Fuse is an open interest rate protocol that allows users to lend and borrow digital assets. The protocol enables anyone to create and deploy their own lending and borrowing pool. Fuse protocol also allows users to choose their custom parameters and isolate particular kind of risk. Pool creators can choose all the peculiar parameters they want: interest rate curves, oracles, collateral factors.
Pool creators can make the pool public or private depending on the their preference. As of 31 of October 2021, there are 41 open Fuse Pools that have risk scores ranging from B to Unsafe.
The website provides an opportunity to use MetaMask Wallet and WalletConnect compatible Wallets.
In addition, an isolation feature of a pool means that sharp movements in one pools do not directly influence the performance of the other ones. Therefore, each pool should be treated as a separate investment vehicle by the users.
In comparison to Compound Finance, Cream and Aave, Fuse Pools provide significant opportunity to tailor DeFi asset returns to your specific risk-appetite and tastes.
In this article we also provide three strategies for your DeFi portfolio that utilize Aave and Uniswap. These strategies will be particularly profitable after Ethereum 2.0 introduces lower gas fees.
Choosing a Pool
First, You have to select the pool you want to lend or borrow. Once you select the pool that fits your choice of assets and parameters, you will be looking at a screen with two sides: Supply and Borrow. The Supply side shows assets that you can supply to a specific Fuse pool to earn interest, while the Borrow side shows assets that you can borrow from a specific Fuse pool.
First Strategy: Pool #46 + Uniswap
Our first strategy takes into account the Pool numbered 46 available at: Link. As this is an emerging pool it has relatively high risk in comparison to other pools. This provides an opportunity to earn interest on the collateral and farm RAI stablecoin on Uniswap.
First Step: Supplying Tokens
- Select the asset that you would like to supply. We suggest supplying all the available assets except RAI that we will further borrow and farm on the Uniswap.
- Enable permissions for the Fuse protocol to interact with your asset by confirming the Ethereum transaction. *This will cost gas.
- A new window will pop up on your screen displaying the current supply APY and it will adjust based on the amount you type in.
- Now that the token has been enabled and you have typed in your desired amount to lend -> click Supply. *This will cost gas. As you have supplied your first asset to Fuse pool 46, on your main dashboard, you will see Supply Balance populate with the equivalent amount (in dollars) to your newly supplied asset.
Besides, You will immediately receive an fToken that represents your share in the pool. So that when you withdraw, you will use fToken to redeem the underlying supply balance. To stress the point, You will only earn interest when the pool is utilized by borrowers.
Second Step: Borrowing Tokens
As you supply tokens, you open the opportunity to borrow assets in the same Fuse pool. This enables you to earn even higher return on your tokens.
For instance, if you supplied USD 10,000 ethereum, you can borrow up to USD 7,700 RAI stablecoin. Nevertheless, we recommend in case of a decline in price of the token to limit your exposure to volatile assets by borrowing well below the threshold.
Note: There is a large amount of risk when borrowing assets. You should do your own research before using this strategy.
- Select the asset that you would like to borrow. We recommend using stablecoin RAI. It is a fork of Maker’s Dao and a pure, decentralized alternative for DeFi.
- A new window will pop up on your screen displaying current borrow APY and it will adjust based on the amount you type in.
- Now that You have chosen the token and an amount to borrow -> click borrow. *This will cost gas.
Third Step: Uniswap RAI Farming
The Uniswap protocol is a peer-to-peer system for exchanging ERC-20 Tokens on Ethereum blockchain. For instance, in a stablecoin/stablecoin pair such as DAI/RAI a user may choose to allocate tokens to a price range. Therefore, as RAI is oversold or overbought our account provides necessary liquidity to the market to stabilize the price of the token and earn a commission.
To sum up, this strategy allows to earn interest on the supplied tokens and further leverage the collateral to earn commission on the stablecoin pair trading action at Uniswap. In this case, we not only benefit from the rising Ethereum price, but also from liquidity farming on Uniswap and trading action in our isolated Fuse Pool.
This strategy can yield up to 10-15% APY from Fuse Pools interest and Uniswap liquidity.
Second Strategy: Strategy 1 + Aave
In this strategy we propose similar strategy to the previous one, but swapping RAI for DAI or USD Coin to deposit on Aave. The deposit APY for these stablecoins are particularly high on Aave which will amplify our returns and risk.
To illustrate returns on this strategy consider borrowing only 50% of the available 77% on Ethereum. In this case, we could trade RAI for USD and obtain around 25% APY on the borrowed RAI. This would add 50%*25%=12.5% to our overall return on the strategy. In total that would constitute around 20-25% potential APY.
Third Strategy: Aave + Pool #64
The third strategy is the riskiest and encompasses depositing your available tokens on Aave and borrowing Uniswap Token that has variable 1.01% borrow APY.
As you borrow Uniswap you can deposit it to Fuse Pool number 64 with LTV of 69%.
Further you can borrow up to 69% of your deposited value of Uni Token in RAI. In turn, with the newly obtained RAI you can further reinvest in another Pool on the Rari Portal such as numbered 18. Which is one of the largest pools on the platform. Hence, there will be a large base for interest on RAI to accumulate. In total you would receive interest from both pools that would add up to around 15% APY, 10% in pool 46 and 5% in pool 64 assuming 50% LTV.
You could further diversify your exposure or increase risk by depositing tokens other Fuse Pools and/or trading on Uniswap.
The amount of flexibility and customization that Fuse protocol provides is tremendous. In this article we illustrated only 3 strategies that interacted with Uniswap and Aave that ranged in potential APY from 10 to 25%. To better accommodate your risk appetite we advise to conduct your own research to better mix and match Fuse protocols with available decentralized exchanges tools.