Folks Finance & Aeneas Liquidity Program — 2M ALGO incentives for its early users.
The Algorand Foundation awarded Folks Finance with 2 million ALGOs to incentivize early users, and bootstrap protocol operations. The primary goal of this initiative is to attract liquidity and boost the Algorand DeFi ecosystem, also establishing synergies among several dApps built on top of the Algorand technology.
The Viridis Fund phase II — Aeneas Liquidity Program
The 300M Viridis Fund represents the official liquidity incentive program launched by the Algorand Foundation to significantly increase the Total Value Locked on Algorand. The Phase II of the initiative, the Aeneas Liquidity Program, takes the name of the mythological hero of Rome that led people away from the ruins of Troy.
Among the main objectives of this fund is to initiate a lending and borrowing architecture for capital efficiency and trade, and for this reason Folks Finance was chosen for this program.
The incentive system
There are two ways to earn Aeneas incentives on Folks Finance:
- By repaying borrow interest since Folks Finance reimburses a percentage of the latter.
- By depositing liquidity in the Lock & Earn section of Folks Finance web app.
Folks Finance’s incentive mechanism has been designed to nudge “good” borrower behaviour (i.e. constant interest repayment) since it represents a stream of revenue for the protocol. On the other side, Lock & Earn addresses one of the main risks for lending protocols: lack of liquidity. This can be mitigated by allowing users to access higher APRs by locking their funds in dedicated pools with limited capacity, sacrificing the possibility to borrow against them.
Sit down, we’re going to get pretty technical from now on…
Inside Folks Finance, incentives are denominated in frAssets. More precisely, for example, if users repay accrued interests on a USDC loan, they will receive frUSDC as interest reimbursement. Similarly, the APR earned by locking USDC in the Lock & Earn feature rewards frUSDC.
frAssets must then be swapped in the rewards aggregator, instantly, or after a vesting period (increasing the rewards) in exchange for ALGO or other reward tokens available in the rewards aggregator provided by partners (e.g., third parties protocol, etc.). The percentage of interest reimbursed, as well as the APR of a Lock & Earn liquidity pool, is defined by the exchange rate between frAssets and reward tokens.
The ultimate reimbursement percentage available on the platform at the moment of writing are the followings:
Following the pools TVLs growth the interest distributed are lowered.
Earning frAsset as a Borrower
Let’s try with an example…
Let’s welcome John… John opens a USDt loan, locking goBTC as collateral, and after one week the interest accrued is equal to 10 USDt. When John repays the interest, he will receive 10 frUSDt at a 1:1 ratio with the amount of interest paid back.
Great, John earned 10 frUSDT simply by repaying a dollar of interest… but how much is frUSDt worth? The exchange rate between frAsset and Asset (Rasset,frAsset) embeds the percentage of interest reimbursement. More precisely:
IR rate = 90%
Where IR rate is the percentage of interest reimbursed, currently set at 90% for USDt loans. Note that IR rate also represents the exchange rate between an Asset, and the corresponding frAsset. Indeed, 10 frUSDt is worth 9 USDt, and borrowers will get 1 frUSDt for every USDt paid back.
Earning frAsset as a Lender
In the case where John is willing to earn incentives by depositing funds, the best pick is Lock & Earn. For instance, by locking 100 USDt at 9% APR for 2 months in the Lock & Earn feature, he will earn 1.67 frUSDt, which is worth 1,5 USDt (according to the exchange rate shown above). Indeed, the amount DR of frAsset received per each unit of Asset locked in Lock & Earn is defined as follows:
Note that differently from the interest reimbursement, where DRIR is equal to 1 for every asset, in Lock & Earn the DR L&E changes according to the number of lock months, the asset APR and the interest reimbursement rate.
Swapping frAssets into reward tokens
frAssets can then be swapped in the rewards aggregator in exchange for reward tokens (currently Folks Finance is distributing ALGOs provided by the Algorand Foundation). Other third parties allowed by the team could be able to distribute incentives on specific protocol pools.
In the rewards aggregator the claiming vesting periods are designed to disincentive the user to Earn&Dump the rewards. Currently, the two weeks vesting option allows users to earn 10% higher rewards. Multiple vesting periods will be added following the rule, the longer the vesting period, then the greater the rewards.
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