Baker Finance -Full protocol review
A complete guide with an easy and detailed explanation of how every feature works and how they are connected
Introduction: Baker Finance is a leverage yield farming protocol in the BNB chain. Leverage yield farming is basically borrowing money to expand your position. This is also known as leverage, and it allows you to increase your yields. Of course, it isn’t free; you must pay borrowing interest for the right of using borrowed cash, just like any other lending site. Yet, capital efficiency (the capacity to borrow more than you put up as collateral) is where leveraged yield farming shines.
Main Features of Baker Finance:
Leverage Yield Farming: Leveraged yield farming in Baker Finance allows for undercollateralized loans. This higher capital efficiency means not only higher APYs for farmers but also for lenders, as a result of this undercollateralized model creating higher utilization rates, which are a major factor in lending APYs within most lending platforms. The benefits are clear at a glance, higher APYs….
Let’s see a flow of how leverage yield farming works and compare it.
Leveraged yield farming is a mechanism that allows users to lever up (multiply) their yield farming position, meaning to borrow external liquidity from other lending users and add to their farming assets.
This basically replicates being able to stake more assets than usually possible and thus, logically, earn more rewards. In exchange, users have to pay lenders a fee for using their money as staking fuel. This full-circle ecosystem already exists in traditional platforms such as Aave, with the exception that borrowed assets are directly staked into yield farms and so maintaining a certain level of control and security to minimize risks for the lending counterpart.
Through this module, the users will be able to earn a stable return on the base assets by depositing them in the lending vaults. The user just deposits the asset and starts earning automatically.
When users deposit the base asset in one of the lending vaults, they are issued a corresponding balance in bkrTokens.
The bkrTokens are the representation of your balance in the lending vault.
Each lending vault has its own bkrToken. For example, if a user lends BNB, they will receive bkrBNB corresponding to the balance staked.
How do bkrTokens earn interest?
The users earn interests just by holding the bkrTokens.The interest paid by the farmers is not distributed but is accumulated in each lending vault.
As stated before, the bkrTokens are the representation of your balance in the vault. As these interests are accumulated, the balance of your bkrTokens increases, so the value of each bkrToken increases.
The longer a user holds bkrTokens, the higher the value of those tokens appreciates. This is the accumulation of interest. The exchange rate of each bkrToken is displayed in the lending vault.
Bob deposits 100 BNB in the lending vault when each bkrBNB is worth 1.1 BNB, so he receives 90.9 bkrBNB (100 / 1.1)
Sometime after, Bob decides to withdraw the assets from the vault when the exchange rate is 1.2. The exchange rate increased because of the accrued interests in the vault.
So now Bob’s 90.9 bkrBNBare worth 109.1 BNB (90.9*1.2), and this is what he received when he withdrew, resulting in a gain of 9.1 BNBcompared to the initial staking of 100 BNB.
On Leveraged Yield Farming, you can identify three different actors that interact with each other and create the foundation of the protocol. These are the lenders, the farmers, and the liquidators.
In simple words, the lenders provide the capital, the farmers borrow from this capital to open a leveraged position, and the liquidator bots monitor these positions to close them in case the risk of the loan is too high.
- Lenders: the lending users deposit the base assets on the lending vaults in exchange for a stable return. These assets are then offered to yield farmers for leveraging up their positions.
- Yield Farmers: the farming users borrow these base assets from the lending vaults, thus opening a leveraged position, allowing them to multiply the farming APR of the desired assets.
- Liquidators: the liquidation bots monitor the pool for leveraged farming positions and when equity collateral becomes too low, thus approaching the risk of default, they close the position.
With Baker you can leverage up to 3x and take advantage…
Leverage yield farming is only the beginning…