps in its thriving ecosystem.
* It gives stakers the ability to spend the staked assets on the networks they support which are Ethereum, [Solana]( [Polygon]( [Optimism]( and more.


**About Carvas**

* A contributor in Lido and his main focus is liquidity.


**Farming in DeFi**

* Farming is the word that people use for a plenty of different strategies in DeFi in general.
* In DeFi summer 2020, liquidity mining was pioneered by [Compound]( where the idea is that you will give out governance tokens to incentivize people to do activities with their funds.
* For Lido, it’s mostly liquidity pools because st assets, token representations of the staked positions, can be sold, collateralized and bought.


**Benefits of adding LP in $wstETH-any tokens compared to $ETH-any tokens**

* $stETH can also be used in DeFi just as $wstETH can be.
* For $stETH, it keeps accruing in terms of balance on your wallet representing the yield that you’re accumulating.
* For $wstETH, the balance in your wallet remains constant but the value of it starts diverging upwards because it is accumulating that yield inside the token.
* Most of their liquidity is against $ETH so basically $stETH against $ETH on [Curve]( or $wstETH against $ETH on [Balancer]( and these are some of the largest pools in DeFi.
* They are now trying to diversify liquidity as a DAO to other pairs and the trade-off is that if you’re LP-ing $wstETH against $ETH, you would expect that the trading value would be somewhat low because there’s not much arbitrage going on.
* Their review is that if you are a new project and you want to incentivize some liquidity pool, a good choice to consider would be to pair your token with $wstETH because that’s where your LPs are already receiving some yield.
* The drawback is $ETH is such a canonical asset and it doesn’t really have application layer smart contract risk on top.

**Barriers to entry and strategies for getting through**

* They have different layers of different strategies people can do that are increasingly added on top of the previous one.
* In their view, the best way to stake $ETH is through the liquid staking derivative.
* If people want to stake $ETH natively, they have to do it in multiples of 32 $ETH so if they have less than 32 $ETH, they couldn’t do it.
* With Lido, users can stake any amount they want and there’s no limits.
* If people stake $ETH directly, they would lose access to that $ETH until withdrawals are enabled but with Lido, users get the token representation which is $stETH and can exit that position at any point in future.
* By having the token representation which is $stETH, people can use that as a composable lego in different DeFi strategies.
* Users can get impermanent loss but they’re also getting a lot of incentives on top of that.


**Why users trade between $ETH and $wstETH**

* The main advantage to holding $ETH is people get price exposure and it’s like longing the asset, but with $stETH and $wstETH, they get the same but with yields as well.
* $ETH is the best collateral in DeFi in general because it will be accepted everywhere and also accepted in LPs everywhere.
* Over the past two years, Lido has integrated $stETH and $wstETH pretty much everywhere.
* When using $stETH instead of $ETH as collateral when borrowing, it offsets the interest rate of the loan or still gets yields from your collateral while that wouldn’t happen with $ETH as collateral.


**Preventing impermanent loss in general**

* There’s pretty much no way around impermanent loss in DeFi.
* In the AMM model, it’s something that’s built into the design.
* In an AMM design, if one token is going up in value relative to the other, the AMM itself is selling the token on the way up so as the token goes up, it’s effectively exiting that position progressively and accumulating the other token that’s going down.


**Benefits of Lido farms**

* People can exit their position whenever they want.
* $stETH is integrated across protocols and a big portion of that is being used as collateral.
* Whenever people use something as a collateral, they need to have the ability to liquidate that position in the future if that collateral drops in value relative to the borrowing demand against it.
* The ability to liquidity is driven by how deep the pools for certain assets are.


**Benefits of the partnership**

* Whenever they do these types of partnerships, there is a win-win scenario where both of them are better off by doing it together rather than getting the goals alone.
* Lido is giving a significant amount of $LDO incentives to the pools on Kyber each month from their rewards program and that attracts a lot of TVL to Kyber.
* Kyber LP’ed a significant amount of $ETH on $wstETH-$ETH pool without taking the rewards and made that pool liquid as well then gave $KNC rewards on top.


***Q: What is the structure of Lido Finance? Is it decentralized or open sourced protocol? If so, how does the governance work?***

* Lido is both a DAO and a protocol.
* Their governance process has three phases; first one is completely offchain and vote free permissionless discussion, then those proposals pass to snapshot and people can vote and lastly, launching full DAO governance where people can vote onchain for proposals that’s going to be implemented.
* There is a dual governance proposal ongoing where it can allow voting for both $LDO holders and $stETH holders.
* Everybody can contribute through discord, governance forums and others.


***Q: Can the liquidity problems that may occur in a wide range of blockchains can be solved with the cooperation of Lido and Kyber Swap?***

* The chains that they support are Ethereum, Solana, [Polkadot]( and [Kusama]( and they also support EVM compatible chains like [Moonbeam]( [Moonriver]( Polygon.
* On the chains that they’re on, especially mainnet and L2s, they do contribute a lot to the liquidity on those chains because $stETH is one of the assets that has the deepest pools in DeFi.
* They have more than $1B TVL overall in the pools in this current bear market.
* Their pools on Kyber also contribute to liquidity outside Kyber just for the chains itself because it’s routed via aggregators that end up routing some of the trades.


***Q: Do you think the real value of DeFi has been understood by people after the FTX crisis? Will it take DeFi to new heights in the upcoming bull market?***

* The mainstream news or narratives about crypto in general doesn’t really distinguish between what a decentralized protocol is or what a company running a centralized exchange is.
* There’s stuff to learn about products that do hit product market fit like what FTX had.
* What happened in FTX will never happen in a transparent protocol like DeFi.
* Some people that were trading on FTX ended up moving to [dYdX]( or [GMX]( in [Arbitrum](
* It is bullish for DeFi with all the centralized entities collapsing this year.


***Q: Why are there some farms with high APY but are still losing? Can you share some ways to optimize LPs?***

* If you think the price will be on certain levels, you can go with much more concentrated liquidity and you can estimate how many fees you’re going to get based on current volume.
* There’s no comparison in traffic or other markets for the specific design of concentrated liquidity where it’s still particularly a mix between pool model and the advantages of being permissionless, open to retail.
* The concentrated liquidity venues have been gaining a lot of share because it is literally more efficient.


***Q: What is the future development of Lido after Ethereum staking withdrawal is open?***

* There’s some very good discussion happening on their research forum about it.
* People can check the forums if they want to go deep.

**Check out these important links**

* [Follow Revelo Intel for more notes like this](
* [Watch the original video](

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1 thought on “What are the smart ways to enhance and farm liquidity on Ethereum?”

  1. So if your in you in a Curve LP pool with ETH – wstETH you are still getting a very small amout of IL? Your wstETH is getting exchanged for ETH ‘s the wstETH accres yield?


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