How to Earn over 1000% in Harmony!

Hello!

It’s been 4 months since I entered the Terra ecosystem and it has rewarded me greatly. However, with nearly 10 billion in Total Value Locked (TVL), the ecosystem seems oversaturated.

Muted yields from staking Luna and borrowing on Anchor, low LP rewards, and oversupply of NFTs are factors that have pushed me to explore other ecosystems.

In this Opinion piece, I shall introduce my investment thesis on the Harmony blockchain.

Disclaimer: I am not a financial advisor and all thoughts expressed in this article are purely mine and not financial recommendations. Do your own due diligence before diving into the crypto space.

Note that the content is going to get rather technical and may not be that suitable for first-time farmers :/

What is Harmony?

Founded by Apple’s Principal Engineer, Dr Stephen Tse (PhD in Cryptography), Harmony is a blockchain protocol focused on sharding.

Sharding is a database partitioning technique that splits a chain into different segments, storing data and processing transactions concurrently. This reduces the latency of the network, allowing it to support fast transactions. It is believed that sharding transcends the blockchain trilemma as it boosts scalability without compromising security and decentralization.

Combining fast transaction finality (2 sec) with cheap fees (~$0.001), interacting with the Harmony ecosystem has been a very pleasant experience thus far.

Thesis on ONE (Harmony’s native token)

For most dapp-focused blockchains, the price of their native token is typically correlated to the TVL of the ecosystem. Intuitively, this is because more liquidity implies more transactions, which translates to more fees being paid in ONE, thereby increasing demand for ONE. Also, as Harmony is a PoS blockchain, staking the native token allows users to earn yield in the form of other users’ fees. With more fees being paid, ONE stakers can accrue more rewards, resulting in an even greater demand for ONE.

If you remain unconvinced, check out how the prices of MATIC/SOL/LUNA/FTM/AVAX vary relative to their respective ecosystem’s TVL growth.

So essentially, my whole thesis on ONE rests on the assumption that Harmony’s TVL is going to grow exponentially, and here are my supporting reasons:

1. DeFi Kingdoms as the primary P2E/DEX/AMM protocol (over half of Harmony’s TVL). Attractive yields will incentivise inflow of liquidity
2. Yesterday’s launch of Tranquil Finance, an algorithmic money market protocol (lending, borrowing) that will compound existing liquidity in the ecosystem
3. $300,000,000 incentive program to attract developers to build dapps on the protocol. More dapps will attract more liquidity in the future

If you have yield farmed before, you may be familiar with Taiki Maeda’s Humble Farmer Thesis (HFT) that a good farming ecosystem needs an AMM with good liquidity and a trusted, reliable money market.

According to Taiki, AMM yields incentivise users to harness money market protocols and leverage their assets as a liquidity source to introduce more liquidity into the ecosystem, thereby boosting TVL. Thus, following yesterday’s launch of Harmony’s money market and insane yields on DeFi Kingdoms, I would expect Harmony’s TVL to increase soon.

Part 2 of HFT states that higher TVL ecosystems will attract yield farms as developers will only build dapps if there is enough liquidity to support them. With Harmony’s TVL potentially increasing soon and Harmony’s incentive programme, I believe we will see new protocols being launched on Harmony. These new protocols, together with high rewards sponsored by Harmony’s incentive programme, further incentivizes an inflow of liquidity into the ecosystem.

This virtuous cycle of more liquidity = more farms = more liquidity etc would likely cause Harmony’s TVL to skyrocket in the future, and the price of ONE is likely to follow suit.

Gameplan

However, we don’t know when this may happen or if it may even happen. While waiting for it to (hopefully) happen, the best thing to do would be to find some way to generate yield in the ecosystem.

As there are too many possible strategies to employ, I will just explain my current setup. If you want to explore other strategies check out this video and this video.

DeFi Kingdoms (DFK)

DFK is Harmony’s primary DEX/AMM/P2E game and the token for DFK is JEWEL. Unlike most farm tokens that follow the “farm and dump” narrative and end up going to 0, there is organic demand for JEWEL as it is the primary token used for DFK’s in-game transactions. As such, I’m currently holding JEWEL as it provides me with P2E exposure.

Additionally, I’m staking my JEWEL in DFK’s Bank in order to accrue more JEWEL over time. The yield from the Bank comes from swap fees when users utilize DFK’s DEX (The Marketplace) and over the past 3 weeks, I have already earned 3%, which translates to an annualized yield of 52%.

I am also LP-ing JEWEL-ONE in DFK’s AMM (The Garden) and I’m currently earning an APR of 1350%. This yield will drop over time as rewards emissions drop every Thursday, and this will also be further exacerbated by more people entering the pool and diluting the rewards.

It should be noted that the yields are so high because the majority of rewards are locked. If I exit the pool now, I am only able to claim 21% of my rewards. Every Thursday, the % of unlocked rewards increases by 2 percentage points, thus rewarding long-term LP holders. The locked rewards will only start unlocking in Q3 2022 and will be linearly distributed on a daily basis till Q3 2023.

Tranquil Finance

I’m currently depositing my ONE on Tranquil, earning an APY of 26%. I’m also using my deposited ONE as collateral to borrow USDC, earning an APY of 73%. This USDC is then swapped for more ONE and deposited back in Tranquil. Overall my net APY is over 40%.

The yields are high now as this protocol is only 1 day old, so over time, the yields should drop.

Risks

Like all crypto ecosystems, there are plenty of risks in the space. High volatility, impermanent loss, smart contract risks all exist when interacting with DeFi platforms, so you should only invest if you have a high risk tolerance.

Conclusion

The crypto space moves very fast and it is crucial to adapt to new ecosystems. For those degen yield farmers out there, I hope this article provides an alternative strategy for you to consider :)

Cheers and happy farming!