Product Updates

How does StraitsX Earn generate yield?

August 25, 2022

Key takeaways:

  • StraitsX Earn generates yield by taking a cut from being a liquidity provider on stablecoin liquidity pools
  • Stablecoin pairings provide minimal volatility due to the strong underlying currencies fully backing the stablecoins
  • StraitsX Earn only provides user funds to liquidity pools with a strong and trustworthy track record
  • Yield is directly dependent on DeFi transactional activity and not on crypto prices

StraitsX Earn offers StraitsX business accounts the ability to earn returns of up to 7% APY on their XSGD. To begin using StraitsX Earn, businesses simply need to allocate minted XSGD from their StraitsX account into StraitsX Earn. 
We are committed to our objective of creating a trustworthy stablecoin ecosystem, while allowing for businesses to maximise the value of their XSGD.

StraitsX Earn generates yield by providing liquidity to stablecoin liquidity pools

StraitsX Earn holds user funds in XSGD or USDC only, providing them directly to DeFi liquidity pools (LPs). When the liquidity pools are used for swapping between XSGD and USDC, transaction fees are paid, allowing StraitsX Earn to receive a cut of these fees as reward for providing liquidity. This reward in turn allows StraitsX Earn to offer a payout to users.

More than 90% of Earn users’ funds are currently being deployed into the Uniswap XSGD/USDC liquidity pool, with the remaining deployed into DFX’s XSGD/USDC pool. Such liquidity pools of XSGD/USDC pairings provide minimal volatility through stablecoins fully backed by strong underlying currencies unlike other crypto assets.

Why Uniswap?

  • Track record: one of the pioneering, largest, most established, well-audited Defi protocols
  • Business model: yield depends on fees from transaction volume, not on crypto market prices. Funds are not lent out or leveraged, reducing counterparty and default risks.
  • Low liquidity risks: decentralised and permissionless, withdrawals cannot be halted.

Why DFX

  • Higher returns: similar model and advantages as Uniswap, but optimised for stablecoins
  • Capped exposure: we restrict exposure to 10% or lower, with DFX being newer and having a shorter track record than Uniswap

StraitsX Earn yield is not directly dependent on digital asset market prices

It is crucial to note that yield from liquidity pools is generated from usage and transaction volumes, and thus asset prices do not play a part in yield quantity.

To illustrate, a bullish crypto market typically generates additional DeFi activity and hence transaction volume, leading to high yields in liquidity pools. On the flip side, a down market may lead to lesser DeFi activity, but there will still be activity (and yield) on liquidity pools. There is always a baseline usage for stablecoin liquidity pools due to arbitrage opportunities between the stablecoin pair exchange rate and the real-world foreign exchange rate. In other words, whenever real-world SGD/USD FX prices shift, arbitrage induces activity in the XSGD/USDC liquidity pool, which then generates yield.

StraitsX Earn absorbs the volatility in LP rewards to give users a stable return

To further mitigate the volatility brought about by DeFi transaction volumes, when DeFi yields are low, StraitsX Earn is committed to supplementing payouts to users using corporate funds or through earlier profits. 

  • If Liquidity Pool (LP) rewards are greater than our payout rate to Earn users, we make a profit.
  • If Liquidity Pool (LP) rewards fall short of our payout rate to Earn users, we will use corporate funds or profits earned previously to meet the payout rate.

Longer-term, StraitsX Earn may adjust payout rate to ensure business stability

We will always inform users one week in advance of any adjustment in rates, and users may redeploy their funds at any time as they deem fit.
Submit your interest in StraitsX Earn here today.

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