Our Degenbox Strategy for Velodrome LP Tokens

Abracadabra is coming to Optimism! For the past several months, we’ve been working with the Velodrome team to launch a set of cauldrons for Velodrome LP tokens. We are happy to announce that the first cauldron is ready for you all to use!

The Strategy

Let’s dive into our Degenbox Velodrome Strategy on Optimism, how it works and how our users can benefit from it! If you’ve never used Abracadabra before, please make sure to understand how our Lending Markets and Leveraged Positions work. More information can be found here.

Step 1: The Cauldrons

You can join the Velodrome OP/USDC Market (either by simply depositing LP tokens as collateral or by leveraging their positions). No matter what you choose, as long as you have a deposited LP balance, you will receive rewards from the strategy!

Step 2: Degenbox

The Velodrome OP/USDC cauldron is built on top of Degenbox. This allows borrowers to use LP tokens as collateral while still collecting a portion of their LP rewards. For this strategy, we are depositing the Velodrome OP/USDC LP tokens into Velodrome’s Farming contract, which will produce VELO rewards!

Step 3: Distributing Rewards

Every time the rewards are harvested, VELO tokens are sold and auto compounded into OP/USDC LP tokens. Note that a 30% cut is taken as a management fee, and treated as protocol revenue. Such management fee can be amended.

The obtained LP tokens are then redistributed to every Abracadabra user of the cauldron, proportionally to their deposited amount! Borrowers of this cauldron will be able to see their deposited collateral increase each time a harvest is called.

Withdrawing LP tokens

Our strategies keep approximately 90% of the LP tokens in Velodrome farming contracts, and 10% in Degenbox to allow users to withdraw at any time! As a consequence, large withdrawals may need to be done in small portions.

Once this limit approaches zero, new LP tokens are unstaked and withdrawals are again available! You can check the amount available to be withdrawn in the “My Open Position” box, under “Withdrawable Amount”.

Our Velodrome LP Tokens degenbox strategy is now live!

If you have any questions or have thoughts on what Optimism cauldron we should open next, join our Discord community here!

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