On September 28, 2021, the Strips team visited Solanum nigrum community, and the guest who shared with us is Strips COO Xia Biexin, AMA topic: Strips: How to realize interest rate swap AMM
The following is the content of this AMA live broadcast:
Question 1
Welcome the beautiful Strips CMO Mr. Xia to the Solanum nigrum community. First of all, can you introduce yourself and your team?
The pretty lady is from trad-fi. Before that, I was a fund manager in trad-fi. My fund size was 20 billion US dollars. Before that, I was a macro trader, trading bonds, foreign exchange and interest rate swaps. Now base Singapore.
The CEO was originally a trader at Goldman Sachs, entered the currency circle earlier, and then established their automated trading systems for many institutions.
I resigned and chose to join Strips.Finance because I felt that DeFi was bound to be a force sweeping traditional finance.
What Strips actually has to do is: The missing piece of the puzzle for DeFi to complete the closed loop is an interest rate-based platform. The first step in platform construction is the market for trading interest rates, and the first step in the trading market is an efficient and orderly pricing mechanism.
The CTO is Russian, and the technology is very good. The things that the core team is good at do not overlap at all and are very complementary.
Why is it called Strips because it wants to take off the hypocritical cloak of traditional finance and drag the old gangsters of traditional finance from their towering moats
Question 2
Next, please tell us what kind of problems the Strips Finance project mainly solves?
Traditional financial market makers have always made money, and because they put umbrellas on sunny days and closed them on rainy days, they made more money. But in essence, what they do is the same as it was decades ago. There is no threshold that institutions can do, but Defi can’t do.
At present, it mainly aims at different groups of people and solves three problems. The core is to give everyone a platform for long and short APY
1. Hedging needs:For institutional traders, they want to borrow some money for risk-free arbitrage. But the interest rate on this loan is floating. In order to keep the interest rate of borrowing money constant, they can pay a fixed interest rate in a small amount on Strips and receive a floating interest rate (going long on the floating interest rate) to hedge against the risk of future borrowing interest rate rises and lock in profits in advance.
For individuals, for example, the APY of some head mines is too high, and users feel "unhappy" and can short it in exchange for a fixed interest rate; then these people naturally want to pay floating interest rates and receive fixed interest rates.
Users who are long and short APY are counterparties to each other, so there are people on both ends of the balance.
2. If you extend it further, you can simply go long and short.(Enjoy the fun of betting on dogs). There are two types here, one is simply looking at the future mining income of crv, then you can choose to be long on it. The second is the spread between long/short fixed interest rates/floating interest rates. For example, even if it is the APY on compound, it may not move in the range of 2-4%, but the market can swing in this range with a fixed interest rate. Due to the use of perpetual IRS (which will be introduced later), the hidden leverage of nearly 100 times can be achieved, and traders can use small funds to leverage large returns. Go long and short the spread between floating and fixed rates for high returns. This is almost the same as the general leverage, a loss is a 100% loss, but at night, according to our internal simulator trading, it can be up to 400% within 20 days.
3. More ways to play: arbitrage,Users can open a short order on strips with a small amount of capital and high leverage while mining, and lock in a fixed income in advance. APY arbitrage trading between different DeFi protocols. For example, if it is also DAI, the interest rate for depositing DAI in compound is 2.82%, whileAAVEIt is 4.13%, then I can go long on compound and short AAVE at the same time. Similarly, Strips will also access the contract rates of FTX, Binance and other exchanges in the future to realize arbitrage between the funding rates of derivatives exchanges.
This is why strips chooses to do derivatives instead of yield tokens in other interest rate tracks. If you still follow the method of yield token or interest rate stratification, many ways to play will be restricted. We just set up the basic framework to achieve an efficient pricing mechanism. As for how to combine this pricing mechanism, users can be more creative than us. The user scenarios we choose are only based on the core team's own trading experience and trading demands. Trading is also our own hedging strategy, because fluctuations in interest rates will compress profit margins, so the team went to the market to find interest rate products, but found no ready-to-use ones, so we found that this demand was not met.
In fact, since the summer of DEFI last year, many people have been trying to make interest rates, and this track has never been up. The big reason is that the track is right and the gameplay is not right.
I saw that the yield swap method is similar to ours. After two weeks, our investors told me that they had switched to yield token, because derivatives are too difficult.
We are brave, we are not afraid of difficulties, if we die, we will get out
Question 3
What is the core of the Strips product, and what can it bring to our existing market?
The core innovation, or the mechanism established by this market mainly includes
1. The pricing power of the fixed interest rate is handed over to AMM.Strips is an AMM between fixed interest rates and floating interest rates, so that the pricing power of fixed interest rates is given to the market, and high leverage can also be used. Strips uses the APY quoted by oracle, so Strips' AMM does not directly interact with protocols such as Curve and Compound, which is also different from products such as Barnbridge and Pendle on the market.
2. The fixed interest rate of Strips adopts the perpetual IRS. This perpetual refers to a perpetual, eternal fixed interest rate.The simple understanding is that the settlement of this fixed interest rate is not a unit of one year or several years, it is eternal. For example, if you hold a 2% fixed interest rate, you will be given 2% of the income every year until you "death" . It is settled according to this. This is very difficult to understand, but the simple understanding is that because the settlement time is eternal, users have an implicit "leverage" when they are long and short interest rates. In traditional finance, this is called duration, which is essentially lower. The higher the interest rate, the higher the duration, an interest rate of 10%, the implicit leverage is about 9 times, that is to say, the user opens a leverage of 10 times, and the actual leverage is about 90 times.
3. AMM consists of LPs:Strips' AMM pioneered the use ofUSDC- AMM composed of LP Token of STRP. LP does AMM, which is very rare in DeFi. The benefits are obvious. AMM doing LP can quickly capture the value of tokens. With a large-scale AMM, half of the STRP tokens are captured. The rise of STRP can feed back AMM to increase liquidity and reduce slippage. Virtuous circle. This is a classic snowball closed loop. While Staker provides liquidity on sushiswap, it also uses this lp token stake as a [market maker] on strips, and can receive a layer of usdc income. In order to collect an extra layer of income, you need to buy strp to push up the currency price and LP token price. It also provides liquidity to the secondary market. At the same time as STAKE, you can get free strp token as a reward. As the price of STRP rises, the higher the income of STAKE, the higher the income will attract more people to become market makers. The main purpose of doing this is not only the inner loop, but also to provide a bottom line for the price of STRP. Because we also found that there are some very good projects, the currency price just cannot go up, because the currency price is not directly related to the income of the project.
However, the development difficulty of the contract has also increased by an order of magnitude. For this reason, we have carried out fine design and large-scale stress testing.
Why this market is needed is actually very simple
We believe that interest rates are a market that reverts to the mean, whether it is Dai’s different floating rates between Compound and AAVE, or the different fixed rates of Barnbridge and Element (Barnbridge’s 6-month USDC fixed rate is 2.49%, while Element’s 3 The monthly USDC fixed interest rate is 6.64%. This is very abnormal. Why do I earn more at Element for 3 months than for Barnbridge for 6 months). APY is likely to revert to the market mean
Question 4
Strips emphasizes interest rate swaps, can you give us an in-depth explanation of the concept of interest rate swaps, and talk about the role of the Strips interest rate swap platform?
Interest Rate Swap (Interest Rate Swap), also known as interest rate swap, is essentially a contract and a type of derivative.
If you expect interest rates to rise in the future, you can pay a fixed interest rate when you open a position and get a floating APY. Then when the interest rate floats upwards, you can sit at a higher interest rate and pay a lower fixed interest rate every day. Daily interest rate difference (like banks charge higher lending rates and pay lower interest rates for depositors)
When you close your position, you get all the spread for that period in one go. At the same time, because it is a perpetual contract, a one-time settlement will be made with the fixed interest rate at that time to offset the future permanent interaction.
Strips allows users to open positions with a leverage of 1-10 times (of course, it may be about 9-90 times in practice), so users can leverage relatively large positions with relatively low margins to expand their profits, and of course also magnify their risks.
To meet users' needs for risk hedging, value preservation, and arbitrage, and to enable users to bet on the direction of interest rates (or liquidity mining APY%) and monetize users' market views.
Interest rate swap is the one with the highest threshold even in traditional finance
On the trading floors of general investment banks, about 50% are for stocks, and 50% are for FICC (that is, interest rates, bonds, foreign exchange, and bulk transactions)
Then, only half of those who do macros understand the pricing of interest rate swaps, and only a small part of them can survive in the market
Now it is to extract the core of making money for this small group of people and make it into AMM, so that everyone can make money together. Sharing the brain, you can rent the model of JPMorgan Chase traders if you pay for it.
It was impossible to touch it, but DeFi let everyone touch it
Question 5
What are the usage scenarios of the Strips interest rate trading system? For small and medium-sized retail investors, which aspects are worthy of their participation?
After the mainnet goes online
Use scenario question 2 has already been mentioned, mainly long and short APY, (try the fun of betting on dogs); hedging; APY arbitrage transactions between different DeFi protocols; arbitrage of CEX contract rates.
For small and medium retail investors, since the perpetual IRS we do is settled with a perpetual fixed interest rate, an implicit leverage of about 9 times has been added. Small retail investors can try to do long and short with a small amount of APY first, and feel the fun of betting on dogs. The arbitrage of contract funding rates between cross-protocols and CEXs can fully participate in the experience.
In addition, after Token Launching, we can provide liquidity for our AMM and trade more. We will provide transaction mining and liquidity mining rewards for early users. Specifically, you can look forward to the gameplay of our mainnet launch
There will be pages suitable for ordinary investors, and there will also be pages suitable for hardcore traders
If you want to do leverage mining, such as hedging, hedging, and more complicated transactions, you may still need some learning for the time being
But it is very easy to simply go long and short or mine. I guarantee that the opinions on the main network will be completed.
And real-time monitoring of your mining (USDC, LP token STRP reward) can be seen in real time. If you are long or short, you can also see the long-short ratio now
If you want to do hedging, risk-free arbitrage, cross-market arbitrage, interest rate deconstruction, you need to go to the page of hardcore traders, but we may have some other projects in the future, and we can use other protocols to simplify this complex process . stay tuned
Question 6
Then tell us about Strips' automatic market maker AMM and its rate of return
The AMM of Strips is composed of LP (instead of USDC): Specifically, users can pledge USDC-STRP LP on Sushi to Strips to provide liquidity for the AMM of Strips. The advantages of LP as AMM have been briefly introduced above: that is, to capture the value of tokens, half of the TVL of Strips is STRP, and the rise of STRP can also expand AMM and increase the depth of transactions. Virtuous circle. Composing LPs as AMMs is not an easy task. For this reason, we have put a lot of effort into it.
Strips provides a separate AMM for each protocol, such as Compound is AMM1, Curve is AMM2, AAVE is AMM3...
AMM automatic market makers can obtain part of the transaction fee income, provide liquidity and obtain token rewards. When modeling, we simulated a total of 170 days from February 15th to August 3rd. The actual compound, The interest rate of 5 markets such as aave and dydx (about 3.5 standard deviations) and 5 markets with a volatility of 10 times the standard deviation, a total of 432 market scenarios, a total of 73440 sets of data, each set of data contains 50 After a total of 7.3 million transactions are simulated by traders and 50 stakers, we get
The average annualized return on investment of Amm is 314%, and the median annualized return is 286%. The average Sharpe ratio is 3.27 and the median is 3.47. (This Sharpe ratio can actually enter hedge funds.)
Question 7
I heard that Strips also has an insurance pool. What does this insurance pool do?
In order to prevent liquidation losses, Strips exchange will use a single insurance pool to guarantee all interest rate markets of Strips to hedge risks between different interest rate markets. STRP holders can participate in the insurance pool by depositing STRP-USDC LP tokens.
Strips insurance funds serve as the last line of defense in highly volatile market conditions. This is the liquidity of last resort, ensuring that all traders are fully paid and the market remains solvent.
However, not all markets are covered by the insurance pool. If a market (a protocol) is to be insured, community governance must pass with 66% of the votes.
If the trader's margin ratio falls below 3.5%, then the trader's position will be closed. The insurance pool will take over the position and close it automatically.
The income of the insurance pool comes from transaction costs and premiums (the premium comes from the fact that AMM will distribute a small part of the transaction income to the insurance pool), and the anti-risk ability of the insurance pool also comes from its guarantee for all AMMs to disperse a single high risk The impact of AMM on the insurance pool.
Question 8
Recently, the Defi market has encountered a lot of hacking incidents. What is the audit situation of Strips? In addition to auditing, are there other measures to prevent similar incidents from happening?
We have a total of 2 agencies doing contract audits.
In addition, we also invited some Russian developer friends who specialize in MEV to simulate economic system attacks, and at the same time we asked ToB to do security audits.
After the mainnet goes online, we will release some internal reports. In fact, since June, we have spent a large part of our time researching vulnerabilities and optimizing many algorithms in the process of discovering and solving them. In addition, we automated a lot of tests, and wrote a simulator to automatically generate many, many transactions by adjusting the probability distribution to observe what kind of return rate and risk AMM will present under different distribution conditions. There is a corner case that is not covered in the unit tests that is discovered after repeated hundreds of times through the simulator. We ourselves may be more afraid of hacking incidents than retail investors, so we have worked very hard on security.
We're a very hardcore team, very hardcore.
In order to ensure the robustness of the economic model, I wrote 1300 lines of code to simulate various attacks. I think I can make money from MEV after finishing this time.
Question 9
Now the hotspots in the market may be more on NFT and game Gamefi, will Strips be associated with these hotspots in the future?
In fact, we already have preliminary plans to integrate Gamefi and NFT into Strips, which may be the next stage. Right now we will focus on the IDO and the mainnet launch.
We designed a card game, because the beautiful lady is also a kryptonite
In the future, users of Strips will receive cards, which reflect the user level, and can win other people's cards by burning cards and melting cards, but first make the core products well, and the cards can be exchanged for real objects or rewards
Question 10
Finally, let us introduce the current project progress and follow-up plan, as well as some airdrop or ido information that you are looking forward to~
financing
The project has completed two rounds of financing, the first round is 2.5 million US dollars, and the second round is 8.5 million US dollars. All the money will be used for team recruitment, project development, and AMM's original staking liquidity.
The investors behind it will be announced next week, and they are all investors with strong capital and strength. The project has gone through N times of stress tests and product conception.
There will be IDO soon, and the mainnet Launching after that.
Airdrop plan: There is no airdrop plan for the time being. A total of 50% of our tokens are completely distributed to our users. Whether you provide liquidity to AMM or insurance pool or directly participate in transactions, you can get STRP token rewards.
IDO will be deployed on:
SushiswapThere will be the first round of public sale on 10/13, releasing 1% of Token. The specific time and mechanism will be announced in our own group and on Twitter.
In the future, it may also be deployed inArbitrum, as well as new ways of playing that may integrate NFT and Gamefi.
Finally, I would like to thank Miss Xia Biexin for coming to the Solanum nigrum community, and hope that Strips will be stronger in the future!
The above is all the content of this AMA. If you have any other doubts and opinions, welcome to join our community, and thank the following major media for their strong support.
