Kalmar Project Insight: The First DeFi Bank Offering Leveraged Yield Farming

Kalmar is committed to the success of its ecosystem and is striving to be a top DeFi protocol. Their leveraged yield farming services are currently in testnet and are underway security tests.

By
Greg Gotsis
on
March 10, 2021
Category:
Project Insight

Introduction

The Kalmar team has been eyeing the Ethereum network since the launch of prominent Daoos began occurring. The use of smart contracts has allowed developers to introduce novel solution to the crypto space such as automated market makers, lending, and recently, leveraged yield farming. Currently DeFi is one of cryptos fastest growing sectors with over 40B USD locked in DeFi platforms. While the DeFi sector is flourishing, the Kalmar team has identified some weaknesses. These consist of high transaction costs, complicated UI/UX's, and many Dapps that all vary in design. The Kalmar team has focused on creating a user-friendly DeFi bank to combat these issues, offering numerous DeFi services from one Dapp. Further, the team has chosen the Binance Smart Chain to reap the rewards of quick block times and minimal transaction fees.


Kalmar.IO

As DeFi protocols continue to innovate, Kalmar aims to be at the forefront. Kalmar's bank Dapp will provide users with easy access to lending, derivatives, payments, and liquidity provision. This Dapp aims to bundle all prevalent services into one, catering to the user. This is crucial as currently, users would have to interact with multiple Dapps to access all of these features. The team doesn't stop there, as their end vision is to "provide its users with an opportunity to constantly benefit from various industries… in a single user-friendly platform." In short, Kalmar is striving to create mass and straightforward adoption through consolidating DeFi services into one single protocol. The team is confident in their goals and believe the BSC is a great place to start with its rapid user growth alongside the low transaction fees.


Key Features

  • Exchange aggregation
  • Leveraged yield farming product
  • Bug bounty
  • Emphasis on security
  • Live testnet

Exchange Aggregation

The team has noticed that there are already a large number of DEX AMM's on the BSC. Instead of battling with already established protocols such as PancakeSwap and SushiSwap, Kalmar aggregates their liquidity. Through utilizing a yield aggregation engine, the team provides its users with token swaps using multiple liquidity routes. This allows users to minimize their transaction costs by reducing slippage and selecting the cheapest exchanges.

The following flow map outlines the two simplified functions of the Kalmar yield aggregation engine:

  Reading the prices and liquidity available on multiple decentralized exchanges

  Picking the best price for user's deal, taking in consideration the amount they want to swap

*This feature is currently not included in the testnet*


Leveraged Yield Farming

Leveraged yield farming is a fairly new product popularized by Alpha Homora, a derivative and yield farming protocol on Ethereum. Kalmar has also innovated on this front, offering users this service on the BSC. In this model, there are three roles: BNB lenders, Yield Farmers, and Liquidity Providers.

BNB Lenders:

These users provide BNB to the bank. When lending BNB tokens to the "bank" the smart contract returns a proportional amount of iBNB tokens. These tokens are interest-bearing assets that act as a receipt for the initial BNB deposited. The interest-bearing mechanism acts as a liquidity incentive, rewarding users who provide the needed BNB liquidity. This creates a yield farming model for those who lend BNB.


Yield Farmers:

Using the BNB from the lenders, the Kalmar smart contract is able to provide users with up to 2.5X of the APY. For users to borrow this BNB, they simply supply their yield farming pair, which is used as collateral. On top of utilizing the lent BNB, Kalmar also incorporates basic yield optimization strategies. The smart contract reinvests the liquidity rewards and trading fees collected for more of the respective LP tokens. This allows for complete automation of yield farming while simultaneously introducing compound interest. The Kalmar team provides the following example:

User X has 100 BNB and wants to farm CAKE by using PancakeSwap's CAKE/BNB Farm.

Normally, User X would split his 100 BNB in 50 BNB worth of CAKE and 50 BNB and provide liquidity and farm CAKE with the 200% APR PancakeSwap provides.

User X wants to get higher rewards, so he uses Kalmar's Yield Farming platform to borrow another 150 BNB from the bank. He uses leverage to yield farm PancakeSwap's CAKE/BNB Farm with a total of 250 BNB, which gives him 500% APR, more than double of what he'd receive if he farmed with only 100 BNB.

It is good to keep in mind that User X also has to pay the borrowing interested on the borrowed amount and make sure his position value doesn't drop below the minimum threshold, in which case his position will be liquidated.


Liquidity Providers

Liquidity provider's play a very similar role to that of yield farmers. The key difference is that liquidity providers utilize liquidity pools with no additional yield incentives. Unlike the yield farmers, who earn both liquidity rewards and swap fees, liquidity providers only earn swap fees. This is due to no specific "farm" being offered to the respective liquidity pair. Other than that, the mechanisms of leverage remain the same, allowing users to increase their LP fee earnings.

*Currently, this feature is not live on the testnet*


The Process of Leveraged Yield Farming

The Kalmar team does an elegant example of explaining the process of leveraged yield farming. Once a user supplies the respective token pair, the following process will be executed:

  1. The smart contract borrows the amount of BNB from the bank based on your leverage level.
  2. The assets are swapped, making sure you have equal value on both sides of the pair.
  3. The liquidity is provided for the said pair on the protocol chosen.
  4. LP Tokens are received for the liquidity provided.
  5. The LP Tokens are then staked in the farm of said protocol.
  6. Reward tokens are farmed.
  7. The farmed tokens are sold for more liquidity, increasing the total value of your position.
  8. Repeat.


Risks

Leveraged yield farming adds a layer of liquidation risk to BNB borrowers -- yield farmers and liquidity providers. This risk is introduced to protect the borrowers if a user's leveraged position becomes at risk of defaulting. Kalmar adopted a different system to Alpha Homora's manual system, which requires liquidators. The Kalmar system enforces the liquidation debt ratio automatically through smart contracts. This model's main risk is that a borrower's asset's price may drop too rapidly, resulting in only a partial portion of BNB being repaid. The team has noted that this is yet to happen, but it is still a plausible risk.

In turn, the smart contract acts as a middleman between the BNB lenders and the liquidity providers/yield farmers. The liquidation event ensures that BNB lenders are protected when the borrower is at risk of defaulting.

Security

The team at Kalmar has a large focus on security. With the recent smart contract exploits, it is a good sign to see a protocol take extra precautions. The team is currently in testnet while they are working on audits. The testnet is open to all users, and there is a hefty bug bounty for anyone who finds critical exploits. Those who have Solidity experience and can identify a critical bug will be rewarded upwards of 10,000 USD. This bounty and audit service comes in partnership with Hacken and HackenProof. Hacken, a cyber-security consulting protocol, will be auditing the contracts. Alongside this, the partnership with HackenProof, a bug bounty, and vulnerability coordination platform, will ensure the bug bounty rewards. 

This large bug bounty is offered as an incentive to further strive for the security of the protocol. Notably, the team is taking the proper precautions in testnet and in receiving audits before launching.



Roadmap

The Kalmar team is also striving to provide innovation in NFT gamification. Kalmar is first striving to make a community-based platform with a collection of different party games. This platform will be easy-to-play and a great entertainment source for users who simply invite their friends to multiplayer games in seconds. As Kalmar is a community-based platform, there will be no "pay-to-win" scenarios, and nearly all games will be free. Further, users will be able to earn real tangible rewards through random cosmetic items or characters. These rewards will be distributed on every Kalmar transaction. These rewards will be stored as Non-Fungible Tokens (NFT's), which can be bought, sold, traded, and collected.

Further, the team has plans on furthering Kalmar as an NFT ecosystem. This will be done through a NFT Technology Fundraiser, which currently has limited details.


Concluding Thoughts

Kalmar is striving to be at the forefront of innovation in the Binance Smart Chain DeFi space. Their leveraged yield farming services are currently in testnet and are underway security tests. The team does not plan to stop there, as liquidity aggregation and NFT Gamification is also on the roadmap. Kalmar has set out with a mission to improve the DeFi space by offering a user-friendly UI/UX to their DeFi bank. Currently, users must use three different Dapps if they wish to access leveraged yield farming, token swaps, and NFT-Fi. This is what Kalmar aims to solve efficiently. Instead of launching on the Ethereum network where users pay ~30x more in fees, the team opted for the economical option, the BSC.

In short, Kalmar is committed to the success of its ecosystem and is striving to be a top DeFi protocol. The team is yet to launch, so there is tons of development to go, but Kalmar will be a key protocol to watch if appropriately executed.

For those who wish to learn more about Kalmar check out the following resources:

Website

Testnet

Docs

Twitter

Overall it is vital to proceed with caution when purchasing tokens that have just been listed. For those who have not already read our articles on safety in the BSC it is crucial to reference the following items, HERE and HERE.

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Greg Gotsis

Greg (GoonTrades) is BSC News' Chief Editor and is also a writer for the team. Currently enrolled as an economics major, he finds himself as a cryptocurrency researcher, writer, and technical trader.