The 🔴🔵Optimistic Newsletter #8
The unique DEFI Newsletter on OP Superchain written by Defi Users for Defi Users
First of all, i’d like to express my thanks to you, for your comments, support, likes on this 🔴🔵Optimistic Journey. Big 👏 to my 4 teammates & all the translators as all this work could not have seen the light without them.
And finally, welcome to the 501 new subscribers to this newsletter.
Click in your preferred language to access the translated document:
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Welcome on this new of the 🔴🔵Optimistic Newsletter. This release will be mainly about CDP (Collateralized Debt Position) projects. What is CDP Project? You deposit Token A as collateral, and you borrow Token B against your collateral. Major CDP projects are Maker, Liquity, Synthetix, etc… Wanna learn about CDP projects such as Ethos Reserve, Qi DAO available on Optimism? This newsletter is for you.
————————————Disclaimer———————————
Nothing in this content is financial advice. We may have some positions on the presented projects, however these articles are written in a non biais way so that you can make you own opinion out of it.
Do your own research before investing, and remember that Crypto is extremely volatile and risky.
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0. The Optimistic series Campaign Launch: Engage to Earn
The Optimistic quests campaign has been launched on 3-April and will last until 31-July. Questoors, come, engage about #Optimism by completing this series of quests, and earn OP token. More info here:
Timeline:
Quest #1: 🟢Live - End on 31-July
Quest #2: 🟢Live - End on 30-April (Must complete quest #1 to participate)
1. Tech. update: Shanghai Upgrade & ETH Liquid Staking
Shanghai upgrade occurred on April 12 allowing ETH stakers to be able to withdraw their rewards and staking position. Together with one of the maybe biggest milestone for 2023, the Liquid Staking Token narrative has never been so strong. Let’s break it down for you and what you sould expect on Optimism.
2. Project update: ETHOS RESERVE
Ethos Reserve has been incubated by the well-known Byte Masons team (also behind Granary Finance & Reaper Farm). Ethos Reserve is similar to Liquity Protocol, but with some tweaks so make it first affordable for L2 users but also attractive thanks to unique revenue generation model. Let’s break it down.
3. Project Update: QI DAO
Qi DAO is in the top 100 DEFI projects, and top 6 as CDP project with 67m$ of TVL in the overall, and 12m$ on Optimism. QI DAO is running since early 2021, so let’s see what they are up to, and the different opportunities you can grab out of it.
4. Macro-Analysis: BTC / ALTCOIN
Bi-weekly update on the Crypto Market. Is it the start of an AltSeason?
5. Farming Strategy on ETHOS RESERVE
This week, we are going to detail one position we have taken on Ethos Reserve and how we maximize our yield (farming ETH at +50% and stablecoin at >50%).
6. Podcast: Project interview (Updates & Roadmap)
The last 2 weeks, i was pleased to receive on Live :
Revest Finance
Nested
Podcast available at the end of the newsletter.
Spotlight Project: Velodrome Finance
REMINDER: GOVERNANCE TIMELINE
1. Tech Update: Shanghai Update & Liquid Staking
After The Merge in Sep-22 which saw the Ethereum blockchain moving from Proof-of-Work to Proof-of-Stake, the next big Upgrade occurred last week on April 12, allowing staked ETH withdrawal. In this article, we are going to simplify everything you may have read and just explain like you were 5 what are the different Liquid Staking solutions for ETH.
Thanks to Hildobby for this fantastic dashboard. As of time of writting we can see:
18.5 millions of ETH deposited in the Staking position
Staked ETH represents 15% of the ETH circulating supply
The Liquid Staking market share is about 33%, so represents only 5% of the ETH circulating supply
LIDO is leading the Liquid Staking race, with 31% of market share of Staked ETH. Impressive!
1.1 ETH Liquid Staking
At the time of writing, a total of 18,5 millions of ETH is being staked on Ethereum Mainnet (yes, this is more than 38 billions$ 😱).
Staking was possible since years already and most of the protocols allowing you to stake on their platform were giving you against your staked ETH, a liquid synthetic asset (BETH for Binance, stETH for Lido, rETH for Rocket Pool, cbETH for Coinbase). A liquid asset is an asset that is easily tradable. Wanna know which protocols offer Liquid Staking? The Llamas have you covered, click this link:
https://defillama.com/protocols/Liquid%20Staking
Why did we receive this liquid token? Because, if not, when you staked your ETH, your capital is frozen until you get your ETH back. By obtaining a liquid token which represents the proof of your staked ETH, you maximize what we call capital efficiency and you are able to take this synthetic token, farm it on a DEX, lend it or borrow against it on a lending protocol.
However to withdraw your staked ETH back, you just have to redeem your synthetic asset, and any Synthetic Asset will get you back ETH at a ratio 1:1. The problem is that withdrawal will be only activated at the Shanghai Upgrade, and during this time the Synthetic Asset is then priced by the market, and could see some volatility. Anyone remembers the stETH Depeg in June 2022 where stETH traded 7% less than ETH? Well today, you can redeem 1 stETH for 1 ETH, that was an easy trade back then.
1.2 Shanghai & FUD
Shanghai is the upgrade that allows withdrawal of staked ETH to be fully operational. Which means that we have now a number of ETH, worth billions of $, being able to return to the market for a massive sale off. At least that was my first expectation back in 2022:
But there were few things i didn’t catch-up at that time.
First, the % of staked ETH (15%) compared to other POS chains. This table from April 2023 is provided by intotheblock. As you can see, the average ratio of staked coin compared to circulating supply is more than 50%, while Ethereum is currently at 15,3% So, this first indicator was a bullish one for ETH.
Onchain data never lies. Withdrawal was accessible before Shanghai upgrade, but only done after it. And what if we could see onchain data about the withdrawal queue?
As of the time of writing, 926k ETH has been withdrawn, so about 5.6% of the total staked ETH, representing close to 2b$ of ETH not sold, only withdrawn, while the DAILY trading volume of ETH is around 18b$… a drop in the ocean. Thanks to Subinium for the above dashboard, click on the picture to access it.
And if you look closely, as where these withdrawn ETH went, it went right back back to a staking solution (at least 40% of them), bullish!
1.3 Which Liquid Staking
You have two types of Synthetic Assets models:
Rebase model: If you start at 1x rebase_ETH = 1x ETH, after revenues accrued you will end up having in your wallet 1.12x rebase_ETH that can be redeemed to 1.12x ETH
Non-Rebase mode: Your quantity of non_rebase_ETH won’t change, but it will appreciate in price compared to ETH, 1x non_rebase_ETH = 1.12x ETH
First thing you need to note, is that ETH Staking only occurs on Mainnet, but what is available for users on Optimism? Not many, but we have access to the main ones:
Lido Finance: wstETH - Non_Rebase. Staking APR: 4.3%
For Wrapped stETH. stETH being the liquid staking token on Etheureum Mainnet.
Rocket Pool: rETH - Non_Rebase. Staking APR: 7%
Frax Finance: Non-Rebase. Staking APR: 5%
sfrxETH is the Liquid Staking Token but only available on mainnet.
For info, staking APR on the beacon chain is 4.21%
Be careful, you have also some False Friends:
Synthetix: sETH is a Synthetix Asset representing the price of 1x ETH
Alchemix: alETH is a Synthetic Asset representing the price of 1x ETH
1.4 Conclusion
You probably ask yourself, why using tiers protocols like Lido or Rocket pool to earn few % more yield but increasing smart contract risk?
Indeed, as any investment is going through your own logic risk-reward, the thing you may not miss is that these protocols offer you Liquid Staking Token as a proof of staking of your ETH. So while your ETH is earning approx 4-5% APR, your LST can also be farmed elsewhere like on Velodrome in liquidity pool, or in Sonne Finance by lending your LST.
To conclude and for information only, i’ve found a new project, but only on Ethereum Mainnet for which you hold your staked ETH, which is not the case to all above listed protocols, and still receive a Liquid_ETH. This project is called Ether.fi. I suggest you watch closely these guys coming in the LST race. And what if they will seed liquidity on Optimism ? 👀
2. Project update: ETHOS RESERVE
The guys and gals at the Byte Masons headquarters have done it again! Fresh off the heels of their $Grain token release (the token attached to their lending platform, Granary Finance), they have only gone and crafted a fairly unique Defi primitive!
Ethos Reserve managed to create something on Optimism that is similar to Liquity on mainnet while still managing to be different in their own way. Where Ethos differs is that Liquity uses only ETH as collateral for their LUSD stablecoin while Ethos chose to use both ETH and BTC as collateral for their stablecoin, $ERN.
2.1 What is Ethos Reserve
Well, simply put it is a protocol offering a CDP to users. If you’re new around here, a CDP is a collateralized debt position. It means that you deposit collateral and incur debt (a loan if you will) against your collateral. In this case, you can deposit BTC or ETH, and receive $ERN (Ethos stablecoin) in return. You get to choose how much of the stablecoin you receive in exchange for how much risk you’re willing to take on, as the more $ERN you borrow, the higher your liquidation price is.
Ethos Reserve launched on April 5th on the Optimism Chain. Rewards for staking $ERN in the stability pools started to ramp up a few days after. Here are some stats kindly provided by Deantoshi:
For a total minted ERN of:
Now let’s dive a little deeper into what makes this protocol tick shall we?
2.2 Managed CDP Vaults
Ethos deploys the underlying assets, i.e. the assets you deposit or collateral, into different Defi yield strategies as well as managing their risk for you. So not only can you deposit your assets to get a loan, they earn a low risk yield for the protocol in the background which can be claimed/accessed by staking $ERN. These stakers also benefit from liquidations that happen on the platform in the form of $ETH/$BTC income as well.
2.3 Debt Management
The way that Ethos manages the platform collateral is impressive as well because it allows them to do liquidations of multiple different types of collateral much more efficiently than their competitors. Users also have the ability to redeem their assets from Ethos at any point, no matter the market state or liquidity state. Because of this, users get a very high Loan-to-value (LTV) ratio and additional yield. And since users can always swap under-peg tokens for collateral. Ethos doesn’t have a need for market makers.
2.4 Interest Free Loans
This is the main edge or difference between all other lending protocols. So how is it that Ethos can afford to give out interest free loans?? Well, because they chose to go a slightly different route!
Instead borrowers pay a small issuance and redemption fee, which goes straight to the $bOATH stakers (Bonded $Oath). Since there is no constant debt accrual from interest fees, users don’t have to micromanage positions and Ethos doesn’t have to worry that bad debt is going to pile up and cause issues further down the line. And to keep the Byte Masons’ ecosystem flywheel spinning, $bOATH stakers get to profit from volatility in the $ERN peg and arbitrage due to the redemption/issuance fees.
Below is a good view of the whole system in one flowchart
2.5 Flywheel
Let’s circle on back to the Byte Masons’ flywheel effect and what this means for $bOATH stakers and what $bOATH actually is!
$bOATH is bonded $Oath which is an 80/20 Pool on Beethoven_X consisting of OATH and ETH. $bOATH stakers not only get all the platform fees, (including the redemption/mint fees) but they also get the trading fees from Beethoven_X liquidity pool, from Ethos’ buyback and distribution strategies, all wonderfully shown in the below graphic!
What this does, is create a continual source of buy/demand pressure for $OATH linked to the use of Ethos Reserve. As volume for all these interactions increases, yields for this pool will increase as well, further fueling the flywheel mechanism and benefiting all stakeholders.
The more Ethos is used, the more collateral is then farmed by Ethos, thus resulting in more rewards to stakers.
2.6 $ERN Stability Pool
What can you do with your $ERN now that you’ve gone and minted it? Well, they have a 50% $ERN / 50% $USDC pool on Beethoven’s Optimism app earning around 55% APY. Or you can stake the $ERN in the stability pool right there on Ethos and not even have to leave the site! => Check the farming strategy section for more details 😎
Staking ERN in the stability pool is an easy way to earn yield, paid out in $OATH, and get discounted assets from the liquidation rewards. That means you benefit from the degens getting liquidated and we know degens are like Legion, for they are many. The way this works, is the pooled ERN is used to pay off the degens’ bad debt quickly and reclaim their collateral at a discount to the tune of 8% discount on ETH and 20% for BTC. The below graphic shows this mechanism off:
The emissions that get paid out in OATH are done in an inflationary manner, but then as the protocol gets scaled up and gains more TVL, the emissions will be honed down into a more sustainable stream of rewards.
2.7 Similar Projects
Let’s take a quick look at the other projects that are similar to Ethos and see how Ethos is currently matching up at this stage in their infancy.
Vesta is a fork from Liquity that is currently on Arbitrum. Right now they have around 17.4 million in TVL. A good portion of the tokens deposited in their protocol is gOHM and DPX actually with ETH taking up a lesser amount. Vesta’s stablecoin, $VST is at a 6.6 mil market cap
Liquity is the original form of this model and they are currently on ETH although their stable is deployed across multiple chains. They have around 835 mil in TVL and their stablecoin, LUSD, must be borrowed against an ETH deposit. Now, LUSD has a MC of 274 mil and has a good deal more liquidity than Vesta’s VST. While ERN is still in its infancy, and needs time to ramp up.
2.8 What’s Next?
This seems like a lot to take in all at once, but strap in and hold on to your butts! Cause there’s more! We had a talk with head Byte Mason himself, in Mr. Bebis, to get the details on what to expect for the future of Ethos!
Let’s get started with question number 1:
How long can we expect emissions to last?
Bebis: Incentives will last indefinitely, and will become more sustainable as $OATH buybacks ramp up.
Is there a tentative date for multichain deployment, and do we know which chains yet?
Bebis: We are interested in deploying on Ethereum and Base once we achieve sufficient levels of growth on Optimism.
How about the price feeds? Which ones are you using to display prices for collateral?
Bebis: We use Chainlink price feeds with Tellor price feeds as backup.
What about $ERN? Can we expect a Chainlink price feed there as well?
Bebis: We are working on building volume for the $ERN token so we can get a Chainlink price feed. Currently, the main use-case for $ERN is as a source of stable, sustainable yield.
Anything else you’d like readers to know?
Bebis: We are working with many key players on Optimism to make $ERN a premier decentralized stablecoin and believe it will help turn Optimism into a DeFi powerhouse. An astonishing announcement is planned in the coming days, so follow us on our twitter account: https://twitter.com/EthosReserve
Spotlight Projects: Synthetix, Kwenta, Decentrex, Dhedge, Polynomial
Synthetix and Partners are incentivizing traders for the coming 20 weeks for a total of around 4m OP tokens to be distributed. Traders will receive a pro rata amount of OP allocated for the week, based on fees paid. For more information on this, i can only recommend to read this thread from MasterMojo:
https://twitter.com/mastermojo83/status/1648428267228258304?s=20
3. Project Update: QI DAO
3.1 Introduction
During the last bull run, Qidao was one of the first and most efficient DeFi lending protocols on Polygon. Its ability to earn for mint and borrow their stablecoin Mai, which is composed mainly of WBTC, WETH, and a large variety of alts as collateral, made it a popular choice among users.
The decentralized stablecoin Mai, which is overcollateralized, is fully omnichain, and its variety of collateral assets gives limitless strategies for degens or safe traders. With its unique design in the CDP war, stablecoin Mai is minimum 214% overcollateralized, which drastically reduces the risk of depeg.
Despite the long winter of the bear market, Qidao stayed in the top 10 CDP protocols:
QI DAO has been since day 1 the house of DEFI Lego where Defi users set up complex strategies. Here is an example with QiDAO and Thena on BNB chain.
In this article, let’s dive into:
What collateral is accepted on Optimism:
Quick recap of metrics, and strategy for extending Mai in the war of the decentralized stablecoin?
New business model incoming for revenue of their governance Qi lockers ?
3.2 Collateral on Optimism:
First thing, to know what collateral is accepted by QiDAO on Optimism, you need to create a vault, don’t worry, no fund needs to be deposited to access the collateral page. On QiDAO you can deposit:
LP Token: Beefy ETH/stETH CRV
Yield Bearing asset: WETH yVault
ERC-20 token such as OP token
3.3 Protocol metrics:
- TVL & Market Cap
Ratio Mcap/TVL is the second lowest of all CDP protocols after Maker. Optimism is the 2nd chain for QiDAO in terms of TVL. QiDAO TVL on Optimism goes 4x since 01 January 2023!:
- Treasury
The total net worth of QiDAO treasury is about 15m$, and approximately 7,5m$ if you disregard project token (which is in our opinion the right way to do it). Having 50% of its treasury is other assets is really healthy in our opinion. Here is a breakdown of the treasury:
• $2.7m of stables
• 416k OP
• 137 ETH
• 770k wmatic
• $6.6mil worth $Qi
• 3630 Bifi
The protocol also received 386k Arb tokens as part of the ARB airdrop.
- Vaults CDP metric:
The fact of being on multi chains and using multi types of collateral made QiDAO less subject to dominance and unexpected volatility of few whales on the total TVL, and thus promoting the decentralization of the debt.
3.4 Governance
Qidao is in the Top 15 of the most active DAO:
3.5 Strategy for extending Mai:
The majority of CDPs have to make a choice in the design: either to be fully decentralized with ETH but with limited scalability, or the possibility to extend but with a big part of centralized USDC as collateral, including the risk of the freeze function in the USDC smart contract, as Frax, Dai, Ageuro…
Mai has a unique design, the team made the choice to be backed by an average of 95% of solid Defi assets, use the strategy to have multi Wrapped and LP crypto as collateral for majority full decentralized, and extend their partnerships with a lot of protocols in the Defi ecosystem.
3.6 New business model for the DAO:
$Qi governance token Emission will reduce by 30% on May 02, 2023
Protocol is profitable in a bear market, and currently generates $20,000 per week ($960,000 per year) in revenue from loans for the protocol.
Qidao may enter the Balancer wars soon, by migrating their governance token veQI to a 80/20 LP on Balancer:
QiDao runs an Liquidity Mining campaign costing ~$18,000 per week, or ~30.72% of total QI emissions. Total Qi is $2,812,000 per year.
The new strategy is to migrate the total Qi locked to liquidity providers on the 80/20 pool on Balancer.
$1,123,000 can be saved per year with Balancer on the $3,400,000 total Qi emission.
3.7 Conclusion:
After the crash of Luna, the depeg of USDC, threat of Paxos and BUSD by the SEC, USDT opacity, and crypto users asking for transparency and robust CDP mechanisms, the unique CDP design of Qidao gives users the opportunity to extend possibilities of strategies safely with low gas on all the DeFi ecosystem.
4. Macro-Analysis: BTC / ALTCOIN
If you followed our previous analysis, then you must have made some money on the previous bitcoin bullish move. We stated that the market was neutral, consolidating under resistance, and that patience would be the key. We were waiting for bitcoin to choose the direction of the market, and now we know that it's upward.
4.1 Bitcoin
We observe a retest of the previous daily resistance, and if it turns into support, it would be very bullish for the next few weeks. Once again, we remind you that bitcoin is the king and determines the health of the entire cryptocurrency market. It should be considered first before taking any position on different crypto.
According to the charts, we are at the beginning of an altseason. As presented in the previous news, bitcoin dominance is fading, and we now have a fakeout of the resistance and a bearish divergence in weekly.
4.2 Alt Season?
Furthermore, we observe on the TOTAL2 Ticker (altcoin market cap) that a double bottom has formed with a medium weekly bullish divergence.
Thus, we have a bearish divergence on the BTC.D ticker, which is bullish for altcoins, as well as a medium bullish divergence for the TOTAL2 altcoin market cap ticker. As these divergences are occurring weekly, we can expect altcoin movements for several weeks.
We should not expect an immediate parabolic rise in altcoins. Initially, we expect resistance to be broken and retested. It's at the end of the altseason that movements could be very impulsive.
4.3 Conclusion:
Trading: We will aggressively trade altcoins in the next few weeks, and market drops should be seen as a buying opportunity with the profits we will take on the pump.
Investing: We are now out of consolidation. It's always interesting to buy bitcoin in DCA for a long-term vision. Otherwise, we need to wait for Wave 2 according to the Elliott waves, which we will discuss in the next newsletter.
Indeed, Elliott wave theory is an imprecise but powerful tool. It will help us better understand the price action, and the resistances we currently break upward will likely be tested as support in the future.
4.4 One more time:
Bitcoin is the leader of the crypto market;
Money goes from the impatient to the patient;
The crypto cycle is the same since day 1:
5. Farming strategy on Ethos Reserve
Any Optimism community member can see his farming strategy published in this newsletter. You just need to publish your strategy on twitter and send me the link via DM.
So here is a position taken right after Ethos Reserve launch. APR shown in the picture below were taken at the time of writing and are likely to go down as more people will come in.
Before detailing this strategy, some warnings:
This position induces a risk of Liquidation where all or part of our collateral can be lost. This position needs to be managed.
Nothing is big enough to not fall, there are still some underlying smart contract risk, so we implements our risk management and allocated a share of our PF
The objective is to maximize ETH yield farming without suffering Impermanent Loss. As of today, the yield on Velodrome 24% APR on the LP alETH/frxETH.
Using Ethos Reserve, we manage to farm at >40% while being exposed to liquidation rewards in the next red candles. How did we set this up?
Deposit ETH on Ethos Reserve, and take a ERN loan with a Healty Factor of 200% (this is our own risk management profile). So if we deposit 1000$ worth of ETH, we borrow 500$ of ERN. Our liquidation point is then ETH value is approximately divided by 2, which we can anticipate a bit.
ERN is then farmed in few pools:
Stability pool: 71% APR, rewards in $OATH and will receive ETH/BTC rewards when borrowers will be liquidated, and we know this will happen.
Beethoven_X “Proof of Reserves” LP: 48% APR on USD/ERN LP, rewards in $OATH
Tips: Why we don’t farm ERN paired with other tokens? By maintaining our ERN loan, we will be still in position to pay back our loan and close our position without investing more capital.
$OATH rewards are then deposited in the “An OATH to ERN” LP on Beethoven_X made of 70% of OATH: 129% APR, rewards in Oath.
All above $OATH rewards are then manual-compounded in the LP of point 3 on a weekly basis.
Final tips: There is no interest on your loan, but you pay 0.5% Fee once. At the above yield rates, the fee is paid back in OATH rewards in about a week.
6. Podcast:
Following the Twitter Poll, from now on, the podcast will be shared together with the newsletter and not anymore in advance. If you want this to be changed, let me know in the comments.
Revest Finance
Nested
Key takeaways provided by the Nested Team: https://twitter.com/thongqtran/status/1648240238568038400?s=20
Note: The 🔴Optimistic Podcast partnered with Revelo Intel to provide written notes of all podcasts.
Optimism Twitter accounts:
@OPLabsPBC for protocol development
@OptimismGov for governance
@OptimismGrants for Grant Council uipdates
Subli_Defi Social accounts:
Discord Handle: Subli#0257
Twitter: Subli_Defi
Lenster: Subli_Defi
Notion (Research database): https://sublidefi.notion.site/sublidefi/Subli_Defi-c57a3141c983433ca74e785a0bf1bcd0
Youtube: https://www.youtube.com/c/Subli_Defi