Auto-compounding Strategies

Auto-compounding means that the user's investment yields are automatically reinvested into the investment principal at regular intervals, so that the investment yields of the investment yields can be obtained in the following time. It is one of the most common and robust investment strategies.

Strategy Logic

Almost all protocols' yield opportunities (such as liquidity mining, transaction mining, borrowing mining, etc.) require users to manually interact with smart contracts to obtain yields. Moreover, if the user wants to reinvest these yields back into the investment principal and continue to obtain investment yields, he or she needs to further manually interact with the smart contract.

In order to achieve higher returns through compounding interest, users need to interact with the protocol frequently to reap their investment yields and reinvest. However, the vast majority of users are unable to manually maximize returns for the following reasons:

  • The optimal compounding time interval is generally less than 1 day, and most users cannot keep interacting with the protocol in such a short time interval.

  • Harvesting your own investment yields and reinvesting require gas fees. Frequent operations on some chains can come at a high cost making it not viable as a yield strategy.

The Auto-compounding strategies solve the above two problems faced by a single user:

Harvest and reinvestment through program automation, enabling continuous operation at very short optimal compounding time intervals.

By bundling the harvesting and compounding operations of all users together, one operation completes the harvesting and compounding operations of all users, which greatly reduces the gas cost of all users and improves the benefits of all users.

Strategy Operations

The following are the detailed operations of a strategy:

We understand that any fee may mean a decrease in user revenue, but, we also understand that the effective use of protocol revenue can better help the UpDeFi protocol grow, thereby bringing higher benefits to users of the UpDeFi platform.

In order to ensure the long-term development of the UpDeFi protocol and bring the highest income to UP token holders, the Auto-compounding strategies require the following fees:

NOTE: These fees are deducted from the yields harvested by the strategy during this period when the reinvestment operations are performed by a strategy.

Deposit fee (Long-term Commitment Incentive)

Yield aggregators with auto-compounding strategies face the risk of being attacked by flash loans to capture user profits (the users' principal will not be attacked by flash loans) when reinvesting. Therefore, yield aggregators usually have deposit fees or withdrawal fees designed to avoid flash loan attacks.

UpDeFi protocol also adopts the design of the deposit fee to avoid the risk of being attacked by flash loans, but UpDeFi protocol and the team do not charge the deposit fee. The deposit fee is handed over to the existing users in the strategy when a user deposits funds in the strategy.

When “user A” deposits funds into an auto-compounding strategy, a small percentage of his invested principal is distributed to all users already in the strategy. Similarly, users who deposit funds after “user A” will also need to allocate a small percentage of their invested principal to users who entered the strategy before them, so “user A” can share this part of the principal.

The deposit fee is actually a long-term commitment incentive. The earlier the user deposits into the strategy and the longer the duration they stay, the higher the long-term commitment incentive they can get.

NOTE: The current deposit fee is 0.08% of the principal amount.

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