The Evolution of Liquidity Baking: Sirius DEX, SIRS, and 77% APY at Kord.fi

The Evolution of Liquidity Baking: Sirius DEX, SIRS, and 77% APY at Kord.fi

Disclaimer: This material is not investment advice or trading advice. Tezos Ukraine is not responsible for your investment decisions. Do not invest more than you can afford to lose.

Last week, the LP token of liquidity baking was named Sirius (SIRS). At the end of July, it was added by youves, followed by the Bittrex exchange, and Tezos’ new DeFi project Kord.fi.

Let’s recall how liquidity baking works and figure out how to earn even more with Kord.fi.

What Is Liquidity Baking

Liquidity Baking (LB) is a token exchange pool that is funded by the protocol itself. It appeared in Tezos in August 2021.

The basis of Liquidity Baking is the decentralized Sirius DEX exchange for the tez/tzBTC pair. The user can exchange tez to tzBTC and back, deposit liquidity and get LP tokens called Sirius (SIRS). But unlike other decentralized exchanges, Sirius DEX is financed by Tezos itself: in each block, the protocol creates and subsidizes a 2.5 tez to the contract.

As a result, Sirius DEX’s liquidity is constantly growing and participants receive passive income from subsidies. The current yield according to liquidity-baking.com is 26.85% APY in tez. Roughly speaking, if Bob contributes 1 tzBTC and 13,000 tez to Sirius DEX, in a year his share in the pool will be 1 tzBTC and 16,510 tez. That is excluding impermanent losses, of course, which are unpredictable and may cause significant loss in USD equivalent.

Because of the guaranteed passive income, liquidity baking is attractive for investors. The pool now has 4.9 million tez and 367 tzBTC worth a total of $17 million. Liquidity in turn attracts traders: according to TzKT, the volume of transactions on Sirius DEX is at least $200 thousand a day and $18 million a month.  

How to Profit From Liquidity Baking

To get those 26.85% per annum in tez, you need to own a share of the Sirius DEX pool, i.e. SIRS tokens. There are two ways to get them: to deposit tez and tzBTC into the pool or to buy tokens directly.

The easiest way to deposit liquidity and get SIRS is to use the GUI on TzKT or on TezBlock.

Strangely, we didn’t find SIRS on any Tezos DEX, meaning you can’t just buy it, sell it, or create a liquidity pool with it. The transaction history of the token consists almost entirely of issuance and burning with occasional transactions between users without smart contracts involved. So far, the only place to buy SIRS is in spot SIRS-USDT and SIRS-BTC pairs on the Bittrex exchange.

The market on Bittrex can be used for arbitrage. For example, if the value of SIRS there is higher than the value of the share in the Sirius DEX pool, you can mint SIRS and sell it on Bitrex at a profit. Arbitrage works the other way, too: if SIRS on Bittrex trades at a discount, you can buy it and take liquidity from the pool at a profit.

Also, constant tez inflow into Sirius DEX means that the tez to tzBTC rate in the pool goes lower than tez/tzBTC rate in other DEX over time. If you have tzBTC, you can buy tez at a discount.

How to Make Even More With Kord.fi

Disclaimer: Kord.fi is still in beta. Its smart contracts have not undergone audit.

Simultaneously with the rebranding of the liquidity baking on Tezos, the lending protocol for leveraged farming Kord.fi came to be.

Kord.fi has two tools: lending and farming. Users contribute tez and tzBTC to the lending pools for interest. Farmers borrow additional funds from there, put them into liquidity baking, and get more SIRS with increased returns.

Maximum leverage for farmers is 4x, i.e. user can lend up to 3 tez for their 1 tez. Loan security percentage is calculated as the ratio of collateral to loan amount in tez and tzBTC. If this value falls below 120%, Kord.fi or another user can liquidate the loan and earn the difference between the collateral value and the borrowed amount.

The APY of deposits and farming depends on the Utilization Rate of the lending pools. The maximum APY for farmers is up to 77.12% when borrowing tez and up to 26.78% when borrowing tzBTC. The current deposit APY is 7.84% for tez and 27.69% for tzBTC. Kord.fi automatically reinvests funds and maximizes returns.

Conclusions

Liquidity baking is a unique financial instrument with yields in a native protocol token. Rebranding the contract and token in Sirius DEX and SIRS should increase the recognition of liquidity baking and make it more popular.

Twenty six percent per annum in tez is a very high yield. With Kord.fi, it can be increased up to 77% per annum, but with the risk of losing money in Sirius DEX. Don’t chase super profits and don’t invest more than you can afford to lose.

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