LSDfi was the biggest narrative this bear market.
But you probably missed that train, didn't you?
Enter LPDfi, a narrative quietly gaining momentum and is set to reshape the landscape.
Here's my take on LPDfi:
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Liquidity Providing Derivatives (LPDs) are a relatively new concept.
At their core, LPDs are financial instruments built on top of LP positions, particularly those on Uni V3.
They allow for the creation of structured products and strategies using these LP positions
LPDFi, is the broader narrative surrounding the use of LPDs in the DeFi ecosystem.
It's the idea of building an entire financial infrastructure around LPDs, creating a new wave of innovations like what Pendle did for LSDs.
And now, @logarithm_fi is doing the same for LPDs
Logarithm is setting the stage to maximize LPs on Uni V3, turning LP positions into strategy vaults to return greater APYs or hedge risk.
It maximizes APR by using a narrow range on a CLAMM, and counters IL through hedging strategies like shorting volatile assets on GMX
Logarithm's Liquidity shell introduces a LP router to the best liquidity boosts.
To illustrate: This works like a Beefy Finance yield aggregator but for existing LP positions.
And these positions are connected to various LPD protocols like Limitless, Panoptic or Smilee
Limitless recently announced a partnership with Logarithm, with many more coming soon
By integrating, both protocols offer users enhanced yield opportunities and more efficient capital utilization for users
It's a win-win.
twitter.com/logarithm_fi/status/1682441986068959254
Here's how Logarithm's Liquidity Shell aggregator might route LPs through LPD protocols like Limitless, Panoptic or Infinity
Users depositing USDC in the Liquidity Shell Vault earn yield from the Uni V3 LP + the underlying LPD project's emissions + Logarithm's emissions
Panoptic and Smileee are both integral to the LPDFi narrative.
Panoptic emphasizes trad options, offering a more conventional approach.
Smileee focuses on option leverage, providing users with enhanced flexibility.
you can read more here:
twitter.com/Slappjakke/status/1620436830494625793
InfinityPools introduces a unique leveraged protocol design, eliminating traditional constraints with guaranteed upfront liquidation mechanics.
Built on Uni V3, it uses LP tokens for loans, revolutionizing liquidation processes.
twitter.com/0xEdge_Runners/status/1695079891996131500
Nautilus offers delta-neutral strategies using GMX perps, which you can choose to opt in for.
It then scans the market for the best yield-generating strategies.
When it identifies a lucrative opportunity, it reallocates assets to capitalize on it, maximizing LPs APRs.
Now, the big question:
How does the vault perform?
Below is a full overview of @logarithm_fi's backtest results on how they are able to achieve 11.8% APY:
twitter.com/logarithm_fi/status/1668502263038394368
What's the market size for this?
The most relevant categories on DefiLlama are:
1๏ธโฃ Leveraged Farming - $168M in TVL
2๏ธโฃ Options Vault - $37.9M in TVL
And in the end, it's all the LP liquidity on CLAMMs that is targeted so the market is much bigger at over $3B
So, why does all this matter? Why should you care about LPDFi, Logarithm, and Nautilus Vaults?
It's a paradigm shift in how we perceive and utilize liquidity.
Gone are the days when LPs just provided assets, yield farmed and hoped to not get IL
With LPDfi, every asset is a potential powerhouse, every position a strategic play.
From LSDfi to LPDfi, we're witnessing DeFi's maturation. It's not just about lending or staking anymore.
It's about maximizing every asset, every position for capital efficiency
In addition to that, it makes managing CL positions a whole lot easier for entry-level users.
That is the main barrier-to-entry for migration from Uni v2 -> v3
To dive deeper, here are some unique takes on the whole LPDFi narrative from my frens for additional reading:
twitter.com/eli5_defi/status/1683401739180085251
twitter.com/Louround_/status/1693707803477803061
twitter.com/0xSalazar/status/1692240348687606159
You don't wanna miss this narrative
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Analyst | Deep Dive Threadooor Covering Untapped and Overlooked Projects and Narratives Twitter ๐