The Objective
LoraFi aims to optimize yield generation. The EVM chains like Polygon,Ethereum,Optimism boasts a huge array of yield farming DeFi's like Aave, YearnFi, Compound, etc.
The core mission of LoraFi is to establish a marketplace where these yields can be independently traded. This innovation assists investors in strategizing and enhancing their yield accumulation.
How it works
LoraFi's structure is inspired by an existing DeFi platform named Pendle. Consider an example where an investor holds a yield-bearing token from Aave, referred to as aToken. To earn a certain yield 'r', the investor lends an amount 'x' as principal.
LoraFi introduces a concept where it converts aToken into a new token known as SY (Standard Yield) Token. For instance, an aToken used for lending DAI is renamed SY-aDAI. This SY token is further divisible into two distinct tokens: PT (Principal Token) and YT (Yield Token). These tokens respectively represent the principal amount and the accumulated yield. In a scenario where an investor lends $100 with an Annual Percentage Yield (APY) of 0.5%, they receive PT tokens equivalent to the $100 principal and YT tokens representing the 0.5% yield. The value of the YT tokens fluctuates in response to changes in the APY.
The Algorand Chain and Wormhole
Constructing significant trades on Ethereum chains may not be viable, as a minimal 0.25% earning could be negated by high transaction fees. Therefore, we have opted for the Algorand chain, which is known for its low fees and rapid transaction speeds.
AMM
LoraFi includes an Automated Market Maker (AMM), which plays a crucial role in establishing a functional market for various tokens. Within this system, PT (Principal Token) can be traded for YT (Yield Token), SY (Standard Yield) Token, USDT, and other similar tokens. This feature enhances the versatility and liquidity of the trading environment.
Use cases and benefits
- An investor anticipating a rise in DAI's APY on Aave from 0.5% to 1.75% can directly purchase YT-aDAI tokens to capitalize on the increase. Ordinarily, to benefit from a surge in APY, the investor would need to lend, say, $1000 to Aave to generate profits. However, with LoraFi, the investor has the option to buy YT tokens equivalent to $1000. This strategy allows for maximizing profits without the necessity of lending any principal amount.
- Lenders who are set to earn a modest annual APY can immediately sell their YT tokens in exchange for DAI or USDT. They can then reinvest this amount in Aave or another protocol, thereby enhancing both their asset portfolio and overall yield. This approach allows for more dynamic and potentially lucrative asset management.
For this prototype, we are utilizing the wormhole protocol to facilitate the transfer of tokens from the Polygon chain to the Algorand chain. This approach ensures efficiency and cost-effectiveness in our operations.