How does USDaf generate yield?
How does USDaf generate yield?
USDaf is built with a two-token model: USDaf for transactions and sUSDaf (staked USDaf) for earning yield. USDaf alone doesn’t generate yield, but is used for transacting or providing liquidity.
Users can stake USDaf into the stability pool, receiving sUSDaf in return. Yield is primarily generated from interest paid by those borrowing against SPOT, along with additional collateral from liquidations.
Users may also use USDaf in incentivized liquidity pools, allowing both liquidity providers (LPs) and sUSDaf holders to benefit from enhanced yield options under the two-token model.
Here’s where the yield trade-off comes into play, leading to higher rewards for both sUSDaf stakers and liquidity providers:
Users have two options with sUSDaf: To choose between staking their USDaf in the stability pool or providing liquidity in pools. 1 USDaf cannot be used in both at the same time, but users can split their USDaf stack across either, should they wish.
If a user stakes USDaf for sUSDaf, they forgo the liquidity pool rewards, leaving those rewards for the remaining liquidity providers. This creates a higher yield for LPs because fewer participants are sharing the pool rewards.
If a user provides liquidity, they sacrifice the opportunity to earn yield from the stability pool. As fewer users stake in the stability pool, the share of interest payments and liquidation collateral is spread across fewer sUSDaf holders, leading to higher individual yields.
This two-token model offers flexibility, but also creates a healthy tension between staking and liquidity provision, ensuring that both pools remain attractive by rewarding users based on their choices and the overall participation in each pool.
How does borrowing work?
Users can borrow against the fair market value (FMV) of their SPOT. Due to the mechanisms of SPOT’s enrichment and debasement, borrowing against SPOT remains highly stable. This structure also opens up arbitrage opportunities for more experienced users.
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