DeFi Voyager
I'm a big fan of Frax Finance, and I've delved into the topic of optimal storage for my tokens.
Naturally, I want to have my FXS as cvxFXS to earn additional income from ConvexFinance
I'm not a whale, and I'm concerned about optimizing fees.
It's pointless for me to stake my tokens directly on Convex since I'd spend all my rewards on fees when claiming them.
So, I explored ways to stake with autocompound, allowing my rewards to automatically convert into even more cvxFXS tokens.
Despite the popularity of Frax Finance & Convex Finance, there aren't many places to stake tokens with autocompound.
At the time of writing this article, I documented the yield of protocols where cvxFXS can be staked, using the yield on Convex as a benchmark (the yield on Convex is without autocompound):
ConvexFinance vAPR 10.48%
beefyfinance APR 9.52%, TVL 1.09M
LlamaAirforce APR 10.53%, TVL 2.7M
Concentrator APR 10.37%, TVL 344K
Performance fee: 9.5%
Withdrawal fee: 0.01%
Beefy has the highest fee, but they distribute a portion of it among their BIFI token holders and allocate another portion to the protocol's treasury and operational expenses, for which they have an impressive level of transparency through detailed reports.
Fee on Yield: 3.50%
Caller incentive: 1%
Withdrawal fee: 0.25%
What stands out here the most is the significant withdrawal fee, which is a percentage of your entire deposit that will be charged when you withdraw your funds.
At first glance, such a fee might seem like a major downside.
However, firstly, it's a very effective protection against whales who might jump into the pool right before compounding and then leave immediately, taking a large portion of the rewards without any consequences.
Secondly, this fee is distributed among those who remain in the pool, serving as additional income for long-term stakers.
Harvest fee: 2%
Treasury fee: 5%
Currently, their cvxFXS product is in beta status, and in the future, the Treasury fee will be increased to 10%.
The project's documentation is a complete mess with outdated information, so I had to delve into their Discord for clarity, thankfully they have one, unlike Llama Airforce.
In reality, the fees turned out to be higher than what's stated in the documentation.
Fees aren't the main concern when it comes to transactions on Ethereum.
If your compounding service harvests too frequently and regardless of the gwei price, you might lose a significant portion of your earnings due to transaction costs. So now we need to figure out how the compound contracts of our protocols work.
Information from their documentation:
"As transaction fees on Ethereum are expensive, Beefy has introduced a few rules that determine the vault's harvesting frequency.
Vault TVL is above $100k: vault will be harvested every 3 days.
Vault TVL is below $100k but above $10k: vault will be harvested every 15 days.
Vault TVL is below $10k: community harvest. Community harvest implies that the harvest function on the strategy contract has to be manually called, and the transaction fees for doing so will not be subsidized by Beefy. Another rule watches the gas prices on Ethereum. If maxGasPrice is 20 GWei or more, harvests will not be executed as they will become too expensive. This is regardless of a vault's TVL."
Complete detailed transparency in the documentation and it seems to be the most optimal compounding strategy.
I couldn't find a detailed description of how the compounding strategy works and what events might trigger it.
It seems that their strategy is initiated after the rewards are credited as an airdrop from Votium Protocol.
"The airdrop of rewards is a two-step process. First, Votium needs to distribute the rewards. After that, we start our part of the process. So, in short, the airdrop will happen "soon", usually around Wednesday."
From my own experience, I can say that I've seen my tokens increase in value approximately every couple of days.
I couldn't find anything in the documentation, so I studied the contracts and still couldn't figure it out, so I went back to AladdinDAO Discord.
Comment from AlladinDAO admin: "Your assets deposited in the compounder will produce rewards over time. When unharvested rewards exceed the gas consumed by the reinvest process, a whitelisted address can undergo the harvest process to attain assets interests autocompounding."
As you can see, the project doesn't put much effort into documentation and transparency about the protocol's operation for its users.
Pros
Documentation transparency
Weekly and quarterly reports
Optimized compounder
Cons
Higher fees than its competitors
Withdrawal fee is too low - there is a high possibility of manipulations with fees from whales.
For most of its vaults, Beefy has a manipulation protection feature called "harvest on deposit," but it's disabled for Ethereum vaults. I've asked about it in their Discord and there is an answer: "None of the vaults on Ethereum have high enough yields where it would be a noticeable difference in yields since vaults are compounded somewhat regularly"
Pros
Low fees
The documentation isn't very detailed and mostly dedicated to CVX & CRV vaults
Lack of support
Not long ago, I encountered a glitch on the website and couldn't find their Discord or any channel to contact support. I had to go to o to @0xAlunara's Twitter comments and ask for help (his DM was closed).
Pros
The project has great strategies for LPs, but as a vault for staking FXS, they offer nothing appealing.
Cons
Complete chaos (or deception ?) in the documentation. In their documentation, it's mentioned that all their vaults have withdrawal fees.
However, in their Discord, I was informed that this fee has been revoked. Given this, it's unclear how they protect their users from reward manipulations.
It seems that their defense is that it's damn hard to understand how everything works there and when rewards are distributed.
When the protocol has issues with transparency regarding fees or security, it's a red flag for me.
So, I don't understand how Concentrator shows the same profitability as Llama Airforce, considering that Concentrator's fees are almost twice as high.
Llama Airforce seems to be the favorite in this analysis, although I'm very concerned about the lack of support. I don't really understand who is behind this project and whom to complain to if something goes wrong. Again, in the comments on Twitter? That's not serious.
Beefy appears to be the most transparent to its users. They have a strong community, social media presence, and governance. They have a long and not-so-simple history of survival in the DeFi industry. They provide detailed, up-to-date documentation and comprehensive reports.
This is a case where, by paying higher fees, you get a good night's sleep.