Recommended User Actions

Selecting a Pool

Here are the step-by-step recommended user actions when selecting a pool:
  1. 1.
    Examine the pool performance by looking at 3 key metrics
  2. 2.
    Select a type of pool based on liquidity providing style and preference.

Examining Pool Performance

Regardless of pool types, there are 3 key metrics we recommend users to look at before deciding to provide liquidity onto the pool:

1. Pool’s Total Value Locked

Total Value Locked (TVL) refers to the total value of 2 assets within the pool locked in the smart contract of Uniswap V3. The higher the pool TVL, the less price impact or price slippage users would experience when providing liquidity on Homora V2. In addition, the less risk exposure to price manipulation.
Note: To ensure user security from price impact and price manipulation, all the pools listed on Homora V2 at the time of listing must have TVL greater than 5M USD and must sustain the TVL over 200k USD at all time; otherwise, the pools will be considered for delisting.

2. Pool Trading Volume

Trading volume refers to the total value of all swap transactions occurring within an AMM pool. The higher trading volume within the pool, the higher total fees collected earning higher liquidity providing APR.
Note1: All the pools listed on Homora V2 at the time of listing must have an average 24hr volume greater than 1M USD.
Note2: Homora V2 uses the historical data of 7-day trading volume to estimate the expected APR earned from liquidity providing/yield farming.

3. Borrowing interest of the asset

The final APY displayed on the Farm Pools page is achieved from
Leveraged APR = Leveraged liquidity providing trading fee APY + Yield farming APR - Borrowing APY.
Therefore, in a situation where borrowing interest of asset(s) exceeds the fees accrued to the LP position, the projected APY will be negative, meaning that user’s position will be at loss.

Selecting a Type of Pool

To select types of pools, we can classify the types of pools available on Homora V2 into 3 main categories
  1. 1.
    Volatile-volatile (e.g. WETH-WBTC)
  2. 2.
    Volatile-stable pool (e.g. WETH-USDC)
  3. 3.
    Stable-stable pool (e.g. USDC-USDT)

1. Volatile-volatile Pool

For users looking for a high-return investment but along with higher risk, you might consider providing liquidity onto volatile-volatile pool that tends to have a higher trading fee APR but comes at a higher risk of impermanent loss due to more exposure to asset price fluctuation.
Note: Impermanent loss depends on price movement between the asset pairs. This means that if both assets move in the correlated way (same direction at the similar rate), providing liquidity into volatile-volatile pool does not always imply a higher impermanent loss.

2. Volatile-stable Pool

For users who prefer limiting their exposure to volatile asset price movement to only one side, you might consider providing liquidity onto a volatile-stable pool.
Caution: Liquidity providers on the volatile-stable pools will experience more impermanent loss than in stable-stable pools and volatile-volatile pools if the volatile asset prices move in the correlated way.

3. Stable-stable Pool

For users looking to minimize impermanent loss as much as possible despite asset prices and market volatility, you might consider providing liquidity into a stable-stable pool that tends to have a slightly lower trading fee APR but ensure minimal loss of initial position.
Note: This statement assumes asset prices within the stable-stable coin pools are pegged and correlated with USD price, resulting in less LP price fluctuations. However, users should be aware of the general stable coin risk in DeFi as well e.g. price depegging, partial-backed asset reserve, etc .

Selecting a Leverage Level

Leverage level amplifies trading fee APR multiplicatively. However, a higher reward from leverage comes at a higher risk of impermanent loss when price moves. For example, a 2x leverage results in 2x trading fees earned with 2x impermanent loss.