Figure 1: Vaults Overview Page
Figure 1: Vaults Overview Page
Figure 2: The Deposit Page
Figure 2: The Network Switcher
Figure 1: Managing a deposit
Figure 2: Withdrawing funds
Figure 1: High Level Locust Architecture
neutrond query wasm \
contract-state smart \
neutron1me4fuchq3pgle46dvdxsgvpz02z605gkr0sgs6uwew25cpgg3ydsfg8zms \
'{"config": {}}' | jq .
neutrond query authz grants \
neutron1me4fuchq3pgle46dvdxsgvpz02z605gkr0sgs6uwew25cpgg3ydsfg8zms \
neutron1nz852flh6np9xlg9ju3ka6w5txezsxt0j4lypn | jq .
In order to remain in range as much as possible LPers will buy and sell assets at the market price regardless of the discount with respect to the actual redemption price.
Not only does this cause liquidity to be thin but also means that LPers are likely to experience Impermanent Loss (IL). Not only this but for the redemption and market prices to be restored the same amount of liquidity will need to be traded in the opposite direction.
Furthermore, IL is not truly permanent as with the change in redemption rate a previously held *"peg"* may not be restored.
Locust does **not** take this approach, rather it utilises the limit-orderbook feature of CL pools and actively manages positions for LPers. The LSD strategy takes the view that the assets held should be sold for the right price and not rely on pure arbitrage to return the peg if we can do better.
#### Solution: Locust LP Position
The Locust strategy can be simplified to **"Buy low, sell high"** as the strategy minimises the assets being sold at a discount. For example in **Scenario A** below the strategy removes all liquidity between the redemption rate and the market price.
The LP positions thus only buy for the cheaper price and sell for the higher. This has a number of consequences:
* Reduction in amount of liquidity required to return to peg
* Ability to deploy liquidity in a more capital efficient manner
* Increased profitability
Further the Locust strategy listens to all pool events and reallocates assets, meaning that assets bought at the market price are then immediately redeployed to the higher price position.
This also enables liquidity to be provided **concentrated** and **deep**.
As there is much less liquidity between the redemption and market prices **Scenario B** will be achieved much more easily.
#### Conclusion
In conclusion we should how Locust reactive vault strategies can improve the efficiency of LPing LSDs. However, the same tools and techniques can be applied to other markets.
#### Worked Example
Given we wanted to create an LP position for the CL pool of lsdASSET<>ASSET in market defined:
* Market Price: 1.0
* Redemption Price: 1.1
Position is fixed with 10%:
* Position:
* Lower Bound: 0.9
* Upper Bound: 1.1
* Asset 0: 100
* Asset 1: 100
In this scenario in order to return the market to the the redemption price you would need to sell 100 asset 1 at a clearing price of 1.05 thus incurring a 5% loss as compared to redeeming the assets directly.
Additionally the liquidity needed to return the price to the redemption price would be \~105 asset 1.
Now consider a Locust strategy as follows:
* Strategy:
* Spread: 2%
* Discount 1%
* Quote Position:
* Lower Bound: 0.98
* Upper Bound: 1.0
* Asset 0: 0
* Asset 1: 100
* Base Position:
* Lower Bound: 1.09
* Upper Bound: 1.11
* Asset 0: 100
* Asset 1: 0
Thus in order to return the peg negigible assets are required. Furthermore, any liquidity sold would be done so at a maximum discount of 1%, which is a considerable saving over the fixed width vault strategy above.
Furthermore any liquidity sold at could then be placed into the base position and sold at a profit of \~9%.
# Redemption Rate Arbitrage
**Locust** offers a vault strategy focused on **Redemption Rate Arbitrage**, allowing users to profit from discrepancies in the redemption rates of liquid staked assets. This strategy is particularly effective in environments where there is a temporary misalignment between the market price and the underlying redemption value of the assets.
**Redemption Rate Arbitrage** is a trading strategy used to capitalize on the difference between the market price of a liquid staked asset and its underlying redemption value. By acquiring assets at a discount and redeeming them for their full value, traders can lock in a profit.
**Key Concepts**
1. **Redemption Rate**
* The redemption rate is the value at which a liquid staked asset can be exchanged back into the underlying asset, typically after an unbonding period.
2. **Market Price**
* The current price at which the liquid staked asset is being traded in the market. This price can sometimes deviate from the redemption rate.
3. **Arbitrage Opportunity**
* Occurs when the market price of a liquid staked asset falls below its redemption rate, allowing traders to purchase the asset at a discount and redeem it later for a profit.
4. **Unbonding Period**
* The period during which the asset is locked before it can be redeemed at the redemption rate. This is a crucial factor in determining the profitability of the arbitrage.
**How Redemption Rate Arbitrage Works**
1. **Identifying the Opportunity:**
* A trader monitors the market for liquid staked assets that are trading below their redemption rate, signaling a potential arbitrage opportunity.
2. **Acquisition:**
* The trader purchases the asset at the discounted market price.
3. **Unbonding:**
* The trader initiates the unbonding process to redeem the asset at its full value, typically requiring a waiting period.
4. **Profit Capture:**
* Once the unbonding period is complete, the asset is redeemed at the higher redemption rate, allowing the trader to capture the difference as profit.
**Example**
Consider a scenario where a liquid staked asset is trading at a market price of $95, while its redemption rate is $100.
1. **Acquisition:**
* The trader purchases the asset at $95.
2. **Unbonding:**
* The trader initiates the unbonding process.
3. **Redemption:**
* After the unbonding period, the trader redeems the asset at $100, realizing a $5 profit per unit.
**Advantages**
* **Low-Risk Arbitrage:** By taking advantage of price discrepancies, this strategy can offer relatively low-risk profits compared to more volatile trading strategies.
* **Market Efficiency:** This strategy helps in correcting market inefficiencies by aligning the market price with the redemption value.
* **Predictable Returns:** Unlike speculative strategies, redemption rate arbitrage offers more predictable returns based on the known redemption rate.
**Disadvantages**
* **Unbonding Risk:** The profitability of the strategy is dependent on the unbonding period, during which market conditions could change.
* **Market Slippage:** Large trades can cause market slippage, reducing potential profits.
* **Opportunity Cost:** Capital is tied up during the unbonding period, limiting its availability for other opportunities.
#### **Conclusion**
Redemption Rate Arbitrage is an effective strategy for traders looking to capitalize on discrepancies between the market price and redemption value of liquid staked assets. By purchasing assets at a discount and redeeming them at a higher rate, traders can achieve consistent profits. However, it’s essential to carefully manage the risks associated with the unbonding period and market fluctuations.
# Funding Rate
Levana
Levana’s Funding Rate Strategy is designed to profit from the dynamics of funding fees in Levana markets. By opening a delta neutral position, the strategy earns funding income while mitigating exposure to market price movements. It actively monitors funding rate conditions and closes positions if the rates turn unfavorable, thereby aiming to protect capital while capturing consistent yields.
**Key Concepts**
* **Funding Rate:**\
This is the periodic payment exchanged between long and short positions on perpetual swap contracts. When funding rates are positive, longs pay shorts, and vice versa for negative rates. The strategy targets favorable funding conditions to generate income.
* **Delta Neutral Position:**\
By simultaneously holding offsetting long and short positions, the strategy minimizes directional market risk. This allows the trader to focus on the funding income rather than market price movements.
* **Leverage:**\
The strategy employs leverage to enhance the gains from accrued funding fees. However, leveraging positions increases the potential for liquidation if market movements become adverse.
* **Liquidation Risk:**\
Due to the leveraged nature of the positions, there is an inherent risk of liquidation if the market moves significantly against the hedged positions. Effective risk management is crucial to mitigate this exposure.
**How the Funding Rate Arbitrage Works**
1. **Identifying the Opportunity:**\
The strategy continuously monitors funding rate trends across targeted markets to spot conditions where the funding fees are favorable.
2. **Establishing a Delta Neutral Position:**\
Once a favorable funding environment is identified, a balanced long and short position is established. This hedge ensures that the strategy’s returns are driven primarily by the funding rate rather than market volatility.
3. **Earning Funding Income:**\
As long as the funding rate remains favorable, the strategy accrues regular funding fees, providing a predictable revenue stream independent of the underlying asset’s price movements.
4. **Risk Management & Position Closure:**\
Should the funding rate shift to an unfavorable level or market conditions deteriorate, the strategy will close the position to avoid losses from adverse funding payments or liquidation risks.
**Advantages**
* **Minimized Market Exposure:**\
The delta neutral setup significantly reduces risk from market fluctuations.
* **Consistent Income:**\
Regular funding fee accrual offers predictable returns in a favorable funding environment.
* **Potential for Enhanced Returns:**\
Leveraging the position can amplify the gains derived from funding fees, increasing overall profitability.
**Disadvantages**
* **Increased Leverage Risk:**\
The use of leverage heightens the risk of liquidation if market conditions turn adverse.
* **Funding Rate Volatility:**\
Sudden or unexpected changes in funding rates can diminish profits or result in losses.
* **Execution Risk:**\
Delays, slippage, or issues in trade execution can impact the strategy’s efficiency.
* **Capital Lock-Up:**\
Funds committed to the hedged position are not available for alternative opportunities, representing an opportunity cost.
**Conclusion**
The Levana Funding Rate Strategy offers a disciplined approach to capturing funding fee income while keeping market exposure minimal through a delta neutral setup. While the potential for steady returns is attractive, the inherent risks—particularly those associated with leverage and funding rate volatility—necessitate careful monitoring and robust risk management. This balanced approach makes the strategy well-suited for traders seeking predictable funding income in a managed-risk framework.
# Coinhedge
Providing Hedged USD Liquidity to Blue-Chip DeFi Token Holders
### Overview
Coinhedge is an innovative strategy that enables users to access USD liquidity while using their cryptocurrency holdings as collateral. The strategy provides a secure way to unlock the value of crypto assets without selling them, by creating a hedged position that protects against price volatility.
### Core Functionality
#### Purpose
* Enables users to access USD liquidity using their crypto assets as collateral
* Maintains price exposure protection through automated hedging
* Provides a non-custodial solution for accessing liquidity
#### How It Works
1. **Collateral Management**
* Users deposit their crypto assets (e.g., ATOM) into the vault
* The strategy accepts these deposits as collateral
* Assets are securely held in a non-custodial manner
2. **Liquidity Generation**
* Collateral is swapped to USD through integrated DEXs:
* Osmosis
* Duality
* Any Skip API integrated venue
* USD is then made available to the user
3. **Risk Management**
* Exposure is hedged on dYdX using perpetual futures
* Automated rebalancing maintains the hedge ratio
* Price movements are offset between spot and futures positions
### Strategy Lifecycle
1. **Deposit Phase**
* User deposits their crypto assets into the vault
* Strategy verifies and accepts the collateral
* Initial position setup begins
2. **Hedge Phase**
* Strategy establishes the hedge on dYdX
* Maintains the hedge through market movements
* Monitors and adjusts positions as needed
3. **USD Distribution**
* Generated USD is made available to the user
* User can access the liquidity while maintaining their crypto exposure
* Strategy continues to manage the hedge
4. **Repayment Phase**
* User repays the borrowed USD
* Strategy unwinds the hedge position
* Collateral is returned to the user
### Key Features
* **Non-custodial**: Users maintain control of their assets
* **Automated**: Strategy manages all aspects of the hedge
* **Cross-chain**: Utilizes multiple blockchain networks for optimal execution
* **Risk-managed**: Continuous monitoring and adjustment of positions
* **Liquidity-focused**: Provides access to USD liquidity without selling assets
### Technical Implementation
The strategy operates across multiple chains and protocols:
* **Neutron**: Primary chain for vault and strategy contracts
* **dYdX**: Hedging venue for perpetual futures
* **Osmosis/Duality**: Liquidity venues for spot trading
* **Skip API**: Integration for optimal routing and execution
### Benefits
1. **Liquidity Access**
* Users can access USD without selling their crypto assets
* Maintains exposure to potential price appreciation
2. **Risk Management**
* Automated hedging protects against price volatility
* Continuous monitoring and adjustment of positions
3. **Flexibility**
* Multiple DEX integration for optimal execution
* Cross-chain functionality for broader asset support
4. **Security**
* Non-custodial design
* Automated risk management
* Transparent operations
# Contracts
### Addresses
#### Locust
| Type | Name | Address |
|---|---|---|
| LSD | ||
| stOSMO | osmo16s3sxs5886p42kteunp6370pken2n5ukzszz0trkr39epqtawn2qk4r9l5 | |
| stTIA | osmo1q3w9kedgtc8sdh7xlcr77ydv3qu7fs2e3q6xznysp2lrdfyz9xyqv26yqv | |
| ampOSMO | osmo1cztgw4e467vjljd0s2flz8asu3x3wg9q0ttga9t6kzmpyaauxxrs2gjshq | |
| CLMM | ||
| BTC<>USDC | osmo193kjx80ag4tck2enuxcprxnrcusemmh5mun5k87c96d7swz6y2dqf39rxe | |
| DOGE<>USDC | osmo15gqhlr4tem7s3qanhqwy28mm2maxrpha9acelldr4m73ujv6lclqg3s37j | |
| ETH<>BTC | osmo1xugxhp2knsyvxelghc340gq886kdwgv36sr0afwu6egeds3aafgsy4n2g4 | |
| Redemption | ||
| OSMO | osmo15fqmdl8lfl9h0qflljd63ufw9j2m7xmsk3hu5vsn8xpta4hk5chqt7mddc | |
| TIA | osmo1reyz7pwu7y9e7lmzqg6j4h7jcv32du7n7jhnk2lz93a9lxr56ess2qtgzl | |
| ATOM | osmo1hvl5kj4xzdj4udxjv2dzk2zfqhzkd9afqygwq3t84tn53e0250zqrltj48 | |
| Redemption Queue | Osmosis | osmo1g63cnjmq2spfagpp03et04xpgklnfllzzc23xqm953huqhrgr7dsaytq8k |
| Neutron | neutron1rl7key2jr285vwz79hgkusgtw3ylcgateux5p8ajkk4rya067dkserkva8 | |
| Structured | ||
| NTRN | neutron13h4jzme5880knnc23xvwu9gytynnxu5cc0fek6fndmjyctzznj9sd5yhhy |