In the last few weeks, a couple of billion dollars in crypto asset value has been bridged over to the Polygon network. AAVE was the key catalyst for this after they started providing yield farming rewards for suppliers and borrowers. Within a few days, TVL on AAVE-Polygon rocketed to over a billion dollars. Crazy stuff.
Polygon/MATIC is a POS L2 sidechain that has stupidly low gas fees. A normal transaction costs around $.00001 cents versus $50-200 on Ethereum. It’s compatible with Metamask and requires little new knowledge to bridge over assets using their impressive bridge. I want to make a point that the bridge is stupidly easy to use and has the best UI/UX versus their competitors.
The key beneficiary of all of this was QuickSwap, a Uniswap clone. While there may not be much technical innovation added in their exchange, they’ve committed to a 4-year token incentive program for liquidity providers. Each week a new round of QUICK tokens is distributed to liquidity providers in proportional amounts shown below.
When I first discovered Quickswap, it was because of FRAX being added as a prime pool. The yields were high… like 500%+ APR for FRAX/FXS LP. It made total sense to move a big stack of LP over from ETH as the gas prices were booming at the time and also you just can’t turn down yields like that.
A problem I quickly ran into was that it was time-consuming to compound my LP stack. While transactions were cheap, it took a robotically long amount of time to claim QUICK, sell it, then buy more LP. All counting it would require 5-6 different transactions. While this only needed to be done 1 time a day, it was not optimal.
Thankfully, one of the great developers who was supporting the FRAX community had built an autocompounder already for FRAX/FXS on Ethereum. He ported the code over to MATIC, deployed it and Adamant Finance was born.
What is Adamant Finance
Adamant autocompounds your liquidity in various Polygon protocols, such as Sushi, Quickswap, Elk finance, and Polywhale. All of these platforms distribute rewards tokens for providing liquidity. Adamant’s smart contracts claim the rewards, then sell them for more LP tokens, growing your stack and compounding your returns over time.
One of the biggest reasons to use Adamant is that it compounds your returns several times a day. Pools with higher yields typically have high supply inflation. By converting half of the rewards to a safer asset, you can offset the token price changes.
For example, the KRILL/USDC pool is one of the highest yielding pools on Adamant. It’s earning around 7% day due to new supply entering circulation. If KRILL’s market cap stays equal, the price should drop by the same amount daily. By compounding with Adamant, you can keep your LP value relatively stable, while benefiting from the high rewards.
Adamant removes the slow, time-consuming mechanical aspect of doing the transactions yourself. You save time by having your funds in an automated smart contract that’s working for you constantly.
Even if you aren’t in a high-yielding pool, there’s a pretty massive difference between compounding monthly, weekly, and daily. As you start to approach continuous compounding the difference becomes minimal, but having the option to simple deposit and forget is momentous.
The ADDY token
One of the things that Adamant was missing in the beginning, was a token. Yield is great, but a governance token is necessary to vote on protocol changes, token emissions, and other various aspects connected to the core functioning of the application. A token is a necessary part of growth, it gives protocol users “skin in the game”. They benefit from the long-term growth of the protocol and creates incentives to attract new users and liquidity.
Before the ADDY token, LP deposits earned 100% of the profit generated from using the platform. Now, the Adamant protocol takes a 30% performance fee and instead distributes ADDY tokens in return.
The token design for Adamant comes from Bunny, which is a similar compounding protocol on Binance Smart Chain. Both tokens are emitted based on the amount of profit you earn from deposited yields. For every 1 ETH of profit generated through Adamant, 500 ADDY tokens are given as a reward.
So if you have a $100,000 position that’s earning $30,000 a month in interest, $10,000 of that is taken as the performance fee. With ETH at $4,000, this would mean you generate 2.5 ETH a month, or 1250 ADDY tokens. As long as the ADDY token is worth more than 500 per ETH when you sell it, then you’ll make a profit. Right now, the price of ADDY is $52 per ETH as of writing this, so the rate is around 76 ADDY per ETH. This would mean you would earn an extra $65,000 in ADDY tokens by staking with Adamant.
While the premiums on the ADDY price might seem high, it’s important to note that all the ADDY you earn is subject to a 3 month vesting period. During this time, you earn a portion of the protocol fees as QUICK, but you cannot sell.
If for some reason you want to claim ADDY early, then you have to take a 50% penalty. So if you earned the $65,000 as stated above in one month, if you wanted to claim early and sell, you would receive $32,500. This is still awesome returns.
The reason that the ADDY token has so much value right now is the expected growth of the protocol into the future. The price of ADDY is tied to two factors, the total amount of deposits and the income generated monthly. The more funds that are deposited into Adamant, the higher the revenues. This income is directly returned to vested, staked, and locked ADDY, generating a permanent future claim on income. It’s a great system.
If you believe in the long-term growth of the ADDY network, you can lock your ADDY for 3 months. The benefits of doing so are that you get a share of the protocol's income and, additionally, you earn all of the ADDY that was penalized from those who want to break the 3-month vest early. Since we are in the early stages of growth, locking ADDY might be the best way to secure a long-term return.
The strategies you pursue should conform to your own beliefs. If profit maximization in the short term is key, then claiming ADDY with the penalty and selling it for more LP is the best option. If you think that TVL on Adamant is only going to grow and it will become the largest autocompounder on MATIC (my personal view), then letting it vest for 3 months and then locking it up is the best route. The design of the tokenomics is great and should lead to a lot of game theory and strategizing behind how to maximize returns.
All in all, Adamant is a great project that evolved from the FRAX community and is set for hyper-growth. The only thing that I can say negatively about the project right now is that they do not yet have a formal audit, but this is in the works and will be complete most likely by the end of May.