GIP-4: Launch Basis Trading Suite

Summary

The Galleon core crew wishes to launch an Optimism based product suite, starting with ETH. These “Basis Yield” products will be delta neutral.

Abstract

Galleon’s “Basis Trading Suite” is an Optimism-based product suite that provides high yield, delta-neutral exposure to the market through funding rate arbitrage by holding 66% Optimism ETH spot, the remaining 33% USD is used as collateral for the other -66% vETH PERP short position while auto compounding yields. The first product to be released will be our “BASIS Yield ETH Index (BYE) which hedges ETH utilizing perpetual protocol (PERP) and earns a variable USDC return (when the funding rate is +ve).

Motivation

Given the chaos within the market, we cannot think of a better time to launch a basis yield strategy which helps to preserve and grow capital in volatile market conditions. BYE provides the most competitive yield in DeFi seen today whilst remaining derisked from the market, backed by historical backtesting that shows over time the yields remain consistent. As per R72.FI the past year funding rates have been consistently +ve accruing a potential 40.9% yield.

Revenue

BYE charges no streaming, mint, or redemption fee and only operates a 20% performance fee when the product is earning the holder revenue. This performance fee is accrued during the rebalancing and re-investing of the set. If the funding rates were to become -ve (negative) the set will not accrue any performance fee.

Perpetual protocol’s funding rate period is every block, we will utilize the yield to maintain a leverage ratio between -1.9x and -3.0x.

Specification

Implementation:

  • Composition: 66% spot ETH, 33% USD as collateral and -66% vETH perp short.
  • Target Leverage Ratio: -2.0x
  • Min Leverage Ratio: -1.9x
  • Max Leverage Ratio: -3.0x
  • Ripcord mechanism: -5.0x
  • Rebalancing when the ratio drops below -1.9x or above -3.0x
  • Reinvestment Interval: 3 days

Resources Requested:

None

4 Likes

Support for Optimism is very good idea

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Taking this to snapshot: here with 48 hour vote starting on 16th June at 11:35am BST.

Curious to know whether you modeled market impact in terms of slippage / funding rates that this product would exhibit?

With current Perp Protocol liquidity, putting on a $100k ETH short position would result in .7% slippage and my fear is that this could very well result in funding rates pushed into negative territory.

Again, don’t know the amount of modeling you have done around this but could maybe be easily verified with a bit of capital and then seeing the market impact it has.

2 Likes

Firstly welcome to the Brethren Court @sw_alex, glad to have you joining the discussion! The backtesting was run for a number of months and it did indeed include slippage.

You’re correct though, hypothetically there is a TVL point where the product will see reduced yield as the short position would eventually have a adverse effect on funding rates pushing them -ve. This will however be monitored by the team, we don’t expect to be near the TVL size that would cause this straight out the gate.

We are also planning to launch a suite of Basis Yield products to help counter this.

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Awesome. That’s great to hear! Where do you estimate this TVL point to be?

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