Tarot is a decentralized lending protocol where users can participate as lenders or borrowers in isolated lending pools. The Tarot Protocol facilitates a new kind of leveraged yield farming experience for borrowers, with enhanced farming and vault rewards, while enabling lenders to earn significant yield on supplied tokens without the risk of impermanent loss.
Liquidity providers supply tokens to decentralized exchanges (DEXs) and other DeFi protocols.
When you provide liquidity to a DEX, you receive LP tokens as proof of contribution. For example, if you supply FTM and TAROT to a DEX, you will receive FTM-TAROT LP tokens in return. These LP tokens represent your proportional share of the total liquidity in the DEX for the token pair.
Whenever anyone swaps or trades on the DEX, a small trading fee is accrued to the liquidity pool as a reward for liquidity providers.
Liquidity providers on automated market maker (AMM) DEXs such as SpookySwap and SpiritSwap earn yield from transaction fees and possibly staking rewards. Tarot enables borrowers and lenders to significantly dial up (or down) the risk (and rewards) of this yield, respectively.
DEXs sometimes offer farms or staking pools allowing liquidity providers to stake their LP tokens and earn additional reward tokens. These farms provide an additional incentive to liquidity providers and help to offset the risk of impermanent loss.
Impermanent loss is one of the principal risks associated with being a liquidity provider.
The value of an LP token is always backed 50-50 by the underlying tokens in the token pair. Due to the nature of AMMs / constant-product market makers to uphold this ratio, a significant swing in the price of the underlying tokens relative to each other can result in a greater loss to liquidity providers compared to simply holding the tokens, assuming the liquidity is removed at that moment. (Hence, the loss is “impermanent.”)
Leveraged yield farming is a mechanism in Tarot that allows liquidity providers to use their LP tokens to borrow and acquire more LP tokens, with the expectation that the rewards from having more LP tokens (adding more liquidity to the DEX and earning additional yield and farming rewards) will exceed the borrowing cost.
Tarot’s unique LP token collateralization model and liquidation mechanics enable significantly leveraged yield farming positions. The risk of impermanent loss is also amplified with leveraged yield farming.
Lenders in Tarot indirectly provide liquidity by making their tokens available to borrowers for leveraged yield farming. Lenders do not risk impermanent loss with their supplied tokens, as the risk of impermanent loss is transferred to borrowers in the Tarot Protocol.
Total value locked (TVL) is a useful metric for DeFi protocols. TVL measures the amount of tokens locked in a protocol at a given time. Tarot includes the following elements in TVL calculations:
- Total collateral in lending pools (including initial collateral and leveraged positions)
- Total excess supplied tokens (i.e. that are not borrowed, since borrowed tokens are already accounted for in total collateral or not locked in the protocol)
A price oracle is any contract that provides on-chain access to price information for a token, usually denominated in terms of another token or an off-chain unit of account. Virtually every decentralized lending protocol requires timely and accurate on-chain prices in order to determine the value of collateralized loans, as well as to prevent borrowers from withdrawing more than the value of their collateral at any time.
There are various factors to the leveraged APR calculations in the UI, such as the current price of earned reward tokens (from Tarot Vaults, plus Tarot Farming Rewards, if applicable), earned trading fees, and borrows due to pool utilization. These are all factored into the estimated leveraged APRs displayed on the Markets page (“Leveraged LP APR”), on the Dashboard page (“Current APR Estimate”), within the Borrow tab for each lending pool (“Current APR Estimate”), and in the Leverage and Deleverage dialogs for each lending pool (“Estimated APR”).
On the Markets page, the Leveraged LP APR for a leveraged yield farming position is calculated based on initial LP collateral, and not the total collateral of the position.
On the Dashboards page, and within the Borrow tab for each lending pool, the Current APR Estimate is calculated based on the LP equity of your position (Total Collateral - Total Debt), and not the total collateral of your position.
If the leveraged APR calculation was relative to the total collateral, rather than your LP equity, the displayed APR wouldn’t change much as leverage is increased.
Imagine you deposit 100 LP tokens that earn 90% APR.
Borrowing 200 additional LP tokens, with 10% borrowing costs, results in 300 LP tokens (total collateral) earning 90% APR. The 3x leveraged APR would be displayed as 250% (270% yield, minus 20% in borrowing costs) on the original 100 LP tokens.
Most likely, the tokens you supplied are fully utilized by the lending pool.
The interest rate model dynamically adjusts rates by increasing the Supply and Borrow APRs during periods of high utilization. Supplied tokens may be temporarily unavailable for withdrawal when utilization is high, since they’re all borrowed. In the meantime, you’ll continue to earn the Supply APR.
Deleveraging breaks down your collateral into its constituent tokens and uses them to repay the outstanding borrowed amounts. If you deleverage the maximum amount, then your collateral will be broken down into the underlying tokens to repay your borrow balance, and any remaining tokens are returned to your wallet as tokens in the token pair, rather than as LP tokens.
If you wish to deleverage and keep the remaining collateral as LP tokens, choose a smaller deleverage amount that still corresponds to the “0 - Infinity” range for liquidation prices (1x leverage).
If the borrowed amounts for your position are lopsided or not equal, then it’s possible that deleveraging won’t be able to repay your entire borrowed balance for one of the borrowed tokens.
In this situation, you may need to repay some of the borrowed tokens individually, as deleveraging gets tokens via the breakdown of LP collateral (which is always backed 50-50 by the underlying tokens in the token pair).
There are two types of fees paid by borrowers to lenders in the Tarot Protocol. There is a fixed, one-time borrow fee of 0.1% whenever a borrower takes out a new loan. There is also the interest on borrowed tokens that accrues over time, according to the interest rate model.
There are no fees paid by lenders for supplying tokens, and no deposit or withdrawal fees.
The fee structure of the Tarot Protocol is described in further detail here:
Every borrow or leveraged position in Tarot has a liquidation price range. If the time-weighted average price (TWAP) reported by the price oracle goes outside the liquidation price range, the position is insufficiently collateralized and in a liquidatable state.
A volatile price swing in either direction may cause a borrower’s position to become liquidatable. LP tokens are always backed 50-50 by the underlying token pair, so when the price for the token pair goes up or down, the protocol needs to ensure there is sufficient collateral (in the form of LP tokens) to cover the borrowed amounts of both tokens.
For example, if the price for the token pair decreases and the position becomes liquidatable, this means the collateral is at-risk of being worth less than required to repay the borrowed tokens.
Similarly, if the price for the token pair increases and the position becomes liquidatable, this means the value of the borrowed tokens is at-risk of being too high to be repaid with the collateral. In both situations, to protect lenders, the loan may be repaid by a liquidator and the liquidation incentive is deducted from the borrower’s initial collateral.
The liquidation range for a leveraged position can change over time according to the collateralization formula, described in further detail here:
When a borrower is liquidated, the collateral is used to repay supplied tokens to the pool. Some or all of the borrowed amount is repaid, plus a liquidator receives the liquidation incentive. The borrower keeps any remaining collateral after liquidation.
By design, there is no frontend to perform liquidations as the process should be handled automatically via liquidator bots to ensure the stability of the protocol. Liquidation is permissionless and can be invoked by anyone willing to repay a liquidatable position and receive the liquidation incentive.
The reinvestment process for Tarot Vaults is permissionless, so anyone can invoke it to compound an entire vault and receive the reward bounty (1% of the vault’s pending rewards). This process, along with the low transaction fees on Fantom, results in Tarot Vaults automatically compounding (up to) many times per hour.
Even without leverage, Tarot Vaults are one of the most competitive auto-compounding vaults on Fantom, with no deposit or withdrawal fees and much lower reinvest fees than similar auto-compounding farms.
The bTAROT and cTAROT tokens are receipts for the borrowable (supplied) tokens and collateral (LP) tokens in a lend, respectively. They can be exchanged for their underlying tokens.
Balances for bTAROT and cTAROT can be different because there is an effective exchange rate between a supplied token and its corresponding bTAROT token, and an LP token and its corresponding cTAROT token.
It’s possible for RPC issues due to network congestion to result in outdated information in the UI. You are encouraged to set your RPC endpoint configuration for Fantom to:
Outdated information may also be displayed in the UI due to slow syncing with the subgraph. If your transactions have gone through and the subgraph catches up, it will eventually display properly. The APRs displayed in the UI use information from the subgraph in their calculations, but the actual APRs and interest rate models are applied via smart contracts.
You can see your accrued interest reflected in an increasing supply balance over time as your lending position (bTAROT) accrues fees via the Supply APR.
Learn more about TAROT and xTAROT here: