Ultimate Guide to Solana DeFi in December 2024

Summary

In this comprehensive breakdown of Solana's DeFi ecosystem, the speaker explores various strategies for earning passive income, from basic staking and liquid staking to more advanced yield farming techniques. They highlight the growing opportunities in platforms like Jupiter, Goo, Radium, and Cino, providing insights into how liquid staking, DEX aggregation, and leveraged yield farming can generate impressive returns. While the ecosystem offers high potential, the risks tied to tokenomics, unlock schedules, and market volatility are also emphasized. Overall, it's a practical guide for users aiming to capitalize on Solana's promising DeFi space.

Takeaways

• 😀 Staking and liquid staking on Solana is a foundational strategy for earning yield, especially for those holding $SOUL in their wallets without earning interest.
• 😀 Jupiter is a powerful decentralized exchange aggregator on Solana, offering opportunities to earn yield by providing liquidity to its Jupiter Liquidity Provider (JLP) pool with an APY of up to 58%.
• 😀 The risk-adjusted returns from liquidity provision in Jupiter's JLP pool are considered some of the best in crypto, thanks to its composition of stablecoins and blue-chip assets like $SOUL, $ETH, and $BTC.
• 😀 Be cautious when farming stablecoins like $USDT, $USDS, and $PiUSD, as the high yields often come with risks and potential for volatility. However, platforms like Kamino on Solana offer relatively safe stablecoin farming with transparent incentives.
• 😀 $USDS, a stablecoin backed by MakerDAO, offers up to 18.2% yield on Solana through Kamino, providing an attractive opportunity for those looking to farm stablecoins with high returns.
• 😀 PiUSD, PayPal's stablecoin, provides 15.4% yield in the Kamino protocol, offering a relatively secure option backed by PayPal's reputation and increasing DeFi adoption.
• 😀 Leveraged looping strategies can significantly boost yields but come with increased risk, especially when using borrowed funds for liquid staking or liquidity provision on platforms like Cino and Camino.
• 😀 A strategy using liquid staked $SOUL as collateral to borrow more $SOUL and boost staking yields up to 24.37% is highlighted, although it introduces additional risks tied to price volatility and smart contract risk.
• 😀 New and emerging platforms like Lulo, a yield aggregator, may offer higher yields by optimizing across Solana-based lending platforms, though using yield aggregation comes with its own risks.
• 😀 Jupiter's rapid growth and increasing Total Value Locked (TVL) highlight its strength in the Solana ecosystem, but its tokenomics are concerning due to a low circulation of tokens (14%) and a high fully diluted valuation (FDV), potentially leading to sell pressure in the future.
• 😀 Cino's growth as Solana's leading money market offers promising fundamentals, with rapidly increasing deposits and a market cap much lower than its FDV, but the unlocked tokens may weigh down its price in the short term.
• 😀 Overall, the Solana DeFi ecosystem is booming with new opportunities and growth, but users should carefully assess the risks, especially in platforms with high token unlocks and volatile yields.

Q & A

What is the most basic DeFi strategy for Solana users in 2024?

The most basic DeFi strategy is staking or liquid staking of Soul. Staking directly through a wallet allows users to earn rewards from network inflation and fees, while liquid staking, through platforms like Goo, allows users to earn yield while maintaining liquidity, with rates currently around 10.9%.

What is the benefit of liquid staking on Solana?

Liquid staking allows users to stake their Soul while still having access to liquidity. By staking through platforms like Goo, users receive jto Soul tokens in return, which can be traded or unstaked later. This method combines staking rewards with network fees and provides an additional layer of flexibility.

What is Jupiter and why is it considered one of the best DeFi platforms on Solana?

Jupiter is a decentralized exchange (DEX) aggregator on Solana. It is considered one of the best platforms because it facilitates efficient token swaps and also offers a high-risk, high-reward opportunity through its JLP (Jupiter Liquidity Provider) pool, which combines Soul, ETH, BTC, and stablecoins, offering high APY, often ranging from 25% to 100%.

How does Jupiter’s JLP pool generate yield for liquidity providers?

The yield in Jupiter's JLP pool comes from traders' fees, including trading fees, borrowing fees, and price impact costs. The liquidity pool benefits from high transaction volume, making it a reliable source of yield for liquidity providers, even during periods of price volatility.

What are the risks associated with stablecoin farming on Solana?

Stablecoin farming involves risks such as the potential for yield generation to dry up or the underlying stablecoin losing its peg to the dollar. While stablecoins are generally safer, high yields on platforms like Kamino often signal underlying incentives that may not be sustainable long-term, so users need to be cautious.

What is the current stablecoin farming opportunity on Kamino?

On Kamino, some of the top stablecoin farming opportunities include USDS (18.2% yield), USDT (16.3% yield), and Pi USD (15.4% yield). These yields are high due to the incentives provided by the issuers of these stablecoins, such as Dai Maker and PayPal's Pi USD, as they aim to build liquidity on Solana.

What are leveraged looping strategies, and how can they enhance yield?

Leveraged looping strategies involve using borrowed funds to enhance yield by repeating actions like staking or providing liquidity. For instance, by using jto Soul as collateral to borrow more Soul, users can stake it again, increasing the yield from 10.87% to 24.37%. However, these strategies come with higher risks, particularly if the price of Solana or jto Soul moves unfavorably.

What is the risk of leveraging strategies like the jto Soul loop?

The primary risk is market volatility. If the price of Soul or jto Soul moves against your position, there is the potential for liquidation of collateral, leading to significant losses. Therefore, it is recommended to be conservative and avoid max leverage when using such strategies.

What is the significance of Solana’s growth in 2024, and how does it impact DeFi opportunities?

Solana’s growth in 2024 is significant because it has seen a massive increase in total value locked (TVL), from around $1.4 billion to over $18 billion, with daily fees exceeding $10 million. This growth leads to more DeFi opportunities and higher activity on Solana-based protocols, such as Goo, Radium, and Jupiter, increasing the potential for returns but also increasing the competition and volatility in the ecosystem.

Why is the tokenomics of Goo (JTO) a potential concern for investors?

The tokenomics of Goo (JTO) is a concern because a large portion of the circulating supply (135 million tokens, worth $442 million) is set to be unlocked in December 2024. This potential surge in supply could create significant sell pressure, which may negatively affect the price, making it risky for investors in the short term.