Introducing Net Liquidity Farming on Burrow

Burrow Finance
3 min readJul 8, 2022

Effective from Tuesday (July 12th), Burrow will transition its rewards distribution model from “total deposits farming” to “net liquidity farming.”

TL;DR? Net liquidity farming means global rewards will no longer be distributed based on “total deposits” on Burrow, which includes even the assets you borrowed, but will be distributed based on your “net liquidity,” i.e. the amount you deposited minus the borrowed assets. The change applies to global rewards (e.g. $USN), but not to pool-specific rewards (e.g. $liNEAR rewards in the $liNEAR pool; $META rewards in the $stNEAR pool). As this will potentially affect users’ projected rewards, we urge users to read the article and act appropriately if needed.

What is Net Liquidity Farming and Why is it Happening?

Since its launch, Burrow has been consistently distributing rewards in addition to the base APYs. With the market conditions worsening, the Burrow team has recognized the need to be smarter about where the rewards go and how it is spent; and furthermore, to reflect real user usage in the design of the protocol — one trend being the preference for stable farming strategies over riskier leveraged positions.

Net liquidity farming means global rewards on Burrow will be distributed to users’ pure deposits: the amount they supply on Burrow pools minus their loans. Previously, Burrow rewarded users based on their total deposits (deposited + borrowed), which incentivized users who used Burrow to create leveraged positions. During a market downturn, users are less eager to take out loans and create leveraged positions, and instead are looking for more stable sources of profit. Burrow is reflecting this trend and focusing rewards distribution to those who “simply want to farm” on Burrow, by depositing their assets and earning interest.

To illustrate, if a user previously deposited 150 $NEAR in total (100 $NEAR in initial deposit + 50 borrowed $NEAR), assuming the rewards for depositing $NEAR is 6% in $NEAR, their estimated rewards would be 9 $NEAR per year (not including base APYs and the interest they need to pay for borrowing the 50 $NEAR). With net liquidity farming in effect, they would now be rewarded 6 $NEAR (not including base APYs) for the 100 NEAR that is their “net liquidity.”

Net Liquidty Rewards and Pool-Specific Rewards

In addition to the net-liquidity rewards, which are assessed at the global level across all assets, some of the pools will continue to distribute rewards specifically to the suppliers of the pool (e.g. $liNEAR rewards in the $liNEAR pool; $META rewards in the $stNEAR pool). Once the change is released, users will see their updated net APY, which can be attributed to two sources: net liquidity rewards and pool-specific rewards.

Net liquidity farming allows Burrow to spend its treasury in a smarter way, and rewards users in accordance with how they are actually using Burrow. Moving forward, Burrow will continue to be responsive to market conditions and user behavior, and offer the best incentives for the Burrow community. This means not only that the Burrow DAO will be able to alternate between total deposits farming and net liquidity farming when it is called for, but that even under the net liquidity farming mode, global rewards can be boosted or additional assets can be added as global rewards.

For any further questions or feedback, please join the Burrow Hog Squad on Discord!

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