How to Outearn Your Governance Period 3 Rewards With PactFi

We’re dropping the alpha on Pact and our favorite pools on the protocol – don’t miss this one

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Welcome back to the Club, gov!

Another Governance sign-up period has come and gone, but this one was anything but normal. With the help of Algofi’s Vault, Folks Finance’s Liquid Governance, and GARD, we were able to unlock a portion of our Governance liquidity to redeploy across Algorand’s exploding DeFi ecosystem.

With so many new DeFi users in the ecosystem, we want to answer questions about the best way to earn on this unlocked liquidity. While there’s a few ways to answer this question, today we want to cover one of our favorites: providing liquidity on PactFi.

Pact is an automated market maker (AMM) that launched on February 22nd and while the protocol has been steadily growing since then, it is still 4th in total value locked (TVL) behind Yieldly, Tinyman, and Algofi. This means there is still room for much more growth. 

And we want to capitalize on that growth. 

Standing up DEXs in their infancy can be quite lucrative due to high APRs and the potential for liquidity providers to earn a bigger share – and cut of the fees – of each pool.

And the best part? 

Pact has received 1 million ALGOs to distribute to liquidity providers through the Algorand Foundation’s Aeneas Liquidity Program, so early adopters will be rewarded with even more ALGOs. 

In this guide, we’ll review what Pact is and our favorite liquidity pools we’re earning on. Thank us for the alpha later – for now, let’s dive in.

Gov Tip: Learn more about the Aeneas Rewards Program here.

What is Pact?

As mentioned above, Pact is an automated market maker (AMM) focused on providing users with cheaper swap fees and offering liquidity providers 100% of the fees they accumulate – a truly unique value prop across the Algorand ecosystem. In addition to offering LPers 100% of the fees they accumulate, Pact is the only AMM on Algorand that provides 1% taker fees on certain liquidity pools. 

Gov Tip: If you want to get technical, Pact is powered by the constant product (x*y=k) architecture made popular by Uniswap V2. You can learn more about the constant product model in this Binance Academy explainer.

Pact’s user-first approach to fees isn’t the only thing that sets it apart. The protocol is still in its early days, leading to some seriously high APRs across major liquidity pools when compared to the rest of the ecosystem:

To sweeten the deal, Pact has guaranteed that all 1M ALGO received via the Aeneas Liquidity Program will be distributed with no leftover funds. Due to this, the team has cautioned users they may “alter the reward distribution structure over the program period if some APR is not being appropriately allocated and/or utilized effectively.” 

Until such an action is taken, the reward schedule will follow the below:

Gov Tip: The USDT/USDC pool is now a 0.01% taker fee and there have been some additional pools added to the community fund.

As you can see, we weren’t exaggerating when we said helping Pact stand-up their protocol could be lucrative. We’re doing our part over at the Club, and we already have our favorite pools. 

And we’re ready to drop that alpha. 

The Club’s Favorite Liquidity Pools

In the following section, we’ll review our favorite pools and why we like them so much while providing information about their APRs, taker fees, and Aeneas rewards distribution. 

Each of these pools fit a need in our portfolio by providing exposure to bluechip assets (i.e. ALGO or goBTC), stablecoins, and high quality ASAs with growth potential while offering high rewards.

Gov Tip: Make sure you verify you’re providing liquidity to the right pools by confirming it has the following Aeneas reward tag:

Okay, let’s dive into the list!

This is a great pool if your goal is to either rotate out of other bluechip assets and into ALGO or you like the idea of passively dollar-cost-averaging in and out of two bluechip assets while earning additional ALGO.

If you have a bearish outlook on the market for the next month or so, this could be a good pool to stack more ALGOs passively. As the price of ALGO decreases, your allocation will increase as the pool rebalances itself. The APR and those Aeneas rewards definitely help too.

If you provide liquidity to a similar ALGO / DEFLY pool on another protocol, you should consider moving your position over to Pact to take advantage of the high APR and Aeneas rewards. 

But as always, you should do your own research before you decide which pools to provide liquidity to, so make sure you review Pact’s pools here. 

And that’s all the alpha we’re dropping today. If you’d like more information on Pact, we recommend you start with their official documentation. If you’d like to understand the risks involved in using Pact, you can find more information in the Disclaimer below.

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

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Disclaimer: This isn’t financial advice! As we say in crypto, don’t trust – VERIFY! Do your own research to determine if Pact is right for you and don’t ever invest more than you’re willing to lose. 

Like any DeFi project, Pact comes with risks:

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.

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. 

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.

Not Self-Sovereign: By providing liquidity, users forfeit control of their assets and expose themselves to all the risks mentioned above. This is not unique to Pact 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.