Borrowed Farm updated — high yield, low price risk on Spectrum Protocol
What is Borrowed Farm?
Borrowed farm was introduced by Spectrum Protocol in the 2nd roadmap. Basically, user provides only UST and borrows another token to farm (e.g. SPEC token). With this strategy, user will have a very low price exposure to SPEC token. While price risk is very low, normally governance token LPs provide very high yield (like 1xx%). Effectively, borrowed farm could produce a very high yield with a very low price risk for users.
Introducing Leveraged x Borrowed x Compounded Vault
What will also come together with borrowed feature in the 2nd roadmap is leverage feature. Stable assets could allow higher leverage, For example, SPEC token could have max leverage around 2x, with current APR for SPEC-UST LP at 78%, the leveraged-borrowed-auto-compounded vault could boost APY to 293%!
Automatic Position Adjustment (APA)
One pain point for borrowing is, we need to keep monitoring our position to maintain loan-to-value ratio (LTV), and we also need to monitor borrowing rate. If the token has a very high utilization rate, borrowing rate could be skyrocket and it could eat all the yield.
Spectrum vault will provide automatic position adjustment. It will borrow more if token price drops to earn more yield. It will reduce position if token price goes up to reduce the risk of liquidation or when the borrowing rate is too high.
This service is only for SPEC Stakers
Borrowed farm requires available lending liquidity at optimal borrowing rate, which is limited. Therefore, we cannot open this for everyone.
Since seats are limited, users need to lock SPEC into 30-day or 180-day locked pools. $1 value of SPEC in 30-day locked can invest maximum of $5 in each borrowed farm, and $1 value of SPEC in 180-day locked can invest maximum of $10 in each borrowed farm (the rate could be changed later based on the governance).
For example, a user has $500 value of SPEC in 30-day locked and $1,500 value of SPEC in 180-day locked, so user can invest up to $17,500 ($500 x 5 + $1,500 x 10) in each borrowed farm (if there are 6 borrowed farms, maximum value to invest is $100,500).
Contracts are completed and scheduled for audit at the end of Feb. Target release date could be the end of March. Please stay tuned!