GARD Strategy Guide

Upgrade your GARD game with our strategies

Mar 30

Welcome back to the Club, gov!

As a promised follow-up to our GARD Protocol Explained post, we’re back with our GARD Strategy Guide to guarantee you’re ready to use the protocol like a pro when it launches on mainnet.

To make this easier to navigate, we’ve included a table of contents below:

GARD Protocol Refresher
Yield Strategies
Strategy Guide
Risks Review

If you’ve already read GARD Protocol Explained, feel free to skip directly to the Yield Strategies section.

Gov Tip: If you’d like to do more research on GARD, we recommend you review their whitepaper.

GARD Protocol Refresher

The GARD Protocol is a lending protocol that uses collateralized debt positions (CDP) to mint GARD, the protocol’s native stablecoin. In other words: users, dubbed ‘GARDians’, will need to lock their ALGOs in a smart contract to mint GARD.

Gov Tip: If you’re unfamiliar with collateralized debt positions, check out the section titled ‘What are collateralized debt positions (CDP)’ in this MakerDAO explainer from Binance Academy.

GARDians don’t forfeit the right to their Governance vote as they can still participate in voting directly on the GARD Protocol. However, fees that come with minting GARD mean users will need to strategize ways to obtain a higher APY than staking in Governance alone to make the process worth it.

GARD is an over-collateralized algorithmic stablecoin, so 1 GARD needs to be backed by $1.40 in ALGO or 140% of the value minted in ALGO. Once the ALGO is locked, users can mint GARD and the CDP will automatically set a liquidation threshold of 115%. When users fall below this threshold, part of their position will be liquidated and entered into a Dutch Auction. This mechanism exists to ensure GARD remains pegged to $1 USD.

There are two different types of fees on GARD:

Opening & Closing Fees: Users must pay a 2% fee to the protocol’s treasury when they mint GARD, and another 2% fee when they close their CDP.

Liquidation Fee: When users are liquidated, not only is the original GARD debt repaid to the treasury’s reserve, but an additional 20% of the remaining GARD balance is also paid to the reserve. The rest of the collateral (80%) is returned to the user that was liquidated.

Gov Tip: The initial opening and closing fees will be initialized to 2%; however, both fees can range from 0-3% and can be changed via vote by GARD’s DAO.

The protocol plans to work towards implementing a DAO-structure in which users will be able to leverage their governance token dubbed ‘GAIN’. GAIN holders will be able to vote on a variety of items such as fee revisions and feature updates while also receiving a portion of the protocol’s earnings.

The GAIN launch date hasn’t been confirmed; however, the GARD team is providing users with an incentive token named ‘GARDIAN’ that can be redeemed for GAIN on April 15, 2025.

Yield Strategies

To generate yield on their GARD, users can consider the following options:

Participate in the dutch auctions of liquidated assets on GARD and sell them for a profit

Swap GARD for ALGO, ASAs, or NFTs and sell them for a profit after price appreciation
- In other words, you’d be using GARD to go long on ALGO, ASAs, or NFTs

Swap GARD to assets that you can loan, stake, and farm across the ecosystem on protocols like Algofi, Tinyman, PactFi, Humble, Algostake, Yieldly, etc.

Gov Tip: There are likely opportunities not yet announced to provide liquidity for GARD across the ecosystem that GARDians can take advantage of in addition to the above.

Before you decide how to earn on your GARD, let’s review the main CDP strategies you should consider.

Strategy Guide

Now that you understand what the GARD Protocol is and how it works, let’s talk about how you can make GARD work for you by reviewing portfolio and risk management tactics as well as passive income strategies.

Portfolio Management

Before you get started on GARD, we’d recommend you determine how much of your ALGOs you will commit to Governance vs. DeFi. Ideally you’d have a decent amount of liquidity not locked into Governance in the event you need to add collateral and/or pay off your debt to lower your liquidation price. And of course to chase higher yields in the greater DeFi ecosystem.

Once you understand how much ALGO you want to have unlocked from Governance for DeFi and other investment opportunities (i.e. ASA & NFT trading), choosing your GARD strategy will become easier.

This is a personal preference, so we can’t give you too much guidance; however, a good starting point could be 80% Governance and 20% DeFi. Crunch your numbers and see if you want to commit more or less to Governance.

CDP Strategies

Once you figure out your portfolio split, you can begin to strategize on how to manage your CDP. You can either collateralize your Governance or DeFi stake, and from there you’ll consider three main CDP strategies:

Over-collateralized

Strategy: Deposit your Governance or DeFi stake into GARD and mint 20% or less against your position. By over-collateralizing yourself, you severely lower your risk of liquidation while still unlocking liquidity you wouldn’t have had otherwise.

Skill Level: DeFi beginners and experienced governors who want to exercise extreme caution with their Governance stake.

Risk Management: While the risk of a liquidation event is minimized with this strategy, safety isn’t fully guaranteed. Take note of your liquidation price, set alerts to warn you when you’re getting close to that price, and come up with a plan to avoid liquidation. Most importantly, practice that plan a few times so you’re not learning it while the market is crashing.

Under-collateralized

Strategy: Deposit your Governance or DeFi stake into GARD and mint the maximum (or close) amount of GARD you can against your position. While a liquidation event is higher with this strategy – especially under these current market conditions – you will be able to unlock a majority of your liquidity to use across the ecosystem to chase returns higher than the Governance APR.

Skill Level: DeFi pros who have a plan in place to achieve a return higher than staking in Governance alone. This includes trading ALGO, ASAs, or NFTs as well as staking / farming options across the ecosystem.

Risk Management: As you make a profit, add collateral to your CDP or begin to pay off your debt to lower your liquidation price. In the event you’re liquidated, you will forfeit your Governance rewards, so make sure your plan is sound and will return you back to your original position and then some. Be conservative in your profit estimations to make sure you can deliver.

The last strategy you could implement is somewhere in the middle of over and under-collateralizing. However, this is not something we would recommend – at least not with your Governance stake. The risk for liquidation will be nearly as high as the under-collateralized strategy, and you will have less GARD to bounce back in the event of a liquidation.

Example Strategies

Now that you have a good understanding of CDP strategies, let’s bring this to life with a couple of strategies using the below example portfolio:

Reminder: The following strategies are frameworks that you can adjust up or down based on your own risk tolerance. We encourage you to customize these strategies to make the best decision for your situation.

Total Balance: 10,000A

Portfolio Split: 80% Governance (8,000A) / 20% DeFi (2,000A)

And let's use a static price of $0.75 for ALGO in our examples below to keep the math clean.

Beginner GARDian

Strategy: Minimize your leverage and risk by over-collateralizing your CDP to keep your borrow utilization low, and use your unlocked liquidity to add to your DeFi position.

Gov Tip: By withholding capital (i.e. your DeFi stake) from the GARD Protocol, you guarantee you have ALGO that is not only debt-free, but also available to lower your borrow utilization if needed.

How to Execute the Strategy

Open a CDP: Open up a CDP on the protocol by supplying your Governance stake, and mint between 20% or less of your ALGO value in GARD

Provide Liquidity: Assuming there are GARD pools set-up in the future, use half of your GARD to provide liquidity in a pool (i.e. GARD/USDC)

Yieldly Farming: Swap the other half of your GARD to YLDY to farm the tokens with the highest yields and sell them back into ALGO

Updated Example Portfolio

8,000A committed to GARD for Governance
2,000A debt-free DeFi position
1,200 GARD (not accounting for fees)

How to Manage Your Risk

Keep borrow utilization between 10 - 20% (or less).

Calculate your liquidation price and set-up price notifications to alert you when ALGO is a 10 - 20% dip away from that price.

Create and practice your plan to lower your borrow utilization quickly. Don’t let the first time you’re implementing your plan be when your money is on the line.

Gov Tip: You can level this strategy up by supplying your full ALGO balance (10,000A) to the protocol; however, that would only produce an additional 300 GARD if you’re minting 20% of your value. For us, that risk isn’t worth the reward.

If you’re ready to take on a bit more risk, check out the Pro GARDian strategy below.

Pro GARDian

Strategy: Maximize your leverage by under-collateralizing your CDP to unlock more of your liquidity. You’re taking on more risk with this strategy and if you’re liquidated you’ll forfeit your Governance rewards for the period; however, this could be a viable strategy if you’re bullish on the short-term price action of ALGO, ASAs, and/or NFTs.

How to Execute the Strategy

Open a CDP: Open up a CDP on GARD Protocol by supplying your Governance stake, and mint the maximum amount GARD Protocol will allow (140% collateralization ratio)

Dutch Auctions: Use your GARD to buy liquidated assets on a discount and sell them for a profit

Trading: Swap your GARD for an asset you’re bullish on (i.e. ALGO, ASAs, or NFTs) and sell them for a profit once your target price has been reached

Updated Example Portfolio

8,000A committed to GARD for Governance
2,000A debt-free DeFi position
4,400 GARD (not accounting for fees)

How to Manage Your Risk

Calculate your liquidation price and set-up price notifications to alert you when ALGO is a 10 - 20% dip away from that price.

Create and practice your plan to lower your borrow utilization quickly. Don’t let the first time you’re implementing your plan be when your money is on the line.

Supply more collateral or repay your debt as you earn yield throughout the Governance period.

Gov Tip: You can level this strategy up by committing your total ALGO balance (10,000A) to GARD to produce another estimated 1,100 GARD. However, you may find yourself in need of debt-free capital. Consider that trade-off if this is the path you’re considering.

You can level this strategy down by supplying your DeFi stake to the protocol instead of your Governance stake. In the event of liquidation, your main ALGO position remains intact to ensure you receive your Governance rewards. Regaining your original DeFi position (& hopefully then some) will be an easier mountain to climb as well.

Risks Review

Before you go, gov, let’s talk about the four key risks of using the GARD Protocol:

Liquidation: GARDians are encouraged to stay well above the 115% ratio to ensure they remain in good standing with little oversight. When users’ ratios drop below 115%, GARD utilizes a Dutch Auction system to sell their collateral directly on the protocol. When a liquidation event occurs, users forfeit the Governance rewards for that period. However, there is no clawback on the protocol; users will still hold any GARD minted and have any excess collateral returned to them after the liquidation fee is taken.

Always remember higher rewards are almost always offset with higher risk. You can mint as much GARD as possible and chase higher yields, but this comes with a higher chance of liquidation & forfeiting your Governance rewards.

Gov Tip: This is why it’s so important to know your liquidation price and have a plan to avoid liquidation. Do your math and always have a plan in place that you can take action on quickly. We recommend having a stack of ALGOs in your wallet that you can deposit into GARD to lower your liquidation price or have a stack of GARD ready to pay off your debt. Practice that plan so you’re prepared.

Smart contract failure: By interacting with the protocol, users expose themselves to the risk of smart contract failures / hacks. Despite dApps undergoing rigorous audits, there is always a chance of this in DeFi.

Oracle Risk: In addition to smart contract failures, there is the risk the oracles used by the protocol provide incorrect or stale data. Since oracles are used to calculate the collateral ratio of a CDP and the value of collateral in account, the risk of incorrect data can lead to an unwarranted liquidation event.

Not Self-Sovereign: By locking ALGOs in a CDP smart contract on GARD, users forfeit total control of their Governance stack. While the protocol’s CDPs are custodial in the sense they are associated with the original owner and users can directly execute whatever actions they want to (i.e. Governance voting) from their GARD account, users still forfeit the right to avoid liquidation and having their ALGOs sold via a Dutch Auction.

Gov Tip: This is not unique to GARD and is true with any DeFi dApp you lend, stake, farm, or provide liquidity on. When you take these actions, you forfeit your self-sovereign rights over your assets.

How about you? Do you plan to test out GARD? If so, what strategies do you plan to use? Let us know on Twitter(@AlgoGovClub).

As always, thanks for dropping by the Club. Until next time, gov!

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, GARD comes with risks. The project can fail, smart contracts can be hacked, assets could be compromised, users can be liquidated, Oracles can provide inaccurate data, etc.

Be safe out there and make sure you do enough research before you decide if GARD is right for you.

Algorand Governors Club