The Definitive Algofi Guide
The Definitive Algofi Guide
Learn the ins and outs of Algorand’s DeFi hub!
Disclaimer: This isn’t financial advice! As we say in crypto, don’t trust – VERIFY! Do your own research and don’t ever invest more than you’re willing to lose. Like any DeFi project, Algofi comes with risks. The project can fail, smart contracts can be hacked, assets could be compromised, users can be liquidated, oracles may provide inaccurate information, etc. You can learn more about the risks associated with using Algofi here.
Be safe out there and make sure you do enough research before you decide if Algofi is right for you.
Welcome back to the club, gov!
We have an exciting one for you today. Algofi launched their Decentralized Exchange (DEX) on Monday with a full suite of new features including liquidity pools, yield farming, instant zaps, and more robust account & analytics tracking. We spent hours learning the ins and outs of the protocol to create this definitive guide in which we’ll cover what Algofi is, its risks, and how to navigate the UI and features like a pro.
To make this guide easier to navigate, we’ve included a table of contents so you can choose where to start:
What is Algofi?
How to Lend & Borrow
How to Swap, Provide Liquidity, & Farm
How to Zap
How to Stake STBL
How to Migrate LP Tokens From Tinyman to Algofi
How to Navigate Analytics
How to Navigate your Account
There’s a lot to cover, so let’s get started.
What is Algofi?
Put simply, Algofi is a one-stop DeFi shop with a full suite of products powered by the Algorand Virtual Machine (AVM) including a Decentralized Exchange (DEX), crypto lending market, stablecoin (STBL) and enhanced analytics. With the release of their DEX on 2/21, users can now swap assets, use instant zaps, and provide & farm liquidity directly on Algofi.
Gov Tip: If you want to learn more about virtual machines, check out this glossary entry from Binance academy. You can also learn more about the Algorand Virtual Machine from official developer documentation here.
The Algofi DEX has the potential to be a true game-changer for Algorand’s DeFi ecosystem due to three key features:
Composability: Users will be able to aggregate multiple swap trades into a single group transaction with one click (i.e. instant zaps). This will enable more arbitrage trading (i.e. triangle trading) and smart order routing (i.e. Uniswap’s Auto Router).
Gov Tip: If you need help understanding arbitrage trading & triangle trading check out this explainer from Algopulse.
Flash Loans: Users will be able to take loans of assets & pay back the loan within the same transaction. This benefits both arbitrage traders via stable prices and liquidity providers via additional fees. Algofi’s vision is this will provide the fairest pricing on Algorand once its launched later this year (tentatively scheduled for June).
Multiple Fee Tiers: Instead of a static fee level of 0.3% for all liquidity pools (LPs) like on Tinyman, users will be able to set other fee levels (i.e. 1%). This feature enables new & smaller projects to incentivize Liquidity Providers (LPers) to stake in their pool for higher rewards.
In terms of additional future plans this year, Algofi plans to release a StableSwap product (named NanoSwap), an update to their lending protocol, and a Governance structure & token (named BANK). Let’s break this down further, starting with NanoSwap.
NanoSwap: With the number of stablecoins on Algorand growing, a big pain point for users has been the lack of a constant 1:1 exchange between them (i.e. 1 USDC = 1 STBL) and the unnecessary amounts of slippage that occurs when swapping between them. To solve this, Algofi is releasing NanoSwap to stabilize these pairings by charging ⅙ the fees (0.05%) and reducing the slippage across stable swaps. The team estimates this will reduce transaction costs by about 100% and provide the cheapest place to trade stablecoins on Algorand.
V2 Lending Protocol: Algofi will rollout updates to their lending protocol in June of this year to add many exciting features such as AVM, Ledger, & Governance support as well as enhanced security, interoperability with their DEX, and the flash loan features mentioned earlier. By integrating all of these features across their DEX and lending protocol, users will be able to deposit collateral & get max leverage all in one-click (via instant zaps). Pretty cool, right?
Gov Tip: Learn more about flash loans from the official Algofi documentation.
Governance: The BANK token will allow users to vote on how they would like the platform to evolve, tentatively set to launch in September of this year after the Algofi team launches all of the new tech and features we just discussed. Due to regulations, the team can’t provide details on how BANK will be distributed, but they have hinted that early adopters will be rewarded for their loyalty to the protocol.
Algofi has been awarded 2 million ALGO to distribute to users through their partnership with the Algorand Foundation and the Aeneas Liquidity Program. Over the next three months, users will earn a majority of the ALGO rewards (1.8MM out of the 2MM) when they borrow, lend, and provide & farm liquidity. The other 200K ALGOs will be distributed to early adopters of the Algofi platform via a retroactive airdrop. The exact methodology will be released on Monday, 2/28/22.
Gov Tip: You can learn more about the Aeneas Liquidity Program here.
What are the risks associated with Algofi?
Before we dive into the guide, we want to review the key risks involved with using a protocol like Algofi by reviewing what their team laid out directly from their official documentation as well as some extra commentary now that there are additional risks to consider:
Smart contract failure: Despite undergoing a full audit and rigorous internal quality assurance, there is a chance of smart contract failure.
Liquidity Risk: Users who fail to maintain their collateral must be liquidated. You can learn more about Algofi’s liquidation methodology here.
Oracle Risk: There is the risk that the oracles used by the Algofi protocol provide incorrect or stale data.
Slippage: Slippage occurs when a trade settles for an average price that is different than what was initially requested, and it often happens when there's not enough liquidity to complete your order or the market is volatile. This leads to the final order price changing.
Impermanent Loss: When you provide liquidity to a LP and the price of your deposited assets changes compared to when you deposited them, you can experience impermanent loss. The LP is programmed to maintain a constant value between two tokens, so arbitrage traders will use the pool to swap the two tokens until the necessary constant value is achieved.
This is an important concept to grasp, and we highly recommend you do a deep dive into impermanent loss before becoming a liquidity provider. We recommend this video and article from Binance Academy as a starting point.
If you’re still interested in using Algofi (after assessing your risk tolerance), please proceed with our guide below!
Algofi Definitive Guide
Algofi has one of the smoothest UIs in the ecosystem, so learning to navigate the protocol should be fairly intuitive! To make sure you understand all the ins and outs of the protocol, we’ll guide you through a working example provided by Owen from Algofi:
Our guide will show you two different ways to do all of these steps on Algofi. Let’s start with the first step: lending & borrowing ALGO and STBL.
Gov Tip: Remember this isn’t financial advice and is being used to showcase all of Algofi’s features.
How to Lend & Borrow
Step 1: Connect Wallet
Login to Algofi by using the ‘Connect Wallet’ button in the top right corner.
Step 2: Select ALGO From the Asset List
Once connected, scroll down to the ‘Asset’ section and select which asset you’d like to supply. As mentioned, we’ll be supplying ALGO:
Step 3: Supply ALGO
From this screen you can enter the amount you’d like to supply in the aptly titled, “Amount to supply” bar. When you’re ready, click ‘Supply ALGO’ to continue:
Gov tip: your available balance is displayed below the ‘Supply ALGO’ bar in case you need a reminder without having to leave this screen.
Warning: When you supply ALGO on platforms like Algofi, remember the asset will be removed from your wallet. This is important for those who don’t have a separate DeFi wallet as you can put yourself at risk of being ineligible for Governance rewards if you lend ALGOs you already committed to governance.
If you did everything correctly, the ALGO you’ve lent will be displayed at the top of the Lend page:
Step 4: Borrow STBL
The process to borrow is fairly similar to lending, so this should be easy to pick up. First choose the asset (i.e. STBL) you’d like to borrow and then click ‘Borrow’ in the top right of the pop up menu:
Enter the amount you’d like to borrow, select ‘Borrow STBL’, confirm the transaction, and that amount will be sent to your wallet.
That’s it! Easy, right?
Gov Tip: ‘Borrow Limit’ at the top of the menu will display the max you’re allowed to borrow (based on the amount you have lent). Under ‘Borrow ALGO’ you can also see how much you’ve borrowed thus far and the max additional amount you’re allowed to borrow.
Step 5 (Optional): Repay Loan & Withdraw Collateral
Let’s review how to repay a loan & withdraw your collateral in the event you need to. This market is volatile, and you need to know how to de-risk yourself quickly and without warning.
Gov Tip: To start this process, you will first need to repay your loan before you can withdraw your full collateral. Note: you will be able to withdraw a portion of your collateral without repayment based on your borrow utilization. However, this will increase your borrow utilization and put you at more of a risk.
First, select the asset you’d like to repay back from the Lend home screen:
As you can see, we’re quickly approaching 100% borrow utilization which would put us at risk of liquidation, so we need to move fast.
Make sure you’re toggled onto ‘Repay’ in the top right of the asset’s pop-up menu. In the event you want to completely de-risk yourself, make use of the ‘Max’ button to quickly populate the field. When ready select ‘Repay STBL’.
Once you’ve repaid your loan, you can withdraw your collateral by selecting it on the Lend home screen:
Then make sure you’ve selected ‘Withdraw’ and you make use of the ‘Max’ button if you’re in a rush to pull out all of your collateral. When you’re ready, select ‘Withdraw ALGO’ and sign the transaction with your wallet.
We recommend testing this out a few times in a low risk environment. You don’t want to be scrambling to learn how to do this in a moment when you need to move as fast as you can. Stay safe out there, gov.
An alternative solution is to simply add more collateral to lower your borrow utilization. We prefer to de-risk completely for peace of mind. The yields and rewards will still be there after the market stabilizes.
How to Swap, Provide Liquidity, & Farm
We’ve now supplied ALGO and borrowed STBL against it, and we’re ready to use that STBL loan to earn additional yield. To do this, we’ll need to swap 50% of our (loaned) STBL to ALGO so we can become a liquidity provider for the STBL-ALGO pool. Then we can yield farm our LP Tokens directly on Algofi to earn even more rewards.
But before we get too ahead of ourselves, let’s start with that swap!
Step 1: Set-Up Your Swap
To begin swapping, select the ‘Swap’ button from the menu.
Once there, set-up a swap between STBL & ALGO using the drop down menus. Next split your investment in half between the two assets to ensure you have equal value of both to provide to the liquidity pool. Select ‘Swap’ when you’re ready to continue:
You’ll know the swap is complete when you see this screen:
As you can see, the DEX is pretty easy to navigate around! Let’s provide liquidity next to get our LP tokens.
Step 2: Select the STBL-ALGO Liquidity Pool
Select ‘Pool’ from the menu:
Use the drop-down menus to select the STBL-ALGO pool and then input the amount you'd like to stake to the pool and select ‘Supply’. Then confirm and sign the transaction to receive your Liquidity Pool tokens:
We’re now earning rewards to supply, lend, and provide liquidity in addition to the participation rewards from the Aeneas Liquidity Program. We could stop here and call it a pretty good day for generating passive income, but we can actually earn more rewards by farming our LP Tokens directly on Algofi.
And the best part? Farming STBL-ALGO LP tokens produce the highest yield on Algofi!
Like everything else on Algofi, this is pretty simple to do, so let’s dive in.
Step 3: Stake Your STBL-ALGO LP Tokens
Select ‘Farm’ from the menu to continue. Then select ‘STBL-ALGO LP’ to expand the menu. Select ‘Opt-In Staking’ if you haven’t already opted-in. Once opted-in select ‘Max’ to auto populate the total amount of LP tokens you have, and then select ‘Stake’:
And we’re done! As you can see, Algofi is super easy to use. But let’s be honest. It took a lot of manual steps to implement Owen’s plan of attack, right?
What if we told you we could condense this process into four easy steps by taking advantage of the Zap features on Algofi? Through composability, the Zap feature enables us to group transactions together in a way that will allow us to go from our borrowed STBL position directly into the STBL-ALGO LP. So instead of having to use the DEX to split our position between STBL & ALGO and then provide liquidity to the LP manually, we can accomplish this in the click of a button.
Let’s take a look at how this works.
Gov Tip: If you’re unfamiliar with Zaps, the Algofi documentation has you covered. The guide below will also be a great reference on how this comes to life.
Warning: Note the Zap feature is still in Beta, so please proceed with caution as this feature is a bit more unstable than swapping & providing liquidity manually.
How to Zap
Step 1: Follow Steps 1 - 5 from the Lending & Borrowing guide above
Step 2: Zap!
After lending ALGO and borrowing STBL against it, navigate to ‘Zap’ instead of ‘Swap’:
Set-up a Zap between STBL and STBL-ALGO LP using the drop down menus, and then input the total amount of STBL you borrowed from Step 1:
Then select ‘Send Zap Transaction’ and sign the transaction with your wallet to finalize:
In one click, we went from STBL directly into the STBL-ALGO LP. How cool is that, gov?
Step 3: Stake Your STBL-ALGO LP Tokens
Navigate to ‘Farm’ from the menu, select ‘STBL-ALGO LP’, and then ‘Opt-In Staking’. Once opted-in select ‘Max’ to auto populate the total amount of LP tokens you have, and then select ‘Stake’:
And we’re done! Zapping is a true game-changer, taking out a lot of the manual work & amount of time / effort that is still required on other DEXs in the Algorand ecosystem. We can’t wait to see how this feature evolves alongside Algofi.
That wraps up the main portion of this guide. However, there are few additional actions & features we’d like to cover.
How to Stake STBL
If you have any leftover STBL or you simply want an investment option that is less risky, you can take advantage of Algofi’s ‘Stake’ feature for STBL.
All you need to do is navigate to the ‘Stake’ homepage, opt-in to staking, and then enter the amount you’d like to stake:
How to Migrate LP Tokens From Tinyman to Algofi
For those of you who provided liquidity to the STBL-USDC LP on Tinyman, now would be a good time to migrate that over to Algofi as the team plans to sunset that particular LP on Tinyman.
To begin, unstake your Tinyman STBL-USDC LP Tokens from the ‘Farm’ home screen by selecting ‘Unstake’. As always, make use of the ‘Max’ button and then select ‘Unstake’.
Navigate to Tinyman’s ‘Pool’ homepage and select ‘Manage’:
On the following screen, select ‘Remove’:
Select ‘Max’ to remove your full stake and then select ‘Remove’ when you’re ready. Sign the transaction with your wallet, and once finalized don’t forget to redeem your excess stablecoins:
Navigate back to Algofi’s ‘Pool’ screen and set-up a stake to the USDC-STBL Pool:
Select ‘Supply’, sign the transaction, and then navigate to Algofi’s ‘Farm’ page. Once there, select the Algofi USDC-STBL pool, opt-in to staking, and then confirm your stake:
You’re rolling in rewards now!
Remove Liquidity from LP on Algofi
To remove liquidity from an Algofi LP, you must have your LP tokens in your wallet. After you have the tokens in your wallet, navigate to ‘Pool’, select ‘Remove’, and then choose the tokens you want to burn from the drop down menu:
Input the amount of tokens you’d like to burn and then select ‘Remove’ to begin the redemption of your assets:
On the following screen select ‘Send Burn Transaction’ and sign the transaction to complete the process.
How to Navigate Analytics
Algofi’s Analytics is a lot more robust after this latest update. Users can browse tokens, liquidity pools, transactions, and all the stats that go along with them:
And if you click into a pool, you can get more in-depth stats and even provide liquidity or swap (called ‘trade’ in this view):
How to Navigate Your Account
Algofi’s account overview section allows users to monitor the total value of their portfolio and the assets in it and keep track of their LPs, stakes, farms, and transaction history:
We wouldn’t be surprised to see the team build this out further to compete with the other portfolio aggregators within the ecosystem currently.
If you want more information on how to use Algofi and how the mechanics work on the backend, we highly recommend their official guide which is a wealth of information even if it can be a bit dense at times. The video guides in particular are a great resource if you find yourself stuck!
As always, thanks for stopping by the Club! Until next time, gov!