ILMs: Simplifying and Enhancing Your DeFi Strategies
Summary TL;DR
- Automated Strategies: Integrated Liquidity Markets (ILMs) automate and rebalance borrowing and swaps, making it easy for users to magnify rewards by simply depositing a base asset.
- Seamless Management: ILMs remove the manual burden of monitoring health factors and liquidation risks, offering targeted leverage ratios and automatic rebalancing to maintain stability.
- User Benefits: ILMs have no hidden fees, auto-compound yields, and have been audited by Certora, ensuring a secure and optimized environment for ETH holders and stakers.
Introducing ILMs
Integrated Liquidity Markets (ILMs) are vault strategies that run on auto-pilot. ILMs make it easy for users to magnify rewards by abstracting away time consuming transactions. By simply depositing a base asset, you can participate in an ILM. Behind the scenes, ILMs automate and rebalance any borrowing/swaps needed to obtain leverage, helping users realize their intended strategy without the manual burden of monitoring their own health factor and liquidations on lending and borrowing platforms.
ILM strategies are an umbrella term that cover various automations that can be achieved. Depending on the ILM strategy, a user can either magnify staking rewards or go long on ETH with varying amounts of leverage. ILMs are built for those looking to put their ETH to work in an optimized environment. ILM strategies have been audited by Certora (auditor of AAVE, LIDO, Compound), and are built by contributors from Seamless Protocol, the largest native lending & borrowing platform on Base.
How do ILMs work?
A key focus for ILMs is making it simple and seamless for users to get started, automating any borrow/swaps for looping assets. To illustrate, let’s take a look at one of the first ILM strategies, the 3x leveraged wstETH/ETH looping strategy. Here’s how it works:
- A user deposits wstETH into the ILM and receives an LP Token signifying their position in the strategy.
- ETH is borrowed from the supply side of the Seamless Protocol lending & borrowing markets.
- This borrowed ETH is swapped into a concentrated liquidity pool for additional wstETH, achieving a 3x leveraged ratio.
- wstETH staking fee rewards generated through this strategy are greater than the cost of borrowing ETH. This leads to the end user earning more staking rewards from this strategy vs simply holding wstETH
Since ILM participants receive an LP token signifying their position in the strategy, ILMs are effectively tokenized. Imagine the possibilities of how this can bring additional utility to ILMs moving forward. Collateral for lending? Swapping for other tokens? The list goes on, this is just the beginning.
How are ILMs Beneficial?
ILMs are liquidationless. When executing a DeFi strategy that involves lending/borrowing of other assets, users need to be mindful of their health factor and liquidation risk. If values of collateral change, a user may be liquidated to repay any loans that they’ve taken out.
Due to the automated aspect of ILMs, users do not need to worry about these fluctuations and therefore do not need to actively manage their position. With ILMs there are targeted leverage ratios, and whenever collateral fluctuates to deviate from those targets, ILMs automatically rebalance themselves aka buy/sell collateral to avoid liquidations and stay within their leverage bands.
On top of this, Seamless Protocol does not charge a streaming or management fee to execute ILM strategies. Other platforms charge their users to use these automated strategies, but Seamless believes in a transparent fee structure to ensure users maximize their profits.
Additionally, for yield related ILM strategies, any yield is auto-compounded back into the strategy leading to greater gains for users in the long run.
How many ILM strategies are there?
As of this writing, there are two primary types of ILMs:
- Magnified Staking Reward ILMs — Any wstETH/ETH Loop ILM Strategy
- ETH Long ILMs — Any ETH/USDC Loop ILM Strategy
Seamless Protocol plans to roll out varying amounts of leverage options for each type of ILM strategy, while also adding more types of ILMs in the future, such as Delta Neutral ILMs.
Getting Started
To start with ILMs, visit app.seamlessprotocol.com. On the Earn Tab, users can explore available strategies, learn more about each ILM, and choose one that is value aligned.
For more readings on ILMs, we recommend you check out Seamless’s 3 part Blog Series: Seamless Protocol’s ILM Blog Series
Seamless Protocol is the first decentralized, native lending and borrowing protocol on Base. Seamless lays the foundation for Modern DeFi, focusing on lower-collateral borrowing and a better user experience to inspire the masses.
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