The ICON DeFi Guide: Part 6 — Optimizing Yield with Optimus
(Note: This chapter focuses on the Optimus protocl. Most of the content is derived from the Optimus project description. While this chapter works to educate readers on the basics of Optimus, there are some more advanced features that users may benefit from as well. If interested, I encourage you to read the project description in it’s entirety. In addition, it’s possible the parameters laid out in that document may change as the project evolves.)
Before we dive in, you may be wondering what exactly “yield” means. You’ve probably seen it in reference to “yield farming” or used in other manners.
Simply put, yield is basically the “return on investment” you receive from your capital. So if you deposit funds into an AMM to provide liquidity, the LP tokens you earn are essentially your “yield.” If you lend out your ICX on Omm, the interest rate you receive is your “yield.”
Got it? Ok, let’s begin.
What is Optimus?
At this point, you should be familiar with Omm and Balanced. If you’re not, be sure to read those chapters.
Now, let’s pretend you have some ICX that you’d like to earn a yield on, but you’re not sure if it would be better to deposit it into Balanced and earn BAL, or if you should deposit it into Omm and earn OMM tokens.
There’s a lot to consider here! First is how much of each token an ICX deposit will earn. If there’s not a lot of deposit activity on either platform, it means you’d be entitled to a greater share of the BAL or OMM that’s being minted and distributed.
Meanwhile, you also have to figure out which token is generating more revenue. For instance, it may be easier to earn OMM compared to BALN, but perhaps BALN is more valuable on the market due to its ability to earn a portion of the protocol revenue.
And then you also have to figure out the price of each token on the market, which might be efficient and reflect the dynamics I’ve explained in the two paragraphs above, or they might not be.
What if you could just let somebody else figure all this out and handle it for you?
Well, that’s where Optimus comes in. While the project is still under development as I write this, Optimus will serve as a protocol to efficiently allocate your ICX to the protocol that can best maximize your return.
(And if you’re looking for a comparable platform on Ethereum, Yearn Finance is the closest comparison.)
How does Optimus work?
Let’s say you have 1,000 ICX you want to earn yield on. You would take that ICX and deposit it into the Optimus protocol contract.
From that point, Optimus’s smart contract will work to figure out which platform, Omm or Balanced (and in the future, as other protocols become available, those will likely be added as well), offers the greatest reward opportunity in terms of either BAL or OMM tokens.
In return for depositing that ICX, users will receive a token called “finICX” in return. When the user is ready to get their original ICX back, they’ll simply trade in their finICX tokens (and their finICX will be burned). In return, they’ll receive their ICX, as well as whatever profits the Optimus contract has made through earning and selling either OMM, BALN, or a combination of both (it’s likely that at different points in time, one platform may be more lucrative than the other, meaning Optimus’ smart contract may bounce back and forth between the two).
Meanwhile, during the time their ICX is deposited in the Optimus contract and while the user holds finICX, they can stake that finICX into the Optimus governance pool, which allows them to participate in governance decisions relating to the protocol.
In addition to being able to participate in governance decisions by depositing finICX, users will also earn a token in return: FIN.
Similar to BALN, FIN entitles holders to a share in the revenues from the Optimus platform. The following fees are applied to Optimus users:
- 0.5% withdrawal fee.
- 5% on additional profit yield (in case no profit was generated then this fee is not applied).
FIN holders are eligible to receive 80% of these fees, allocated proportionally by the amount of FIN held by the user.
With Optimus, we have our first instance of a DeFi smart contract interacting with another DeFi smart contract.
In cases like these — when protocols interact with other protocols — the risk potential is typically even higher. Remember how I’ve been harping on the fact that every DeFi protocol always has a small smart contract risk?
Well, if you’re depositing into TWO smart contracts (since Optimus’s smart contract deposits into either Omm or Balanced smart contracts), you’re technically doubling that risk. Now, it’s still small…but certainly higher than if you were only interacting with one smart contract.
You’re also taking on some of the risk that comes with the Omm and Balanced platforms themselves — primarily liquidation risk. That’s why it will be important to review how Optimus works specifically to ensure you’re confident that it’s designed in a manner that will sufficiently reduce the risk of liquidation and generate a profit.
Thanks to Optimus, you now no longer have to spend time figuring (or worrying about) which platform is best for investing your ICX to maximize your returns.
Now that we’ve looked at the various tools that will be available on ICON, let’s get a better understanding of how DeFi can go wrong.
If you’d like to ask questions about DeFi, discuss strategies, or just have a general discussion, please join us in the ICON DeFi Discussion group I’ve created on Telegram to supplement this guide and build a vibrant DeFi community around ICON.