What is Saddle Finance?
Saddle Finance is an AMM for stablecoin swaps that spun out of Thesis, the crypto venture studio behind projects like tBTC, Keep, and Fold. Launched in 2021, Saddle Finance has embarked on a mission to strengthen liquidity across DeFi with its low-slippage swap engine.
To explain Saddle Finance, it’s important to mention that DeFi has many variants of the same token. For example, tBTC, WBTC, sBTC, and renBTC, are all pegged to the value of Bitcoin. We call them wrapped assets because the original asset is not supported by the blockchain it's deployed on. The way it works is that the underlying BTC is held by a custodian, and a tokenized version is issued on the Ethereum network.
Wrapped assets make trading easier across multiple blockchain networks, which is why protocols issue their own wrapped versions of Bitcoin and altcoins. Ideally, all wrapped assets should have their value pegged to the underlying asset.
The issue with the pegged value asset market is that the desired 1–1 trading isn’t easily accessible. Trading among and in between these types of assets can be expensive and inefficient, resulting in lost capital and therefore lost market leverage. This is where Saddle Finance comes in!
Saddle solves the pegged value crypto asset trading problem by offering an AMM specifically tailored to allow users to trade in between these assets with minimal slippage.
In exchange for the service provided, Saddle Finance receives a small fee that goes into maintaining the protocol. Upon consulting with the community, core developers are usually in charge of implementing the protocol upgrades. This ensures Saddle Finance stays safe from hacks and the protocol adapts to the market conditions.
As the number of transactions increase, the fees quickly add up. A portion of these fees goes into the protocol treasury, which pays for the developers, audits, and future products.
The Saddle Finance treasury is secured by a multisig that is being held by the core team and key members of the Saddle Finance DAO. The development team aims to eventually transition to on-chain governance, giving the Saddle Finance DAO complete control of protocol parameters.
The open nature of DeFi encourages protocols to cooperate and innovate. Saddle Finance is a unique protocol that has been in the making since early 2021. However, the open nature of Saddle leaves it exposed to hacks and exploits. As easy as it is for developers to review each others’ code, hackers can just as easily spot a vulnerability and take advantage of it.
The code is publicly available to verify. Those who are tech savvy can audit the code for themselves and see precisely what the smart contracts do. Less technical users can indirectly assess the safety of Saddle Finance protocol based on audits and reports issued by technical community members. Saddle Finance has been audited by Runtime Verification and runs bug bounties to patch potential vulnerabilities.
Despite its careful analysis, Saddle Finance went through a security incident on April 30, 2022. Hackers were able to identify a weakness in the swap mechanism and managed to steal 3932.76 ETH ($10M at the time.)
Saddle Finance could have lost more if smart contract auditing and blockchain security firm, BlockSec had not noticed the exploit. Using an internal system that uses flashbots to detect and front-run hacking incidents, the firm recovered $3.8M.
To cover the gap, Saddle Finance issued a remuneration proposal. The community agreed to repay LPs 100% of their crypto funds as time goes by. In the short term, the Saddle team entered a deal with Frax, where Frax will buy $3M worth of SDL tokens from the Saddle treasury. In addition, Saddle will set aside SDL tokens to repay the LPs.
As of 2022, Saddle Finance made the first step towards decentralizing the protocol. The SDL token serves as the governance token for the Saddle DAO.
DAO members manage the protocol treasury and are able to initiate improvement proposals, which are then implemented by the community multisig.
The admin keys are currently held by 7 core members of the Saddle team, with a 3/7 voting threshold. At some point in the future, Saddle will switch to a full on-chain governance model and create additional utility for the SDL token.
How does Saddle Finance work?
Saddle is an automated market maker (AMM) and liquidity pool on Ethereum designed for extremely efficient trading between similarly pegged assets i.e stablecoins, wrapped BTC.
One of the biggest hurdles in enabling stablecoin pools is slippage. For instance, when doing a swap there is always a slight price difference between when you submit a transaction and when the transaction is confirmed on the blockchain. Experiencing slippage on stable assets swaps results in losses. Therefore, Saddle Finance has created its own mechanism.
Building an AMM specialized for stablecoin swaps requires a different model than the one we see in DEXs like Uniswap or Compound. A lot of the code used by Saddle uses many core ideas and concepts from Curve, much of which has been reimplemented to meet Saddle’s needs.
How to make money on Saddle Finance?
The primary method of making money on Saddle Finance is by providing liquidity for its various stable assets pools. As an LP you are entitled to a portion of the trading fees. Because stablecoins have some of the highest transacting volumes, the fees quickly add up. Furthermore, being an LP on Saddle Finance offers risk-free profits due to the low volatility of the stablecoins. All you need is some USDC, or USDT, and you are good to go!
To add liquidity on Saddle Finance, follow these steps:
1. Open the Saddle Finance app
2. Click on the "Pools" tab
3. Select the pool and click "Deposit"
4. Input the amount of USDT or USDC you would like to offer
5. Click "Deposit"
6. Confirm the transaction
7. Profit
In addition to providing liquidity, you can also use Saddle Finance for regular swaps. Think of Saddle as your best place to swap stablecoins on the Solana ecosystem.
Saddle Finance Farming
Farming on Saddle Finance comes with the opportunity of earning SDL tokens on top of the transaction fees.
To farm on Saddle Finance, follow these steps:
1. Open the Saddle Finance app
2. Click on the "Farms" tab
3. Select the staking pool of your choice and click "Stake"
4. Input the amount of SDL you would like to stake
5. Click "Stake"
6. Confirm the transaction
7. Profit
Saddle Finance veSDL
veSDL represents the locked version of SDL token. Similar to Curve's gauge mechanism, users can vote for the pool to which they want SDL rewards allocated. In order to vote, users must lock their SDL and cast their veSDL votes – 1 SDL amounts to 1 veSDL.
To encourage SDL locking, veSDL holders receive 50% of the protocol trading fees. Therefore, users receive SDL tokens from locking, and they also earn from fees.
Here's how you lock SDL tokens:
Open the Saddle Finance app
Click on the "veSDL" tab
Input the amount of SDL you want to lock
Select the lockup duration
Click "Create Lock"
Approve the transaction
The longer you lock, the higher the veSDL rewards and the longer you accrue trading fees. Overall, veSDL is a nice way to profit from using the Saddle protocol.
Price Prediction for Saddle Finance — Can it hit $1000?
Buying and hodling SDL — the native token of Saddle Finance— is one way of potentially making money on Saddle Finance.
By looking at its current price, it’s natural to think about the chance of SDL hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the SDL token by analyzing its tokenomics. SDL’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} SDL tokens being in circulation today, that means a price of {PRICE} per SDL.
How did we come to that calculation? It’s quite easy, the price of an SDL token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each SDL coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of SDL at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for SDL to hit that price.
At a price of $1000 per token, that means the current market cap of SDL would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. SDL’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} SDL which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of SDL? Taking into account the current price of an SDL token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. SDL coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of an SDL token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the SDL protocol fully diluted market cap.
These are all crucial details to know when calculating if SDL can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of SDL depends solely on its growth as a network used by tens and hundreds of millions of users.
If you’re looking to add some SDL to your portfolio, the most trusted places to get some are Binance and Coinbase.