Strategy Types Overview

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Strategy Types in Lomen

Lomen baskets can execute various DeFi strategies, each designed to achieve different goals. Understanding these strategy types helps you choose baskets that align with your investment objectives and risk tolerance.

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Yield Farming Strategies

Yield farming involves providing liquidity or staking assets to earn rewards, typically in the form of tokens or fees. How it works:

• You deposit assets into a protocol
• The protocol uses your assets (for lending, liquidity provision, etc.)
• You earn rewards based on your contribution

Best for: Users seeking passive income from idle assets Considerations:

• Rewards can fluctuate with market conditions
• Some strategies involve smart contract risk
• Impermanent loss may occur in liquidity provision

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Liquidity Provision (LP)

Liquidity provision involves adding assets to decentralized exchange (DEX) liquidity pools to facilitate trading and earn fees. How it works:

• You provide pairs of assets (e.g., SOL/USDC) to a liquidity pool
• Traders use your liquidity and pay fees
• You earn a share of trading fees proportional to your contribution

Best for: Users comfortable with market exposure who want to earn trading fees Considerations:

• Impermanent loss occurs when asset prices diverge
• Fees earned depend on trading volume
• Pool composition can change over time

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Lending and Borrowing

Lending strategies involve depositing assets to lending protocols to earn interest, while borrowing strategies use collateral to access liquidity. How it works:

• Lending: Deposit assets, earn interest from borrowers
• Borrowing: Use assets as collateral to borrow other assets (often for leverage or liquidity)

Best for:

• Lending: Conservative users seeking stable yields
• Borrowing: Advanced users managing leverage or liquidity needs

Considerations:

• Interest rates vary with supply and demand
• Borrowing requires over-collateralization
• Liquidation risk exists for borrowers

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Staking and Restaking

Staking involves locking assets to secure a blockchain network and earn rewards, while restaking extends staking rewards to additional protocols. How it works:

• Staking: Lock assets to support network security, earn staking rewards
• Restaking: Use staked assets to secure additional protocols or services

Best for: Users with long-term holdings who want to earn rewards while maintaining exposure Considerations:

• Staking often involves lock-up periods
• Rewards are typically lower but more stable than yield farming
• Restaking adds complexity but can increase rewards

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Multi-Protocol Strategies

Multi-protocol strategies combine multiple DeFi actions across different protocols to optimize returns or manage risk. How it works:

• Execute sequences of actions across protocols
• Example: Borrow assets → Provide liquidity → Earn yield → Repay loan
• Strategies can be complex, involving multiple steps and protocols

Best for: Advanced users seeking optimized returns through DeFi composability Considerations:

• Higher complexity means more things that can go wrong
• Gas costs can be significant for multi-step strategies
• Requires understanding of multiple protocols

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Strategy Execution Flow

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Choosing the Right Strategy

Consider these factors when selecting baskets:

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Combining Strategies in Baskets

Baskets can combine multiple strategy types to:

• Diversify risk: Spread exposure across different strategies
• Optimize returns: Use the best aspects of each strategy type
• Balance stability: Combine stable strategies with higher-risk, higher-reward ones

The AI helps identify optimal combinations and manages the complexity of executing multi-strategy baskets.

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Getting Started

1. Review available baskets and their strategy types
2. Understand what each strategy does and its risks
3. Select baskets that match your goals and risk tolerance
4. Monitor performance and rebalance as needed

Remember: All strategies carry risk. Only invest what you can afford to lose, and always do your own research before committing capital.