Market Neutral Yield Farming (Dual Asset Borrow)

It is structurally very similar to the Market Neutral Yield Farming (Single Asset Borrow) described above. The main difference being that instead of depositing a portion of the initial capital into a money market to borrow a single token, we deposit 100% of the initial capital into the money market to borrow two tokens.

This allows the end user to use their BTC, ETH or USDC to yield farm two entirely different assets (eg. Use BTC to farm USDC-FTM). This structure completely preserves the value of the initial capital (eg. BTC) as it is deposited into a money market as collateral for the loan. The net result is that our yield farms are likely to materially outperform comparable results in the market; specifically outperforming the yield people can earn by simply depositing BTC into a money market such as Aave.

The benefit of the DeFi money markets is that (subject to market conditions), you will often get paid to take a loan. This means that the end user will often generate a higher APR to lend assets (collateral) to the Money Markets than the APR cost to borrow the assets required to farm. In turn resulting in a positive APR before even starting to yield farm. Then the borrowed assets are deposited into a yield farm to earn even more yield. While this is not always the case, it is frequent for money markets to provide their native token in an amount to at least subsidize the cost of the loan (particularly with respect to the money markets of Geist & Scream on Fantom).

The dual asset borrow farms are highly appealing as they may provide an outsized return on assets which are not typically high yielding (BTC & ETH). However due to the fact we are using 100% of the initial capital as collateral to borrow 2 assets, there is less capital efficiency as compared to the single asset borrow structure. Under the single asset borrow structure you may end up with up to 66% of the value of your initial capital deposited into a yield farming position (this may be lowered for greater conservatism). With the dual asset borrow, after depositing the capital into the money market and taking the loan, you may end up with ~50% of the value of your initial capital being deployed into the yield farm.

Both structures result in a lower return on capital than the headline APRs stated on the yield farm DEXs themselves (eg. Liquid Driver). However, the trade-off is, we have established a market neutral position which by and large preserves the end users capital regardless of the changes in the price of the underlying tokens being farmed.