Passive Income Opportunities in Flare

[brianwalden]

Everyone wants to know what the best way to earn passive income on the Flare Network is. We don't really know yet because we don't have hard numbers, but we can start to talk about strategies and fill in more details as they come out.

1) FLR Rewards - If you hold FLR on the network you can vote for FTSO data providers and earn a share of their rewards. The vote is detachable from your FLR, so your coins never leave your wallet. There's no risk (assuming the Flare Network itself works correctly); the worst that can happen if you vote for a horrible data provider is you won't earn any rewards. Rewards are distributed based on time not how many votes there are - the same reward will be split among the winners every so-many blocks whether 100 people vote or 1 million. Your slice of the pie is obviously going to be a lot bigger when it's split fewer ways, so one of the best things you can do is get in and vote as soon as the network launches. Beat the crowds and scoop up some early, big rewards payouts.

2) F-Asset Rewards - There are rewards for just holding FXRP on the Flare Network. I think, like the voting rewards, these are paid out based by releasing a set amount of FLR on a set schedule, not based on how many people hold FXRP. So the payouts will be higher in the early days when there are less FXRP holders. There should be no risk in holding FXRP, the system is designed so that you'll always be able to redeem it for XRP. But there will be fees for going back and forth between the two ledgers. You'll want to make sure that your expected rewards are greater than the fees for converting your XRP to FXRP. F-assets aren't expected to launch until several days or weeks after the network does, so you'll have some time to make a decision on what you want to do.

3) Minting F-assets - You will be able to give your FLR to an agent for them to use to mint more F-assets in exchange for a cut of the transaction fees they earn from converting to and from F-assets. There are risks in doing this because agents can be penalized and lose funds if they don't do their jobs. I suspect the system will be setup to limit the risk to ordinary people who are just putting funds into the collateral pool as much as possible, but we have to wait for the details. You should still be able to receive your FTSO rewards while providing collateral to mint F-assets.

4) Trustline - Trustline is a Dapp built on the Flare Network that aims to be kind of like a trustless bank. You will be able to deposit FLR and FXRP into the Probity Vault. Everyone's deposited funds combined will be used to collateralize a dollar stable coin, Aurei (AUR), which will be released both on Flare and the XRPL. People will be able to borrow AUR through overcollateralized loans (they have to put up more collateral than the loan they're taking out) and the people who put the funds into the vault to back AUR will get the interest that's paid on the loan. I think this is low risk - someone correct me, but I don't think you can lose money you put into the vault. Like all Dapps, your risk is if the smart contracts are coded poorly and don't work right/get hacked or if Trustline is a scam. Trustline has a novel system for determining variable interest rates based on the supply of AUR and the demands for loans. If they've only loaned out 50% of the total AUR that they've collateralized the interest rate will be 2% to encourage people to take loans, but if they've loaned out 95% the interest rate will go up to 20% to encourage people to put more funds into the vault and encourage borrowers to repay their loans. You should still receive Flare rewards while using Trustline's services. The people who deposit money into the vault will have the choice to be paid in either AUR or Trustline Credit Network (TCN) token. TCN will always be redeemable 1:1 for AUR, but it gives you a governance vote so it's expected to be valued higher than a dollar. Trustline calls this a semi-stable coin because the dollar peg gives it a price baseline that it won't go below, but there's nothing setting its upper limit. As with everything we'll have to wait for the details, but right now I see no downside to choosing to be paid in TCN over AUR. One last thing, due to popular demand Trustline is working on a way to be able to withdraw AUR without borrowing it - I don't know the details of how it will work.

5) Flare Finance - Flare Finance is another Dapp built on the Flare Network that seems like it's trying to be all the DeFi in one. I saved it for last because it's the most complicated. Like all Dapps, your risk is if the smart contracts are coded poorly and don't work right/get hacked or if Flare Finance is a scam. I think most of Flare Finance's products have additional risk. You should still receive Flare rewards while using Flare Finance's services. Flare Finance will be taking a snapshot of the ledger a month after the network launches and distributing DFLR a week after that based on how much FLR you had (you may want to pull all your FLR back into your wallet for the snapshot). DFLR is basically a coupon you'll be able to use to redeem for YFLR (yield-bearing FLR) which is Flare Finance's token that it uses within its products (as if all this Flare stuff isn't complicated enough already).

• FlareX - This is Flare's AMM exchange like UniSwap, SushiSwap, etc. You can put pairs of coins into liquidity pools in exchange for tokens representing your share of the pool. When you redeem the tokens, the coins you get back will include your share of whatever profits the pool made. Liquidity pools work by keeping a balanced value of each coin in the pool - that means the coins you get back will be different amounts than what you put in. If for example you put $100 worth each of FXRP and YFLR when they're both worth $1 each into a liquidity pool and FXRP stays the same but FLR doubles in price. Let's say when you redeem your share it's now worth $120 worth of each coin. That means you'll get 120 FXRP back, but only 60 YFLR. This brings up impermanent loss - with liquidity pools if the two coins diverge in price faster than the trading fees the pool earns can keep up, you can actually lose value verses just holding your coins and not participating in the pool. I think liquidity pools usually pay out best before too many people get in. You can study the existing swap sites to get an idea of the likely risks and returns.
• Flare Farm - This let's you stake coins in return for a yield paid in YFIN, Flare Finance's governance token. I don't know what they do with the staked funds, so I don't know exactly what the risk is. There will only be 11,000 YFIN ever minted so it seems like staking to earn YFIN may be a good investment, but on the other hand you have no idea how it will be valued. In contrast, you know your yields from Trustline will always be worth at least a dollar. You can stake your tokens from liquidity pools in addition to individual coins, so that's a nice way to earn two ways from the same coins.
• Flare Wrap - This wraps ERC-20 tokens from Ethereum to port them over to the Flare Network. I don't know that there's a way for us to participate in the wrapping process to make money, but it may give you an opportunity to bring Ethereum tokens over to use them in Flare Finance's other products. I'm sure there will be a fee for wrapping/unwrapping tokens and the counterparty risk if Flare Finance fails to redeem them .
• Flare Loans - If you're familiar with CeFi services like Nexo and Celsius, you know how these work. You put up more collateral than your loan is worth and in return you can take a loan to have access to money without spending your crypto. Unlike a credit card, you have no real risk of falling into debt - in the absolute worst case your collateral gets used to pay off your loan (but you still get to keep that Lambo or whatever you used the loan for). The real risk of these loans a flash crash where you can't either add more collateral of pay off some of the loan and your collateral gets liquidated. If the price of the coin you used as collateral then shoots back up, you've now sold at rock bottom. Loans are usually a worse interest rate than you could get from a bank if you've got good credit, but they let you extract value from your crypto without causing a tax event - just make sure to watch your LTV ratios.
• Flare Mutual - Flare Finance is going to be doing distributed insurance. I have no idea how this works - maybe @KarmaCoverage can chime in.
• Flare Mine - Flare Finance is somehow rewarding people with FLR for mining on other ledgers. I'm not a miner, I don't really get it.
• The Governance Pool - If you have YFIN you'll be able to stake it in the governance pool, which is a fund used to keep the yield rates across all Flare Finance products healthy. By being in this pool you can basically earn a reward if Flare Finance does really well and makes significantly higher yields than expected or really poorly and the pool's funds are loaned out to boost yield rates.

That's what I know about the various passive income opportunities in Flare. I'll happily accept corrections and updates. There are a number of other projects like Handshake, Gala Games, Propy, Metaverse, and others that I'm sure I'm forgetting. I think it may be worth while to throw a little bit of money at anyone building on the Flare Network, but I don't know of any passive income opportunities that these projects offer.

Edited June 5, 2022 by Seoulite

[brianwalden]

Wow. I wrote this on my laptop and now I'm looking at it on my phone. That's quite the wall of text.

[KarmaCoverage]

2 hours ago, brianwalden said:

Flare Mutual - Flare Finance is going to be doing distributed insurance. I have no idea how this works - maybe @KarmaCoverage can chime in.

They are copying Nexus Mutual methods, which I can see sort of working, but leaves the door open to price fluctuations impacting coverage.

I spoke to Flare Finance guys about this and gave them some basic thoughts, but that was several months ago and I dont remember exactly what my points were.

My conclusion was, this may work for now, but definitely leaves room for improvement. 

[efFofexX]

5 hours ago, brianwalden said:

I think that because the FLR will no longer be in your wallet but in the collateral pool, you won't get to use it to vote for FTSO providers. So you'll have to weigh if you think the return will be higher by keeping your FLR and voting with it or by using it to collateralize F-assets.

Unless there's been an update to this Flare Network overview from last year, we should be able to do both. From the webpage linked above:

"The mechanism also allows SDA’s such as FXRP to delegate Spark votes back to the ultimate owner who can then re-delegate those votes further to entities he wants to vote on his behalf. So if Bob has 5000 Spark tokens in the FXRP application, it will delegate the votes from those tokens to an address specified by Bob. If Bob wants a dedicated data provider to contribute to the FTSO on his behalf, Bob can then re-delegate his votes for the FTSO to the data provider. Importantly this means that Bob doesn’t have to choose between earning Spark by providing collateral to the FXRP application and potentially earning the reward from the FTSO, he can do both."

Hopefully this is still accurate (and I'm understanding correctly).

[LaBelleSaison]

8 hours ago, brianwalden said:

3) Minting F-assets - You will be able to give your FLR to an agent for them to use to mint more F-assets in exchange for a cut of the transaction fees they earn from converting to and from F-assets. There are risks in doing this because agents can be penalized and lose funds if they don't do their jobs. I suspect the system will be setup to limit the risk to ordinary people who are just putting funds into the collateral pool as much as possible, but we have to wait for the details. I think that because the FLR will no longer be in your wallet but in the collateral pool, you won't get to use it to vote for FTSO providers. So you'll have to weigh if you think the return will be higher by keeping your FLR and voting with it or by using it to collateralize F-assets.

On this part we know little so far, though how to mint F-assets from the original asset (e.g., XRP) is a little clearer. According to the information available on Youtube, we will first get XRP from the agent and then can convert it to FXRP, and it is prospected that rewards from F-assets will be higher than those from delegating the FLR votes to FTSO. If so, this avenue is worth considering especially for those who have problems in converting XRP to FXRP due to the tax. 

[Seoulite]

Just saw this, what do you guys think?

 

[Guest]

6 hours ago, LaBelleSaison said:

On this part we know little so far, though how to mint F-assets from the original asset (e.g., XRP) is a little clearer. According to the information available on Youtube, we will first get XRP from the agent and then can convert it to FXRP, and it is prospected that rewards from F-assets will be higher than those from delegating the FLR votes to FTSO. If so, this avenue is worth considering especially for those who have problems in converting XRP to FXRP due to the tax. 

The tax question has been on the top of my mind for a while and here's how Cointracker sees it - https://www.cointracker.io/blog/defi-yield-farming-crypto-tax-guide

Effectively, they say it is reasonable to have the default to be not-taxable because the intent behind wrapping is not disposition. 

[Guest]

Here's a reasonably well put together documentation on how to earn rewards from Flare - https://www.alphaoracle.io/flare-network/ways-to-earn/, and about Flare in general - https://www.alphaoracle.io/flare-network/.

Note: It doesn't speak to specific products built on Flare. Just about Flare itself.

 

[brianwalden]

2 hours ago, Ripley said:

The tax question has been on the top of my mind for a while and here's how Cointracker sees it - https://www.cointracker.io/blog/defi-yield-farming-crypto-tax-guide

Effectively, they say it is reasonable to have the default to be not-taxable because the intent behind wrapping is not disposition. 

First, it's crazy that there's no IRS position on this stuff. The IRS is basically telling everyone to interpret the rules in their own way and they'll let you know after the fact if they disagree with you. That violates the basic principles of rule of law.

I agree with you on the argument that wrapped assets, where your asset is locked up so that your can receive a token representing it on a different network, isn't a sale and therefore isn't taxable.

I originally thought the same thinking would apply to F-assets, but the more I learn about them, the more I think it will be taxable. Flare has explicitly created a system where the native asset isn't held in custody because that creates trust issues as well as regulatory issues in many jurisdictions. But in doing so they've created a system where you're essentially trading one token for another. After the trade both parties now own the opposite coin and are free to do whatever they want with it. No one is holding anything in custody for the other person. I think this is a trade and is taxable.

But don't go by what I think. Flare has said they will be issuing tax guidance (while being explicit that they are not giving tax advice). I assume this will come out prior to launch. I will follow what they say.

[brianwalden]

4 hours ago, Seoulite said:

Just saw this, what do you guys think?

 

Thanks. I know Trustline has also said that they were working with Flare to see if people could still get their rewards. I think this confirms that we can expect that to happen. I will update my post to reflect that you should still receive your rewards even while using these services.

If you parse Flare's statement carefully, it looks like the rewards do in fact go to the wallet holding the asset. Flare expects that Dapps will in turn give those rewards to the people putting up the assets that earned the rewards, but it doesn't sound like it's going to be enforced on a protocol level.

I wonder if Flare will also take a position on whether the rewards should be paid in FLR, same as they're received, or if these Dapps can pay out the equivalent value in their native tokens (AUR and TCN for Trustline, YFLR and YFIN for Flare Finance).

[brianwalden]

I was just reading the Flare Finance white paper. I don't think YFLR is pegged to FLR. At least it doesn't say anything about that. I think I thought it was because of the name and because it will originally have the same supply as FLR. But FLR is inflationary, and YFLR has a fixed supply so I don't see how it could be pegged.

[Seoulite]

53 minutes ago, brianwalden said:

I was just reading the Flare Finance white paper. I don't think YFLR is pegged to FLR. At least it doesn't say anything about that. I think I thought it was because of the name and because it will originally have the same supply as FLR. But FLR is inflationary, and YFLR has a fixed supply so I don't see how it could be pegged.

Yeah I don't think the intention was ever that FLR and YFLR would be pegged. As has come up a few times, there are issues with Flare Finance using the word Flare in everything they do, even naming the token YFLR. It tends to muddy the waters in people's minds somewhat.

[Seoulite]

 

[BillyOckham]

Maybe I’m just thick but this seems very muddled and fraught to me.

 

These guys should have already prepared doco for all this but like many IT projects that’s an afterthought.  I’m now less impressed with their planning than I was previously.

I hope all this clarifies soon.

[Seoulite]

Also dunno where I should post this so I'll just post it here, doesn't need a thread of its own. Hugo just talked on Twitter with some guy from the Doge community, I caught the end of it. Heard Hugo say 'the vast majority of exchanges that supported the airdrop have also agreed to list the token.' That could be immense. 

Said they were going through due diligence with Binance but they don't know yet it Binance is going to list it.

 Oh also forgot to mention that Hugo hinted at adding ADA again. Said it’s because yes they have smart contracts but they don’t have EVM smart contracts.

Edited May 21, 2021 by Seoulite