As decentralized finance (DeFi) gains more adoption, the opportunities to earn income continue to expand. An example of this is in providing liquidity on decentralised platforms and protocols. By depositing assets into a liquidity pool, users facilitate trading and earn a portion of the trading fees generated by the platform. These protocols often incentivize liquidity providers (LPs) with rewards in the form of native tokens. One of these protocols we’ve been thrilled to work with is DFX Finance, the leading decentralized foreign exchange (FX) protocol for stablecoins on Ethereum, Polygon and Arbitrum.
Our Polygon NGNC/USDC liquidity pool on DFX is integral to providing democratized access to FX liquidity on-chain for both individuals and platforms. Since its launch, the pool has had substantial growth, currently sporting a Total Value Locked (TVL) exceeding $30,000 and growing.
While the concept may seem daunting at first due to crypto skepticism, liquidity providers to this pool have tapped into an opportunity to make passive income by depositing their Naira and earning DFX tokens. The NGNC/USDC pool has seen the distribution of over $15,828 in yields paid out to liquidity providers. These rewards outpace the returns offered by traditional investment methods, having higher APRs than even banks.
Liquidity provision amidst the Naira devaluation
As Naira holders lose purchasing power and diminished savings value. providing liquidity on the NGNC/USDC pool also offers a unique medium for hedging against the depreciation of the Naira.
Individuals staking Naira in the liquidity pool automatically have part of their Naira deposit converted to USDC a stablecoin pegged to the US dollar, which is less prone to devaluation. This strategy enables users preserve and potentially grow their wealth in the face of currency instability.
Let’s imagine someone puts 1 million Naira into the NGNC/USDC pool in November 2023. Part of that gets changed into USDC, let’s say 50%, which would be about 426.29 USDC based on the exchange rate of 1172.9 NGN for 1 US dollar at the time. By December, the Naira falls even more, reaching 1232.9 NGN for 1 dollar. This means the 500K NGN changed into USDC is now worth about 525K NGN, making the initial deposit worth 1.02 million Naira. In January, the exchange rate drops even more to 1510.7, raising the 500K up to 643K NGN. So, by keeping Naira in the pool, the person earned around 140K NGN (totaling to 1.14 million Naira) from November to January, besides the DFX tokens they got for providing liquidity on the pool.
In a recent closed beta staking, we explored the potential of NGNC, the only on-chain high-yield bearing Naira stablecoin, to mitigate the effects of Naira devaluation. Participants securely staked their Naira through LINK’s fully compliant KYC/AML ramp platform, contributing to the NGNC/USDC liquidity pool.
While the broader market witnessed the Naira devaluation, the NGNC/USDC pool generated over $15,000 in combined yield for liquidity providers. This demonstrates the ability of NGNC to offer a compelling alternative to holding Naira in traditional accounts susceptible to devaluation.
Getting started
Potential LPs to the NGNC/USDC pool can get started by depositing NGNC or USDC from their digital wallets like MetaMask, TrustWallet etc. on the DFX protocol. Here’s a guide for more information. They can also buy Polygon NGNC through a Naira bank transfer on LINK’s ramp.
Businesses can get in too
The advantages of these yields extend beyond individual users. Businesses looking to raise capital or maximize savings can leverage the pools through the Savings feature on the LINK Business dashboard. This allows them contribute to the liquidity pool without directly interacting with cryptocurrency. Like individual users, businesses can earn attractive yields on their Naira deposits, all in their local currency. Additionally, there’s flexibility — liquidity can be withdrawn at any time, providing peace of mind for business owners. Click here to get started.
In summary, the distribution of these yields to liquidity providers highlights the immense earning opportunities presented by DeFi liquidity provision, while also playing a role in shaping the future of finance.
Victor Nwaejie — Product and Strategy Lead, LINK.
The information provided in this blog post is for educational and informational purposes only. It does not constitute financial advice, investment advice, or any other type of advice. Cryptocurrency investments, including participation in decentralized finance (DeFi) platforms, carry inherent risks, including but not limited to market volatility, smart contract vulnerabilities, and impermanent loss. Readers are encouraged to conduct their own research and due diligence before making any investment decisions.
