Many have recognized that on the path to achieving real and long-lasting financial freedom is earning passive income, a way to make an investor’s wealth work for them. The key is that as soon as an income stream can supplement your income, users can retire earlier and have more time to explore their passions.
Financial freedom used to mostly include those who have come to retirement age and have worked stable jobs with a steady income, as they slowly began saving and putting their wealth away in long-term investments to grow over 40 or 50 years. While this model is not yet obsolete, the DeFi world has since introduced alternative ways to achieve the same outcome, financial freedom. At perhaps, what might be a fraction of the time.
Interest rates earned in a traditional savings account have since dwindled, making the concept of decentralized finance or “DeFi” ever more appealing. By eliminating intermediaries and providing more profitable opportunities for investors, the demand for leverage growth and associated annual percentage yield (APY) has increased as well. The result is that by locking funds up in a smart contract instead of the bank, any user can earn a passive income of more than the standard 0.5% offered by the bank.
As new platforms and other earning opportunities are made available, investors now face a new challenge of optimizing their returns. While some have taken to switching between networks and platforms in search of the highest payoff, others have taken to leverage.
To prove this benefit to investors, the Alf Protocol has emerged on the Solana (SOL) chain as a medium for capital deployment and offering users liquidity provisions and yield farming. Through the use of these protocols, Alf has demonstrated a margin of up to 200x, as users participate in both short and long positions and leveraged liquidity pool (LP) yield farming.
A path for the risk-seeking and risk-averse
In practice, yield farming exists as the process by which users can receive economic incentives through their participation in a smart contract-based liquidity pool, where many investors have been profitable to date. Where the difference becomes apparent is in the ability to borrow tokens to increase a user’s farming position and capture a greater yield in proportion.
For example, if a user deposits a yield of a certain amount, they can expect an amount in proportion to their holding. However, if they were to borrow, say 5 or 10 times that amount, their profits would be 5 to 10 times more. Leveraged yield farming then becomes a strategy where users can deposit collateral, leverage loans against them, and use them for profit-earning. The major benefit is that since earnings are amplified, the clever use of a leveraged position can even help users earn significant yields in a neutral or bear market.
The protocol then comes to life by introducing its own method of an invariant-based automated market maker (AMM) protocol. Its central contribution becomes the protocol for leveraged LP positions in yield farming and AMM pools. To improve capital efficiency and a more liquid market, Alf connects investors seeking out lower risk and lower effort positions to provide liquidity to lending protocols with those investors seeking out riskier and likely more rewarding positions and are interested in taking on a more active management role.
As the model outlines, a risk-averse investor may deploy capital to the Alf Liquidity pool, which can be used internally by the AMM for a baseline yield for lending in exchange for farming incentives—highlighting the two complementary protocols for unleveraged liquidity management, an overcollateralized borrowing service AAlf and AlfMM, a decentralized exchange service. Alternatively, they may take advantage of leveraged yield farming such as flash loans or other leveraged positions as a part of the leveraged custodian model a risk-seeking investor will take part in.
The project itself is already under development and has a fully signed development contract to match.
Awaiting the MVP launch
Together these protocols will provide entry points for investors to trade and provide liquidity as they earn passive income on the route to financial freedom. Over the next year, the team has shared their plans to fully develop and launch the MVP on mainnet.
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