DeFi APRs - Why would one invest/provide liquidity for Pools with Low APRs?

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Hey All;

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I've seen many DeFi platforms that provided insane APRs [Annual Percentage Rates ] that refer to the annual rate of interest charged for depositing funds. And in our example for providing liquidity of various tokens.

My Question is::

Why would one opt for providing liquidity for a Pool where the APR is less? Since; I'm new to the crypto DeFi space I don't get this point. Say for example; I'm seeing on cubdefi; the pool that has the highest APR is "CUB-BUSD" LP which is around 295%.

At the same time, there are other liquidity pools that provide lesser APR - but still, we see folks providing LP for them. Why is it so. Everyone would want to earn a high APR for their deposits. So why Join an LP Pool with a lower APR; wherein there is an LP Pool providing higher APR?

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I did this mistake or maybe I would be wrong. Earlier; I entered in the $CUB Den pool which was providing close to 100% APR. But then I thought why I do not enter a Pool that is giving close to 300% APR and for that reason, I shifted to the $CUB-BUSD LP Pool.

So; am I missing something? And would like to understand - Why would a person enter a pool with lower APRs as opposed to Pools providing Higher APRs?

Appreciate all the answers...

Best Regards



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11 comments
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This is interesting and i am curious to know too.
Lets see what experts say. This would be a good new learning.
Following to find it.

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Well this is a legit question but of course there is a reason.

When you go into the CUB den, you take your CUB out then there and then wait for the 100%APY but what if the value of cub goes to 1$?

Example:

  • if you bought 100 $CUBat 3$ and put them in the Den. Next year you will have 200 CUB (because of the 100%APY) but if CUB went to 1$ you now have 200$ va 300$ when you joined.

As most of the farms are early projects/tokens 5
They give better APy but are more risky. By providing let’s say BTC, you know your BTC will be less prone to losing 66% than CUB and even if you get 30% APY, after 1 year you will still have the same amount of BTC + some “free CUB”.

For the BUSD-CUB you have the impairment loss risk and if CUB pumps you will not benefit 100% from it as the pool will continuously tries to balance itself to the $ amount you put first.

(I know that is not very clear but Google Impairment loss for that one).

Cheers 🍻 and happy farming

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Because the APR on the pool is only a part of the value. The other (even bigger) part is the value of the underlying asset. So even thought the CUB-BUSD pool has a bigger APR than the CUB-BNB pool, the latter has been shown in the past month to be a better winner because the value of BNB has more than doubled.

Only stay in a pool if you like having both sides of the pool.

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thank you dear @shawnlauzon for providing your views. As of now, I'm sticking to the CUS-BUSD pool, maybe at later point in time will see if I would want to change the LP pool. cheers

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I would say that it is kind of HODLing the asset what you would hold in either way, but you have provided liquidity to earn something in the meantime... (like a savings account that gets some interest)... After a certain time, you can withdraw your initial deposit (which would be more-less the same amount), and you have some interest in CUBs that is your profit...

At least, that is my point of view on that..

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I can understand for the dens, they believe the price of the token will rise faster than that of the higher interest paying token.

For the pools, I suppose they believe that the rise in price of the tokens will outweigh the impairment loss and provide a higher overall gain even after factoring interest as well.

Myself, i just put it all in the DEC-BUSD pool, harvest and add back to it.


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