This strategy borrows CRV from AAVE and deposits it in the yveCRV vault for increased returns. This strategy is effective as long as the APR of the yveCRV vault is greater than the cost of borrowing CRV on AAVE .
The CRV we put in the vault are gone forever but we can always sell the yveCRV tokens in case necessary.
This strategy could work for any underlying vault token, but will be particularly effective for tokens with high lending/supply APR on AAVE (e.g. DAI)
Increased returns via arbitrage.
- Deposit token on AAVE or similar. This by itself will earn interest.
- Check cost of borrowing CRV on AAVE. Borrow CRV if costs + safety margin are less than expected returns of locking CRV in yveCRV vault.
- Deposit any newly borrowed CRV in yveCRV vault.
- Depending on the state of the loan on AAVE:
4.1 If close to liquidation ratio - safety margin: sell yveCRV rewards and yveCRV balance on open market and repay part of loan as necessary.
4.2 Otherwise: use yveCRV rewards to borrow more CRV and put it in the yveCRV vault.
- Check if the current spare balance is enough to cover the withdrawal.
- Otherwise, check if we can safely remove collateral from AAVE. If that’s also not possible, sell yveCRV on open market and decrease CRV loan on AAVE to reclaim required collateral.
- CRV value rises dramatically. Would be nice to have a keeper bot poke the contract to sell yveCRV if necessary so as to prevent any loan liquidation.
- yveCRV returns drop dramatically. Should be okay as long as the returns are still higher than CRV borrow APR.
- Underlying token supply APR < CRV borrow APR: As long as the returns of the yveCRV vault are still enough to cover for this difference (plus safety margin), this should be fine
Of course, if this strategy is deployed, the cost of borrowing CRV on AAVE will tend to the returns of the yveCRV vault + the returns of supplying the vault underlying token on AAVE.