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Volatility Farming

PreviousRevenue SharingNextLeveraged Volatility Farming (LVF)

Last updated 14 days ago

Volatility Farming is a method of earning yield based on the fluctuations in the price of assets. It leverages price discrepancies between wrapped tokens (pTKN) and their underlying assets (TKN) to generate profits for liquidity providers.

  • Arbitrage and Volatility: As the price of the underlying token (TKN) fluctuates, the price of the wrapped token (pTKN) does not immediately reflect these changes, creating arbitrage opportunities. When the price of TKN moves but pTKN remains stable, arbitrageurs can buy pTKN at a discount or sell it at a premium, depending on the situation.

  • Protocol Revenue: These arbitrage transactions help generate real yield for liquidity providers by collecting fees from wrapping, unwrapping, and trading actions.

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