Leveraged Yield Farming

Borrow upto 5x of your collateral to start leveraged yield farming.

The Mirai protocol allows users to participate in yield farming with up to 5x leverage through the use of under-collateralized loans. This feature enables users to supply liquidity to decentralized exchanges or to enter into vaults, which are smart contracts designed to earn interest on deposited assets.

What is Leveraged Yield Farming?

Leveraged yield farming is a technique that allows users to earn higher returns on their crypto assets by providing liquidity to a farming pool while borrowing additional assets to increase their stake in the pool. The user will earn rewards in the form of interest and fees on the borrowed assets and by staking the combined value of both their own assets and the borrowed assets in the pool.

The interest rate is usually determined by the protocol, with borrowers typically required to provide collateral to back their loans and also to maintain a certain level of collateralization to avoid liquidation. Leveraged yield farming allows users to amplify their returns, but it also increases the risk as the user's profit or loss will be multiplied by the leverage factor.

Example of Leveraged Yield Farming

1. Bob can put in 100 USDC into Mirai and take a loan of 270 USDC to purchase provide LP into a curve Pool.

2. The 270 USDC is supplied into Curve and the LP is staked in a gauge.

3. The user will now gain trading fees from LP and farm tokens.

4. The user will be liquidated if the value reduces $180.

When we discuss stablecoin Liquidity Providing (LPs), it is generally assumed that there will be minimal impermanent loss, or decline in principal value. Leverage farming becomes a viable option when the rewards and fees generated by providing liquidity are greater than the interest paid on borrowed funds. In other words, leverage farming can be a worthwhile strategy when the returns earned from farming exceed the costs of borrowing the additional funds.