Modeling DeFi Pt. V – cLQDR Leverage

Ahoy Mateys

Hello pirates! What’s kraken? Not too long ago I tweeted about some Liquid Driver strategies and I thought today would be a good day to elaborate on one of those options, cLQDR.

Liquid Driver is a pirate-themed liquidity mining dApp providing liquidity-as-a-service (LAAS). When users deposit LP tokens in Liquid Driver farms (earning LQDR), they are redeposited in partner farms to generate yields that are redistributed to locked LQDR holders. This incentivizes holders to lock LQDR, removing supply from circulation and earning daily yield from multiple protocols. I believe it is a fantastic way to gain exposure to some of the best protocols on Fantom and grow your treasure.

This article will provide a brief mathematical overview of some LQDR exposure strategies. I will not go into the pros and cons of each strategy in this article. You can find some in my Twitter thread and the Liquid Driver Discord. At the request of some community members, I have modeled a basic cLQDR leverage strategy to demonstrate performance.

Twitter Recap

You can find my original thread here. I have since improved the compounding mechanics of my model (very exciting) and provided an updated chart below. Remember that APRs change constantly, so the chart is inherently slightly outdated. It is worth noting that at the time of writing, beLQDR is having liquidity issues, and mLQDR (the new Morpheus Swap strategy where users earn $wFTM and $MORPH) has very low TVL. I have also switched out the originally modeled Reaper crypt for the ‘Spiritswap LP staked in Liquid Driver’ Reaper crypt because it has a higher yield (more pirate booty). The new plot looks like this:

Direct your attention to the mLQDR curve (it may look practically linear, but I assure you, ‘scurvy). You may have noticed that at the time of the snapshot, the mLQDR strategy can double your capital in less than half the time of the other strategies. This is because the strategy is highly incentivized by $MORPH emissions. Since this strategy is new, the current TVL is quite low. If you recall from Modeling Defi – Part 3, TVL, yield, and term have a distinct mathematical relationship. As TVL grows, emissions will spread thinner, and yield will decrease. By all means, it can be great to earn a bit of high yield for a short time, but I implore you all to consider the sustainability of the yield. It is cool to see previous Modelling DeFi articles come together to inform decisions.


In my Twitter thread, I discussed cLQDR and the potential to leverage your position to outperform other strategies. I thought it would be interesting to model this concept. The MOR lending cap on cLQDR is quite low, in line with the price impact implications of liquidation via cLQDR liquidity. While this limits how much everyone can borrow, it is a very smart risk management approach to mitigate against bad debt (Modelling Defi – Part 2!). Expect the loan cap to increase with liquidity.

The strategy I have modeled simply entails acquiring cLQDR, borrowing MOR, and using it to acquire more cLQDR. We will not try to outperform mLQDR for now because we do not know how sustainable that curve is, but we can try to outperform by holding an xLQDR position and even a Reaper crypt.

Strategy Design

The strategy starts with one unit capital of cLQDR. Based on a leverage input, the model borrows an appropriate amount of MOR and converts it to cLQDR. If you recall the original auto-compounder model, relative time is discretized into one hour time steps, and in the case of cLQDR, compounded every 24 time steps (cLQDR is compounded daily). After compounding occurs, the value of our cLQDR increases, so the model borrows more MOR to maintain leverage, and converts it into cLQDR at the new cLQDR price.

This is equal to a user checking their position daily and borrowing a few extra MOR to maintain their leverage, and converting it into cLQDR.

We can compare strategy performance by changing the leverage input. Keep in mind that the model ignores gas fees and price action. There is always a risk of liquidation!

Choose Your Own Adventure

We can see that at 1.0x leverage, cLQDR underperforms xLQDR, but this is expected because of the 12.5% compounding fee. If we apply some leverage, at 1.1x, the position closely matches the performance of the Reaper crypt, but still falls shy of xLQDR. At 1.2x leverage, the strategy outperforms. Thus, ignoring price action, a little over 1.1x leverage is all that is required to match the performance of xLQDR. Of course, the leverage strategy is slightly more involved than the Reaper crypt as you would need to adjust your leverage regularly to get the full benefit.

Also, consider that this is not the only leverage strategy available. You could adjust leverage less frequently, take out a much larger loan at the start and let your cLQDR grow in value, etc. I have only modeled one strategy, to demonstrate the effects of leverage in this case. Whatever strategy you choose, please manage your risk appropriately and avoid liquidation!

Thank you

Thanks for reading. Please let me know if this piece was useful (or if you think I made any mistakes and should walk the plank). The strategy I modelled was only one of many available. Since I have covered some key concepts in previous articles, I will continue to look for practical examples in DeFi protocols to help teach readers. Thank you to @0xH3pic the Liquid Driver community for providing thoughtful discussion.

Sea you next time,


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