Farming Spicy Swap Fees With SPI
To this date, if we look at the amount of transactions users have made with the SalsaDAO ecosystem, it’s been the most successful and longest-running DeFi application on Tezos on transactions made.
Disclaimer: DeFi is high risk and the following article contains no financial advice. It is recommended that thorough research is undertaken on any DeFi/blockchain applications/projects, utilizing multiple sources, before participating with any blockchain projects, or tokens in this space. Read our full disclaimer here.
The first working DeFi application on Tezos was SalsaDAO, by Genius Contracts. To this date, if we look at the amount of transactions users have made with the SalsaDAO ecosystem, it’s been the most successful and longest-running DeFi application on Tezos.
There is no DeFi application on Tezos that comes close to the number of transactions SalsaDAO contracts have generated. At this time of writing, the SalsaDAO smart contracts combined are responsible for over half a million transactions (see contracts Created/managed by tz1ffUBjxWwCTS1QTxzL7PAdUYWYMavWngoA).
Watching SalsaDAO rolling out has been exciting. The development pace has been fast and full throttle. SalsaDAO has combined NFT’s with DeFi from the beginning, added casino games in the mix and the token distribution of the various coins in the ecosystem has been creative and sometimes unorthodox.
The biggest opportunities to create big value with small funds have been there from the beginning. Understanding the ecosystem, understanding the different parts, understanding the farming pools, understanding Taco’s, understanding the huge arbitrage opportunities within the ecosystem, catching the airdrops and respecting the baseline where “all roads lead to sDAO“.
This has in essence been a DeFi strategy game. Use your brain, make the gain.
Next step: a Uniswap V2-inspired DEX.
SpicySwap is a Uniswap V2 inspired DEX built on Tezos. To be compatible with Tezos’ smart contract language Michelson, the base contract has been rewritten from the ground up, but a lot of features from Uniswap V2 are brought to Tezos with SpicySwap.
Think of things like a FA2 token-token DEX, $SPI farming, LP investing, Flash Swaps and a Price Oracle. I will do a full article on SpicySwap later, but now I focus in short on the new protocol token for SpicySwap called Spice ($SPI).
Why? Because the public presale is currently ongoing.
SPI tokens will give you the opportunity to farm Liquidity Pool (LP) tokens in any trading pair on SpicySwap. SPI tokens are your Joker, your passe-partout. They are the key to farm LP tokens with high volatility, while not being exposed to that high volatility. Let’s break it down:
SpicySwap will use wrapped XTZ, this will be discussed in the next article about SpicySwap. So when providing liquidity for an XTZ pair, you provide liquidity with wXTZ.
To enable SPI LP farming, you provide liquidity to the SPI-wXTZ pair. This gives you LP tokens, just like you receive LP tokens on Quipuswap for as long as you provide liquidity to trading pairs on Quipuswap.
With these LP tokens, you can now earn a portion of 0.1% of the fees of any trading pair that you choose. So you can now select a pair with high traffic and preferably low pool occupation.
Example: if the $CRUNCH-wXTZ pair is a high volume pair and not that many SPI LP tokens are farming the liquidity pool, it would be a good choice to stake your SPI LP tokens there.
If your share in the SPI LP tokens in that pool is 10 out of the 100 SPI LP tokens that are staked there, you will earn 10% of 0.1% of the fees in the $CRUNCH – wXTZ pair.
But if $sDAO – wXTZ would net you more fees, you can use your SPI LP tokens in that pool instead.
So you can earn fees in any trading pair on SpicySwap with your SPI LP tokens. You can switch from pair to pair if that is a strategy you want to follow.
An interesting advantage is the fact that you would be less exposed to high levels of impermanent loss. Once the value of SPI is settled, the impermanent loss will be a lower risk factor in the SPI – wXTZ liquidity pool.
Now, you can use your SPI LP tokens to enter Liquidity Pools of high volatile tokens. High volatility comes with high impermanent loss risks. But since you enter those pools with SPI LP tokens, you won’t be exposed to those risks.
An example of high volatile tokens, are tokens that have been newly launched. Prices can swing a lot in the early days of new trading pairs.
But at the same time, trading pairs of newly launched tokens are usually high-volume pairs and thus pairs with liquidity pools that earn higher amounts of fees. SPI LP token holders will be able to tap into those high fees without the higher risks of impermanent loss.
With things like flash swaps and loans, which can be high value (in a more developed DeFi stage) and thus a source of a good amount of fees, there are a good amount of opportunities on SpicySwap for fee farming.
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