Drip by Dcaf Labs
A guide to Drip, an innovative defi solution for all your DCA needs on Solana.
This writeup is meant to provide an introduction to Drip from research I gathered. Opinions are my own, and none of this is financial advice.
What is Drip? 💧
Drip is an automated on-chain permissionless dollar-cost averaging-protocol, built on the Solana blockchain. In other words, a protocol which makes DCA strategies even simpler and easier to execute than before.
Users can interact with Drip via the simple and easy to use frontend, or via the SDK if you are a developer. You can find more on that in the Github, also attached below.
What is DCA?
In order to understand why we need Drip, we must understand what DCA is and why people use it.
Timing investments can be tricky, especially in today’s uncertain market and doomish macro conditions. However, times like these can also present opportunities for investors to set themselves up for success in the next bull run, by accumulating assets at a discount.
Many investors turn to Dollar Cost Averaging, or DCA, to continue accumulating a certain asset regardless of price movements. Not everyone can play the trading game well when it comes to short term volatility, but anyone can play the long game using a low risk strategy like DCA.
What is DCA? 🧠
Dollar-cost-averaging, or DCA for short, is a term for investing fixed amounts on a recurring basis (ie $50/week). DCA allows investors to hedge against price volatility and accumulate an asset they have long term conviction for by spreading out their buys.
If an asset goes up in price, you’ll be buying less of an asset. If an asset goes down in price, you’ll be buying more of an asset. Either way, you stick to your $50 weekly buy.
Read more on DCA here
If you are long on certain crypto bluechips like BTC or SOL, but want to hedge against volatility in the market, you can use Drip to automate this process and accumulate at a constant rate for however long you would like. On that note, let’s jump into how Drip works!
How To Use Drip 📖
Drip allows users to execute a DCA strategy with a simple deposit process using 2 crypto assets: token A, the asset from which you would like to “drip” from, and token B, the asset which you want to accumulate in the long term.
💧 ‘Drips’ are your recurring purchases, automated by the protocol once you configure your preferences.
For some deeper context: Let’s say I want to accumulate SOL before the next bull market takes off and the price moons again. Instead of buying SOL directly, I will use Drip and deposit USDC to ‘drip’ into SOL, over the course of a set period of time.
Let’s observe the process using USDC as our Token A, and SOL as our Token B as shown below.
When creating a position, you also select the frequency of Drips, as well as a specific end date, so you know exactly how often your token A will drip into token B, and for how long. Knowing the specific outcome of your position in a DeFi app is a simple yet powerful tool that I think is rather underrated.
You can choose between drips every 6 hours, 12 hours, or 24 hours (1 day).
You can also choose to DCA for virtually as long as you’d like. You can even set one for 1 year from now, like shown above.
Drip Position NFTs
Once you have created a position on Drip, you receive an NFT as a receipt of your deposit.
Note that since this NFT represents the ownership of your DCA position, transferring the NFT transfers ownership of the position respectively, and if you burn the NFT you lose your DCA position altogether. Once you close your position the NFT is burned automatically.
Your Position
If I want to track the Drip process in real time, I can go to my position and see various details like how much SOL I already accrued, how much USDC is remaining, how many ‘drips’ are completed, as well as start/end time and market price.
And now the final result of my mini trial run with Drip:
For my first position, I wanted to test out using Drip with a small amount (5 USDC) and see what the process was like. From 11/3 till 11/5, I completed 4/4 drips and accumulated 0.15 SOL. Closing my position was quite literally a near-instantaneous process (shoutout Solana!) and I was able to do so at any time I wanted. I could have also withdrew some of that SOL before my DCA was over if I needed it for whatever reason but didn’t want to close my position.
Which brings me to my last point on using Drip:
Closing Position vs Withdrawals
Withdrawal: This process allows users to withdraw some, or all of token B that has been accumulated, but not token A. Users can withdraw after every swap if they so desire or just at the end of their DCA.
Close Position: This process withdraws all of token B, as well as any of token A that has not been swapped yet. It also burns the position NFT and position NFT token account. You can only close once.
My final takeaways on using Drip:
Very simple and easy to use UI
Ability to configure details of your position is very convenient
Felt comfortable holding a position by being able to track it in real time
Very easy and quick withdrawal process
Final Thoughts and Why I’m bullish 🐂
DeFi is in constant need of innovation, and there are simply not that many protocols (at least on Solana) building an automated DCA solution. DCA is one of the more popular bear market strategies, and Drip is catering to this by making the process even easier and more defi-friendly.
Drip launched on mainnet September 30th, meaning it has only been around for just over a month. The devnet went live on July 17th, and according to their discord there was a closed beta for mainnet testing somewhere around August 16th. A steady rate of building, in my opinion.
Some alpha from Dcaf team
Real ones knows the best places to get alpha is Discord.
Drip offers up to ~47 assets for deposits, and according to Dcaf Mocha, one of the co-founders of Dcaf Labs, there is an integration with Jupiter in the works. For some context, Jupiter is among the biggest liquidity aggregators on Solana, with up to $26,563,045,748 Total Volume Traded as of today.
What this means is we can expect to see more token pairs available and better transaction routes, making for a smoother user experience and more DCA strategies to tinker with.
I also found myself wondering if Drip has any plans to build on other chains in order to attract a wider range of users. Although I love Solana defi, it’s no secret that it represents only a very small portion of the potential userbase. For example, just look at this TVL chart for chains:
According to Mocha, there are no concrete plans for building outside Solana yet, but if the protocol can achieve success on Solana the team is likely to expand their horizons.
Also will definitely be staying tuned for Drip V2 👀
TLDR; I’m bullish on Drip and I like their app. Simple as that. Drip serves a simple yet important purpose, it’s innovative, and there is still a large potential for growth and adoption considering how early the project is.
As always, DYOR and invest carefully, folks.
Great article !!!