Pools & APY
Passive lending on Gearbox Protocol.
Non-custodial. No impermanent loss. Isolated. Organic rates. No liquidations.
Earning with Gearbox is as simple as lending on Compound or Aave. Next to that, pools are semi-isolated. Lend liquidity in the asset you choose and start earning APY! No impermanent loss.
With Gearbox's Credit Accounts, your assets never end up in custody of any one person or company. They are held on an isolated smart contract after they are borrowed.
The asset you lend to the protocol woulв be utilized, aka borrowed for leverage, by traders & farmers who сould be actively rebalancing their positions. As borrowers, they will be required by the protocol to pay different fees which accrue to the underlying pools of those assets, dTokens.
The positions which traders and farmers take should be liquidated by third-party liquidators before the assets of liquidity providers would start being exposed to the downside. As such, the protocol returns the liquidity providers’ assets. This is how Gearbox is able to provide composable leverage.
Because Gearbox architecture is modular, there can exist multiple pools for the same asset. Each pool would then be isolated from one another and can have different AllowedList.
Pool tokens: (staked) Diesel Tokens
Gearbox lending pools are ERC-4626.
When you supply capital to a pool, you get Diesel Tokens, also known as dTokens. These tokens automatically earn interest & fees proportional to your share of the pool like cTokens on Compound or Yearn LP tokens. You don’t need to claim interest or perform any other actions, your Diesel Tokens grow in value over time. This is if the pool doesn't suffer losses from bad liquidations or hacks.
As for the GEAR or any other extra token yields, those are accruing to your staked dTokens too, but you need to claim them. How often? - That's up to you to decide. Simply click on the rewards tab in the top right corner of the interface or do it onchain yourself.
Getting Diesel tokens is super easy, you can try it out by supplying liquidity to Gearbox Protocol.
pageDashboard: How to EarndTokens and staked sdTokens
| Asset | Contract Address |
|---|---|
dWETH (ETH) | |
dUSDC | |
dWBTC | |
sdWETH | |
sdUSDC | |
sdWBTC |
Where does the yield come from?
The yield comes from multiple sources:
Borrowers pay rates according to the regular utilization curve (explained below). The more the liquidity in the pools is utilized, the higher the rate. This is similar to other lending protocols.
Borrowers pay extra rates according to gauges (see in Protocol Fees). These rates can be configured by GEAR stakers and vary from epoch to epoch.
Any extra rewards in the form of GEAR or other tokens that are being available.
1. Two-Tick Utilization Curve
Capital is required for traders and farmers to get leverage for their financial operations. For this, there are Liquidity Pools: anyone can become a liquidity provider by supplying assets in the Liquidity Pool. The profitability of LPs depends on the pool utilization ratio U - the higher utilization, the higher interest rate. Borrow APY is calculated according to formula:
Previously, when a new Credit Account was opened or closed to utilization 1-tick, the rates would skyrocket or drop instantly. That is because the state of the curve was either cheap to borrow or insanely expensive to borrow. That made decision-making for both users confusing. With the new model which is two-tick, it introduces three states essentially: cheap to borrow, high but acceptable rate for borrowing, and insanely expensive to borrow.
| Asset pool | r_0 | r_1 | r_2 | r_3 | U_1 | U_2 |
|---|---|---|---|---|---|---|
USDC | 0 | 1 | 1.25 | 100 | 70 | 90 |
ETH | 0 | 2 | 2.5 | 60 | 70 | 90 |
WBTC | 0 | 2 | 2.5 | 60 | 70 | 90 |
2. Gauge Extra Rates
The above was the only source of organic yield previously. With V3, there are also Gauges. They establish extra interest rates on top of the regular ones. Then those are shared between passive lending pools (thus making APYs higher) as well as the DAO. See more in:
pageProtocol Fees3. Extra GEAR rewards
Check the interface for the latest information. Those are accruing to your staked dTokens too, but you need to claim them. How often? - That's up to you to decide. Simply click on the rewards tab in the top right corner of the interface or do it onchain yourself.
Future: Alpha Pools [Inherited]
V3 brings an extra logic possible with passive pools: inherited, or alpha, pools.
This helps isolate risks without fragmenting liquidity. The extra APY in the Alpha pool would be at minimum (as a rule) the base APY of the Main pool + base APY of the Alpha pool + the extra fees taken from the quotas. As such, Alpha pools will earn the minimum of the Main pool + extra.
Those pools are not separately isolated, but are rather "built on top" of an existing pool. With the use of Alpha pools, passive lenders of the Main pool would be able to opt-in to passive lend into these as well. Therefore, Alpha pools can have their liquidity work in two places at the same time. That is due to the fact that Alpha pool liquidity, if not utilized, is used in the Main pool it's essentially attached to.
In the future, there can be Pool N or other pools like the Alpha pool… modularity doesn’t have to stop. This modularity overall helps granularize risks while allowing for growth. Such a pool setup doesn’t fractionalize liquidity which is also quite important for lending-like protocols.
There are also things like max borrow limit, pool limits - for different Credit Managers. Check the AllowedList Policy page for the links to understand this better. Alternatively, the interface shows this information as well, in a minimalistic way. See the explanation.
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