Pickle Finance: profitable farming for stablecoins?

Updated 14 Sep. 2022 at 1h26

Pickle Finance wanted to create a DeFi protocol that generates high returns for its users, but is also easy to use. This is how the beginnings of the on-chain asset management protocol Pickle.Finance, commonly known as Pickle Finance, were born. This protocol offers farming which makes it possible to maintain stablecoins at parity. What about this ambitious and original project?

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Pickle Finance is a yield aggregator, which automatically offsets users’ positions as a liquidity provider across DApps like Sushi, Curve and Uniswap, saving them time and money (gas).

The PICKLE governance token can be stacked as a DILL (or PICKLE) to earn a share of protocol revenue and increase APY users.

Since its creation, Pickle Finance’s “pots” and “farms” have numbered in the hundreds. At the time of writing, Pickle Finance holds over $11 million in TVL (total value locked) with over 6400 users.

1663123717 600 Pickle Finance profitable farming for stablecoins

Pickle Finance may well be the new star of the decentralized finance (DeFi) space. Curiously, for a farming protocol, its value proposition is totally original.

Pickle aims encourage stable currencies to retain their value. Pickle was founded by 4 anonymous developers, the most active of which is BigBrainBriner.

Another feature of Pickle Finance is its swap functionality. Pickle has created automations to migrate liquidity between Uniswap’s stablecoin pools and even from SushiSwap to Uniswap.

This allows save gas and time to take advantage of changing incentives.

Yield farming, yield aggregator: what does Pickle Finance offer?

Thus, to understand Pickle Finance, you must first look at its product offering. Here are the essential products that make up the Pickle Finance offer:

PickleJars are the Pickle’s farming robots that go to work to win feedback on user deposits.

Next, the PickleFarm is the place to earn PICKLE tokens in the liquidity mining pools.

PickleStake represents the pool where users go to earn WETH by betting PICKLE tokens. This is the place to go when you’re ready to stake PICKLE tokens and earn WETH. However, to trade PICKLE tokens, the best place is still Uniswap.

PickleSwap is the platform where users go to trade and switch from one PickleJar to another.

Pickle Finance Home and Selection Page
Pickle Finance home and selection page.

Stablecoins that lose parity create instability and unpredictability in DeFi applications.

Pickle Finance is therefore an experimental protocol that aims to push stablecoins to their peg (parity) by providing farming incentives to pump or ditch one stablecoin for another.

Since its launch, Pickle Finance has covered four stablecoins: DAI, USDC, USDT, and sUSD. Incentives paid in a new token called PICKLE are paid out to those who hold liquidity in these stablecoin pools against ETH.

Pickle calls it elastic farming incentiveand it works as follows:

  • If the stablecoins are below the limit, then their pools receive more by PICKLE.
  • If the stablecoins are above parity, then their pools receive less by PICKLE.

The idea is that people sell stablecoins above the benchmark for stablecoins below the benchmark, causing their prices to approach parity for all pairs.

The final use case is when all stablecoins are above parity, in which case a pool of $PICKLE-$ETH would receive the most incentives.

There is no limit to the supply of PICKLE tokens, and PickleFarms are there to help reap PICKLE rewards. Different farms require different tokens, but the Uniswap 50:50 PICKLE/ETH pool is the main source of liquidity for PICKLE tokens.

Pickle Finance: what returns to expect?

The popularity of DeFi continues to grow. However, the founders of Pickle Finance have noticed that yield farming has not become easier.

They saw a lot of protocols offering generous returns, but they struggled to assess which were durable and trustworthy.

With all the “exit scams” ​​and outright hacks, they knew it was hard for newcomers to know which platforms they could trust.

It is in this spirit that Pickle Finance wanted to create a DeFi protocol that generates high returns for its usersbut also easy to use.

APY (compounded return) in DeFi projects is basic information that users should understand. Return is often shown on an annualized basis based on current conditions, even when those conditions are expected to change in the future.

With a boost of PICKLE rewards, the platform announces a maximum APY of 817% on one of its farming, extremely high return which is accompanied by very important risks.

Maximum APY offered by Pickle Finance
Maximum APY offered by Pickle Finance.

For example, the APY on the $PICKLE-$ETH pool is based on current returns of 5 PICKLE per block, although these rewards are expected to halve after a few days.

These yields are indeed very variable because rewards are a fixed amount of PICKLE per block, the variation of the total blocked value (TVL) may therefore affect it. If the TVL increases by 50% on this pool, the reward will be diluted inversely, i.e. by -33.3%.

This loss will, however, be offset by trading fees earned during the period, which will be based on trading volume, trading fees and your participation in the liquidity pool.

The best way to estimate return on investment (ROI) is to understand the investment, convert the APY to a more manageable time frame (daily return should work in most cases), and understand the different hypotheses for the evolution of the TVL and the rewards paid.

You may be able to model interest under various scenarios for each variable in the equation. As the average annual return is calculated as a linear function, dividing by 365 gives you a daily return, by 52 a weekly return and by 12 a monthly return.

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PICKLE: a yield token?

The PICKLE token is the incentive and governance token of Pickle Finance. Holding PICKLE gives the right to vote on proposals for improving Pickle.

Although there is no Decentralized Autonomous Organization (DAO) at the moment, there is an active community and core developers have already implemented many improvements.

Originally, Team Pickle’s plan was to hit 10 PICKLE per block and gradually increase it to 1.25 PICKLE per block over a 4 week period, then 1 PICKLE per block thereafter with a progressive division of the reward.

Instead, at PIP-5, PICKLEs were to decrease by 10% each week after the first four weeks, until the end of the first year. Then, a state of equilibrium would be reached with an annualized inflation of 1.29%. Of course, governance could alter these incentives again.

In addition to its instigating role, the development team is building pVaults.

These vaults are intended to use flash loans to leverage and arbitrate stablecoins to create additional pressure to bring them to their peg while generating returns that will be distributed in PICKLE. According to the team, this would give a more “core” value to the token.

Following the fall of the cryptocurrency market and a hack of the Pickle platform, the token is under pressure leading to a sharp decline of his course:

PICKLE quote in USDT from September 14, 2021 to September 14, 2022 according to Coinmarketcap
PICKLE quote in USDT from September 14, 2021 to September 14, 2022 according to Coinmarketcap.

Besides farming PICKLE, users can purchase the token from secondary markets. Since PICKLE is an ERC-20 standard token minted on Ethereum, it can be held in any wallet that supports custom contracts like MetaMask, Trust Wallet, Pillar, Torus, and Portis.

Most of these wallets can be secured with a hardware wallet like a Ledger.

Pickle is probably the most interesting “farming project” of the moment, with a refreshing approach and great speed of execution. Of course, there are risks in DeFi, and Pickle is no exception, with anonymous developers and unverified contracts.

Still, Pickle is not a fork, nor a clone, and he’s not tackling a high-profile venture capital project. Although the tokenomics model must mature for the project to become a mainstay of DeFitheir original model and for the moment efficient remains very interesting.

1663123718 528 Pickle Finance profitable farming for stablecoins

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Pickle Finance: profitable farming for stablecoins?

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