Pair DeGods DUST and SOL for NFT Solana Yield in DeFi
Earn yield stacking DUST and participate in DeFi with SOL by providing concentrated liquidity.
Note: This article is not financial advice. Kamino Finance does not endorse any tokens or platforms mentioned in this article.
- Pairs two tokens used widely by Solana NFT communities
- Best in periods of high trading volume and low volatility
- Increased risk from pairing two volatile uncorrelated assets
This Mixed Strategy vault pairs two Solana ecosystem tokens. They are both volatile assets, and the vault provides users with full exposure to Solana price fluctuations on $SOL and $DUST with a higher risk of impermanent loss due to the possibility of divergence.
Why SOL - DUST?
The native token of Solana, SOL, and the fungible token of the Frank DeGods NFT empire, DUST, are less correlated than paired Layer 1 tokens, such as mSOL-ETH, as each token represents entirely different kinds of projects. However, the DeGods ranking in the world of NFTs makes the DeGods DUST token a consistently traded asset.
While users can participate in DeGods Staking to earn DUST, options for DUST staking are slim. Providing liquidity with Dust Labs’ DeGods token is one of the few ways to generate yield and participate in Solana yield farming with DUST.
What is SOL?
Solana’s native token is used to facilitate transactions on a Proof-of-Stake (PoS) network. Users buy Solana tokens to pay a small amount of SOL to validators to finalize their transactions, and Solana staking with SOL additionally helps to secure the network in return for Solana staking rewards for a variable Solana APY.
Users can stake Solana, participate in Solana lending, or provide liquidity to access Solana interest rates in DeFi. The Solana price today hovers around the mid-twenties, shortly after the Solana token reached a low of eight dollars and over a year since reaching an all-time high of over 250.
What is DUST?
The DUST token is the fungible token of DustLabs and the DeGods NFT. The Magic Eden DeGods ranking places the NFT project in the Top 10 of all NFTs on any chain. The $DUST DeGods migration from Solana to Ethereum has raised some eyebrows as the $DUST protocol parts ways with its genesis chain, and its sister project, y00ts, does likewise.
As the DeGods DUST token becomes a free agent (free Solana token?), it will become a cross-chain token existing on both Solana and Ethereum. At this point in the season, though, it's unclear how this free agency will pan out for the liquidity of DUST on two chains.
When to SOL - DUST?
Market making with volatile assets requires either short-term or long-term conviction about each asset’s performance in the market. For short-term plays, a stretch of high trading volume with low volatility (Solana price stays the same) is the goal, and for long-term plays, providing liquidity with tokens one believes will see future success is key.
For a short-term strategy, the goal is to earn high yields that beat Solana lending yield during periods of active trading with little divergence in the price of each token. Otherwise, users might find it more capital efficient to lend SOL for reduced risk against divergence.
For a long-term strategy, users can think of providing liquidity as a form of DUST staking to increase their stack of DUST tokens with an outlook that it will appreciate in the future. In the short or medium term, holding might beat providing liquidity for gains, but in the long term, the DUST and Solana rewards from fees can add up.
What are SOL - DUST Risks?
Impermanent loss is the greatest risk when Solana price and DUST price diverge. If one token moons while the other stagnates or drops in value, then the concentrated liquidity position could move so far out of range that it may be rebalanced at a loss. When a vault rebalances, impermanent loss is realized and compounded.
The category of Solana CoinMarketCap tokens sees a variety of project tokens fluctuating in value as the young network establishes a foothold in Web3 and DeFi. At one point, a position in $SOL and $DUST was an affirmative thesis to the question, “Is Solana a good investment,” but the projects have parted ways.
Conclusions on SOL - DUST?
The DeGods NFT community has been one of the most active on Solana. Although Dust Labs has recently launched y00ts, which were paid for in $DUST, the Frank DeGods organization has decided to move cross-chain, leaving the fungible token’s utility in the air until…the DUST settles.
DUST and SOL are two of the most widely traded tokens on Solana. Often, memecoins (like BONK) and NFT staking tokens (like DUST), see the most trade volume when paired with SOL rather than a stablecoin. The advertised Solana APY for this vault can reach the triple digits regularly, but short-term volatility can mean yield does not outweigh impermanent loss.