Fractal Deep Dive
TL;DR — Fractal is using LI.FI as a money lego to power cross-chain yield farming.
What Is Fractal Protocol?
Yield generation is now a cross-chain experience thanks to Fractal Protocol. Developed by the Fractal Foundation, the dApp describes itself as an “omni-chain fixed yield protocol.”
The premise is simple. Users deposit USDC on Ethereum and receive Fractal’s yield-bearing token USDF in return. From there, the deposited USDC is sent out across a multitude of EVM-compatible chains to engage in various DeFi and lending strategies. These strategies are programmed to route to the chains and dApps offering the best risk-adjusted yield. USDF is then redeemable for a user’s initial USDC deposit, along with any accrued interest.
Why Is Fractal Protocol?
Fractal Protocol is here to bring yield generation back to the shrimps.
DeFi is hard, DeFi is confusing, and DeFi is frustrating. Why? Because it was invented less than two years ago, the UX was not created to protect the normies, and it feels like new chains and dApps hit the scene every five minutes.
Liquidity provisioning, the practice of providing liquidity to DeFi protocols in exchange for fees and token rewards, is a DeFi mainstay. However, what was once a simple activity pioneered by Yearn and Pickle is now a full-time job thanks to the ever-growing number of chains, liquidity mining programs, and sophisticated whales making yield farming nearly impossible for the average user.
Additionally, yields are incredibly volatile. A protocol may profess to offer 213% yield via its governance token — but that yield can be quickly destroyed if the value of said governance token falls (as we have seen over and over again in 2022). Additionally, hidden costs like bridge fees, entry + exit expenses, and network gas can cut into the prospective yield for farmers, especially if a user is attempting to earn APY on less than 10,000 USDC.
Due to the nature of the cross-chain space, liquidity (money) is now fragmented across several smart contract platforms. For example, tokens deposited on Ethereum cannot be utilized on Avalanche because Ethereum and Avalanche cannot natively communicate with each other. So, while the total value locked in DeFi protocols has grown exponentially since 2020, many of those tokens are not additive to the ecosystem because they are locked into chains that cannot speak to each other.
Fractal aims to make yield generation a cross-chain experience via a simple, easy-to-navigate user interface.
How Is Fractal Protocol?
Here’s the gist: User A deposits stablecoin X and receives USDF. From there, Fractal sends out stablecoin X across various chains to perform multiple financial strategies to earn yield, which is then paid back to depositors. The flow looks something like this:
Now let’s get into the logistics. As described in their documentation, Fractal Protocol can be broken down into six components.
- USDF Master Vault → this is what retail users interact with. Users deposit stablecoin collateral into the USDFMV and receive yield-bearing USDF in return.
- Yield Reserve → this is where interest accrual (or the yield generated from deposits) resides.
- Strategy Manager Vaults → each chain has a strategy manager vault that determines how to use the funds bridged over from mainnet. The strategy manager is in charge of deploying stablecoins into strategies and then receiving/bridging back the earnings gained from deploying said strategies.
- Strategies → strategies deploy capital to generate yield. Examples of strategies include acting as a relayer for a bridge (like Across), yield farming on forks of Uniswap/Compound/Aave, and more.
- Off-chain Monitoring → Fractal utilizes a set of scripts for tracking yield, entry/exit fees, impermanent loss, and cross-chain arbitrage opportunities that automatically rebalances functions to allocate capital to the most opportune strategy and chain.
And…
6. Bridge Routers → this is where LI.FI comes in. LI.FI is a bridge and DEX aggregator that powers cross-chain solutions for dApps like Alchemix and DeFi Saver. By using the LI.FI tech stack, Fractal Protocol can determine the most efficient path from Ethereum to every chain it has a strategy deployed to.
An example workflow would go as follows:
- User mints 100 USDF using 100 USDC
- Master Vault sends 90 USDC to the Yield Reserve (10 USDC remain as a buffer for redemptions)
- Yield reserve deploys capital across four chains via bridge routers using chain-specific weights determined by Fractal (ex: 40 USDC on AVAX, 20 USDC on FTM, 20 USDC on MATIC, and 20 USDC on ETH)
- Each strategy manager vault deploys the capital among active strategies
LI.FI x Fractal Protocol
LI.FI is metaverse plumbing. It helps users take asset X from chainA to chainB. However, most end-users will never see LI.FI because it is a B2B solution. It’s a tech stack that powers cross-chain solutions for dApps.
The technical term for LI.FI is a “bridge and DEX aggregator.” We have created a single set of smart contracts that routes crypto-assets through 10 bridges and 20 DEXs, across 17 chains.
In a nutshell, LI.FI is like 1inch & Paraswap for bridges; we choose the best bridge to move funds from one chain to another. Furthermore, since many bridges support a limited amount of tokens, we have DEXs on both sides of the bridges to swap before and after the bridge, thus facilitating any-2-any swaps across chains.
Think of LI.FI like the ultimate cross-chain money lego for dApps.
- We’ve integrated multiple fallback bridges + DEXs so that dApps don’t have to
- We maintain bridges + DEXs so that dApps don’t have to
- We choose the best bridges based on our research so that dApps don’t have to (positioning ourselves neutral)
In the context of Fractal, LI.FI is just a means to an end. It is how funds deposited on mainnet are routed to the EVM compatible chain offering the juiciest rewards. Via LI.FI, Fractal transforms cross-chain yield generation into a one-deposit, one-click interface, thereby neatly abstracting tons of complexity away from the end-user.
As a protocol that prides itself on user experience, LI.FI is proud to add Fractal to the family and cannot wait to see what else they build!
For more information on Fractal, check out there…
Get Started with LI.FI Today
To learn more about us…
- Head to our link portal at links.li.fi
- Read our SDK ‘quick start’ at docs.li.fi
- Join the official Discord server
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or try our any-2-any swaps NOW at transferto.xyz
