Ola! Hello! 你好! こんにちは!

Many know me as the traditional DeFi guy. Staking and farming are easy concepts to learn but it did take me a while to understand about impermanent loss, how APRs/APYs came about and what affects them all.

So when it came to Lending protocols, it began with some apprehension about using it because of unfamiliarity and the statement of “be careful of being liquidated" being thrown around easily by everyone in the space, making one feel that it’s a terrible situation to be in, being liquidated.

Nevertheless, knowledge on how things work is always welcome to those to seek it out and I had to, at least, know some basics in order to guide and support others who are considering it.

So I started to play around with the early version of Ola, when it launched, but I got distracted with other happenings in the DeFi space and recently went back to it after the recent marketing push.

After reading the docs and also spending time in Telegram to understand more about this product offering, I still see numerous users who are like me, carefully sitting on the fence on using it, preferring the traditional ways of earning passive income with their $BANANA. One of the primary reason is the complexity and a general sense of discomfort that makes one avoid it entirely and I can truly understand that as a learner myself.

While I don’t claim to be an expert at Lending protocols today, I would like to share what Ola is, how it works, and what kind of strategies can be considered if you would like to get in on it. It may not be for everyone based on my own personal opinion, but it is good to know how it’s like as an option should the opportunity present itself for you to ape into it.

Ola What?

In a nutshell, Ola is a platform for folks to deposit (supply) supported cryptocurrencies to earn interest (rewards) on their deposited amounts.

At the same time, suppliers can take out loans (borrow) on other cryptocurrencies up to a maximum value determined by the Collateral Limit, usually 70%, in USD equivalent of their deposits.

For example, if USD$1000 worth of $BUSD has been supplied, the user supplying it has the option to take/loan out up to USD$700 worth in any other cryptocurrencies that is being offered. (Except $BANANA & $CAKE, which are set at 40% Collateral Limits)

The principal amount deposited would earn interest according to the displayed APY (shown in green on the Supply Markets) and the borrowed amount would be subject to a fluctuating borrowing interest rate (shown as red/green on Borrow Markets). Yes, you are right to say that Ola sometimes does pay you to borrow as some cryptocurrencies are denoted in green APY. Do always check the current rates as they do fluctuate often.

Ola When?

Here’s the important part. When will one get liquidated? The conditions for borrow/lending are that the principal amount deposited and the borrowed amount must not deviate more than the Liquidation Factor % in terms of USD. This means that a deposit of USD$1000 in any supported cryptocurrency must not ever result in a borrowed amount of USD$750 in any supported cryptocurrency. (Liquidation Factor of 75%)

The above example shows how far away from liquidation this account is. It also shows that if the borrow balance reaches $2.62K, liquidation will occur. It is wise to keep the Supply/Borrow ratio below the limits. It is a wiser move to keep it relatively low during periods when you are unable to monitor fluctuations. Especially when sleeping or on a long haul flight.

Ola How?

How will liquidation be performed when it unfortunately occurs?

Before we discuss about how it’s going to affect your deposited/loan amounts, let’s understand more about what scenarios will bring the account to a liquidation phase.

  1. USD value of the supplied asset falls and/or;
  2. USD value of the borrowed asset increases.

When liquidation occurs, it will take effect on 50% of the borrowed cryptocurrency in terms of USD as well as reduce the deposited amount by the same rate + a % determined by the Liquidation Incentive.

Let me make it easy to understand.

Say we supplied USD$1000 in $BUSD and took out a loan of USD$700 in $BNB. Maximum Collateral Factor achieved here and we are only 5% from being liquidated.

When the value of borrowed $BNB become USD$750, liquidation occurs.

The protocol will consume 50% of your borrowed $BNB equivalent to USD$375. And liquidate your $BUSD holdings similarly at USD$375 + USD$37.50 (Liquidation Incentive).

At the end of the process, the amount supplied becomes USD$587.50 in $BUSD with a loan of $BNB valued at USD$375. (Approx. 63% Collateral Factor after liquidation)

If you look at it from another angle, the original USD$1000 deposited has become USD$962.50 in assets due to liquidation. It’s a loss for sure. But it isn’t as damaging as one would imagine.

Now at this point in time, if you are still confused, just remember just one tip.

Just watch the Liquidation Limit and don’t let it go all the way to the right side or hit 75% and you will be fine.

Ola Strategies

Single Stake, No Lending

The safest and totally liquidation-free method would just be to supply to Ola and earn the APYs advertised on the DApp.

Ola provides good options for single token deposits like single $BTCB, $BNB, $ETH and stablecoins that isn’t typically found in most of the DeFi space. Obviously APYs aren’t something to write home about but hey, compared to the fixed deposit rates at your local bank, Ola is a much better alternative to park funds.

The downside to doing this is APY rates fluctuate quite often and there are times where it is much better off depositing your tokens in other pools with stable yields over time.

An example would be $BANANA. If you intend to use $BANANA to single stake on Ola without borrowing against it, it may not yield as much as just staking it at ApeSwap over a period of time. I have seen APY lows of 20+% up to highs of 200+% for supplying $BANANA.

I started the same way too. Supplied some assets and watched it grow. But it didn’t last long before I moved onto the next strat.

Stacking Supply/Borrow

One of the famous apes in ApeSwap shared this strat that he was employing on GrowthDeFi. The idea was simple;

  1. Supply an asset like $BANANA
  2. Borrow as much stablecoin as possible
  3. Swap it for more $BANANA and resupply it
  4. Repeat steps 1–3 above until the Collateral Factor reaches a number you are comfortable enough to manage

This is still viable today on Ola and I won’t be surprised folks are employing this strat. Of course, always watch that Liquidation Limit closely. Personally, I’ve tried this and the only gripe I’ve had is the number of transactions (and gas) I have to pay in order to keep repeating the same thing over and over as I am going in and when I am unravelling the strat.

So in the end, I’ve ended up with my current strategy which gives me flexibility in not having to monitor my Liquidation Limits so often and also reducing my risk in market volatility.

My Current Strategy

Same screenshot as before. This is my account where I supplied $BANANA and took out $BUSD as a loan.

In theory, I can take out a bigger loan but because of the fact that due to my occupation and real life commitments, I might not be able to monitor my balances often and so I chose to “play it safe” and stay around half of the Collateral Limit of 70% for $BUSD.

As you can see, my net APY is still a healthy 139% and with the $BUSD borrowed I can further increase my gains by making it churn more rewards. In this case, I have used it to stake at https://elephant.money/

Elephant is a partially collaterized stablecoin protocol denoted by the ticker $TRUNK. It gives a healthy 74% APR and all the user needs to do is to mint $TRUNK using $BUSD at a 1:1 rate.

Redemption of $TRUNK returns 75% in $BUSD and 25% in $ELEPHANT, their native token. Or alternatively, you can just sell $TRUNK to $BUSD on DEXes where liquidity is locked in, such as PancakeSwap.

This current method I am employing isn’t very aggressive in any sense at all. Volatility and risk depends only on the price of $BANANA and everything else is a form of stablecoin. But overall, it yields me more than what I could get staking $BANANA itself on any pool, anywhere with a bit of commitment that I at least check the prices of $BANANA or my Liquidation Limit occasionally.

Of course, customary disclaimer now after all that you have read above. I am not a financial advisor but I am like you, trying to make the best out of what I have. It seems to be working out well for me and I hope it can help you too!

Rainmaker Program

For folks who have done any form of borrowing on Ola, there is an additional reward called the Rainmaker where you can access in the Profile tab.

As long as there is a borrow against supplied assets, there is a constant “airdrop” of $BANANA that you can claim. So don’t forget to collect occasionally. Essentially, free money. 😂

Benefits for ApeSwap

Taking the numbers from ApeSwap’s article. 27% of fees collected from Ola will be utilized for a buyback and burn of $BANANA, deflating supply and promoting stronger value for the token.

If history serves me well, the ApeSwap developers will occasionally utilize the Treasury for further burns as well. It isn’t guaranteed but there is a possibility, especially during special occasions.

Thus, the higher the TVL for Ola, the more impact it has to controlling the circulating supply for ApeSwap native token — $BANANA. At the time of this writing, Ola has grown tremendously to more than $50Million in TVL, proving that there is heavy demand by users to leverage a Lending protocol to maximise DeFi gains.

Closing Thoughts…

I didn’t write this to convince anyone to unstake everything and move to Ola.

Personally, if you are happy with where you are at and doing what you are doing now. Feel free to remain as you are but walk away with the additional knowledge you have gained today.

There are folks who stake and forget and come back to it months later. If you are one of those people, my advice to you is to stay away from lending/borrowing.

If you feel you want to just supply without borrowing, I would advise the same too.

Lending protocols like Ola work optimally with these 2 conditions:

  1. You can monitor it often. The closer you are to the Collateral Limit, the more often you have to watch the situation.
  2. Have a plan to borrow an asset and make it work for more returns. Just supplying and not borrowing is feasible but I feel playing both sides is a must to get the best out of lending protocols.

Before I wrap up, I would also like to share with you that the term “liquidation” isn’t as scary as you may think. You dont lose everything and on Ola, it’s likely to be a 12.5% impact to the principal in terms of USD value.

If you are just starting out, play small. Get the habits in place such as checking before bed and once you are more comfortable, you might find yourself adding more. (Just like me)

Stay safe and stay tuned for Treasury Bills coming out in March 2022!

JP

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
jpmoregain

jpmoregain

113 Followers

CryptoWriter. Community moderator for ApeSwap & ApeRocket. Interested in DeFi platforms and always learning NFTs. Believe in Health > Wealth for me and you.