Liquidity pools are at the very essence of DeFi. They facilitate swaps on Decentralized Exchanges and facilitate trades in a decentralized and tamper-resistant manner. However, liquidity pools, as they currently sit, are inefficient and lack capital efficiency. In most cases, less than 10% of the liquidity deposited into a liquidity pool is actually used to facilitate trades at any given time. This is owing to liquidity deposited in the said pool exceeding far beyond the liquidity needed to facilitate such swaps. However, an insufficient amount of liquidity at the same time can result in excessive slippage occurring on swaps.
The dilemma between efficiency and low slippage is heavily debated. This is where USD+ — a collateralised yield-bearing stablecoin — comes in and enshrines in the new by putting this excess liquidity to work.
Getting into the midst of it
QuickSwap is the leading DEX on Polygon network with ~$1 billion in liquidity, almost $100 million in daily trading volume, and ~20k users.
On April 29, 2022, Overnight Finance, the DeFi protocol behind USD+, created liquidity pools for the pairs of wMATIC/USD+ & wETH/USD+ on Quickswap. Within a time frame of 1 week, USD+ achieved the Top 10 most traded tokens on Polygon — a testament to USD’s successful model.
Revolutionizing stablecoin capital efficiency
Yield-Farmers are constantly on the search for increased yields throughout the DeFi realm. Massive yields in farming are unsustainable and increasingly rare. USD+ solves this by providing additional yields for participants. In essence, users, via having LP pairs with USD+, can now earn not only LP fees and rewards but additional internal yield from USD+ as well — dramatically increasing the capital efficiency of liquidity pools.
USD+ has similar characteristics as USDC with one important difference: USD+ provides an internal APY of 8–12%, remaining as secure and stable as USDC and USDT.
The current combined liquidity of pairs with USDC on QuickSwap is ~$191M, half of it, $95.5M is locked in USDC. Simply replacing USDC with USD+ will generate an additional ~$9.5M annually for its holders. Quickswap is the most popular DEX on Polygon but one of many Uniswap V2 DEXes. Other DEXes, like Solidly, Meshswap, Spookyswap, etc. combined hold significantly more USDCs than Quickswap, increasing potential USD+ utilization.
The charts below show similarity of LP pairs with USD+ and USDC. USD+ pairs behave the same as USDC pairs due to a strong 1:1 peg of USD+ to USDC, maintained by sophisticated balancing algorithms inside USD+ smart contracts.
WMATIC/USD+ Pair (Source)
WMATIC/USDC Pair (Source)
WETH/USD+ Pair (Source)
WETH/USDC Pair (Source)
On top of stability USD+ provides 8–12% APY to holders, due to underlying strategies, each generating APY.
Another important implication for the new pools is arbitraging opportunities on wMATIC/USD+, wETH/USD+, wMATIC/USDC, and wETH/USDC pairs by minting and redeeming USD+ and USDC directly on Overnight.dApp, utilizing the 1:1 peg of USD+/USDC.
This concept is an exciting new innovation for yield generation within DeFi and is a great example of how Overnight is transforming the model of liquidity provisions.
About Overnight
Overnight is a DeFi protocol behind USD+ stablecoin which is fully collateralized by USDC and USDT; users earn an average of 8–12% APY through its secure and vigorously tested yield-farming strategies with profits paid out daily — it’s sure, simple, liquid, and hassle-free.
Overnight is backed by world-class investors, including the likes of the founders of Coinlist and Polygon. Overnight is led by aspiring fintech leader — Maxim Ermilov — who holds a background in BCG Financial practice and is a renowned entrepreneur. Moreover, Overnight was recently accepted into two esteemed crypto accelerator programs: UC Berkeley’s Blockchain Xcelerator and Binance’s BNB MVB IV Incubation Program.
