They always say time changes things,
but you actually have to change them yourself
— Andy Warhol
Today, we‘re announcing our first single-asset PickleJar:
PickleJar 0.88 (or pJar 0.88 for short) supports DAI deposits and uses a leveraged COMP mining strategy. We’d like to thank Robert Leshner, the founder of Compound Finance for bouncing these ideas with us.
Before we dive in, it’s worth mentioning that the strategy for pJar 0.88 contains novel code and is highly experimental. There is a very real risk that you can lose all of your funds. Please do not put in more funds than you are willing to lose.
The simple explanation
Compound Finance is a lending platform which rewards COMP tokens for the act of supplying or borrowing assets. pJar 0.88 works like this:
- Users deposit DAI into pJar 0.88;
- Strategy supplies DAI to Compound;
- Strategy borrows more DAI from Compound;
- Repeat from Step 2 until desired leverage is reached.
This allows us to maximize COMP rewards up to a specific “safe” maximum collateral factor determined by governance. At launch, this will be 13.3% below the market collateral factor.
Getting a little deeper
Here is a more concrete example:
- Suppose DAI has a collateral factor of 0.75 on Compound;
- We supply 100 DAI to borrow 75 DAI (the maximum);
- We supply this additional 75 DAI back into Compound;
- This gives us a total of 175 DAI supplied and 75 DAI borrowed;
- Now we can borrow an additional 56.25 DAI and repeat from Step 2 until we hit our desired leverage.
Note: 175 DAI * 0.75 CF - 75 DAI = 56.25 DAI
This repeating pattern can be expressed as an infinite geometric series:
If we plug in the collateral factor, this allows us to create a formula to calculate the maximum achievable leverage:
In the above example, where DAI has a collateral factor of 0.75 the maximum achievable leverage is 4.
Risks and Mitigation Strategy
Due to fluctuations in Compound’s supply and borrow interest rates, there is a real risk of liquidation if leveraging is pushed to the maximum. This is why pJar 0.88 will have a safety buffer of 0.10 collateral factor
This translates to requiring that borrow rates spike to >5000%+ and be left unmonitored for 24+ hours in order for our position to be liquidated (currently, the DAI borrow rate is 3.90%).
Using the same formula as above, with a safety buffer of 0.10, the “safe” maximum leverage will be 2.857.
Do note that this is just a starting point, and this safety buffer can be adjusted based on what the community would like to see going forward.
The system will be regulated by a keeper bot that polls every 60 minutes to check that the leverage is within bounds.
pJar 0.88 is now live, and you can review the deployed strategy contract code here. As a final reminder, please do not deposit more than you are willing to lose in this jar.
If you would still like to participate in this experiment, then head on over to https://app.pickle.finance/jars where you can interact with pJar 0.88.
If you have any questions or comments, we invite you to come to our Discord.
Contributors to Pickle have made reasonable efforts at ensuring the integrity of the protocol including tests. Pickle is completely valueless and has 0 financial value. Anyone who chooses to engage with these contracts, including the Pickle token contract and the staking contracts, are doing so at their own risk. You should perform your own due diligence.