The $warp magazine edition #01
A New Beginning
Hey hey, #Warparmy!
We present the first edition of “the $warp magazine”! The $warp magazine serves as your one-stop destination for all things Warp (of course, you must follow our socials for juicy, daily snippets 😜). We launched Warp v2 Beta on 8/8 and much has happened in the Warpverse since. For those of you who missed the Warp v2 Beta Alpha drops, refer to these links to come up to speed:
- Warp v2 Beta run-through explainer video
- Warp v2 Beta run-through explainer script
- AMA outlining the platform & addressing questions
- Deconstructing the Warp vision
- Landing page
- New platform
- Old platform
Now that you are acquainted with Warp v2 Beta and our vision heading into the full-featured v2 launch, let us deconstruct the magazine format. We have integrated the previous devlog format into the magazine and introduced sections for the community, Stiive Alpha, and internal news.
The “Dev Updates” section is self-explanatory — we will detail a few of the meatiest development updates in the Warpverse during the biweekly curation period (referred to as ‘period’ henceforth). The “$WARP Community” section will feature three of the top questions asked and answered on Twitter, Telegram, or Discord, during the period, along with their usernames on the respective platforms. These questions and their answers will also feature on the official Warp Twitter!
Stiive, The Alpha Man, will drop a couple of knowledge bombs in the “Stiive Alpha” section and the “Monday Blues” section will detail internal news, much to the dismay of our project lead, Bamlak! 😜
This news serves as an early entry point for the community into our minds. Feel free to voice your opinion on our socials so that we can build Warp to be the game-changing DeFi product it is meant to be, together. 🦾
Without further ado, let us dive straight into the “Dev Updates” section.
Featuring the latest development updates:
Chisel Testnet — Deployed on Kovan
The long-awaited Chisel implementation of Warp v2 is now in the process of bringing fruition! Extensive testing and due documentation are underway. The Chisel implementation, which is essentially a pooled sea of liquidity, will be used for dynamic liquidity allocations between the many lending pairs that will be available on Warp v2 (the ePyvUSDC pair is currently available on Warp v2 Beta, with other pairs being actively explored), to help balance borrow demand. These allocations will be put to vote and governed by $veWARP holders. The Warp team will also play a part in determining allocations. For more information on Chisel and $veWARP, refer to the vision post we recently published.
Liquidation Helper Contract
We are in the process of obtaining a Liquidation Helper Contract for simpler liquidations on the Warp v2 Beta platform and beyond. The current liquidation process is gas intensive — by using the Liquidation Helper Contract, users can execute liquidation with a single call. We are exploring additional functionality implementation options to further simplify the process, such as the utilization of aggregators like 1inch. We have developed a robust liquidation bot for the v2 platform and strive to fully automate the liquidation process using this bot. By obtaining and implementing a Liquidation Helper Contract, we will move one step closer to achieving this goal.
Submit Feedback Process
If you have any feedback with regards to the operation of the Warp v2 Beta platform (app.warp.finance), we have defined a process for you to easily submit feedback. This process is powered by Usersnap, a leading customer feedback solution.
If you take a look at the bottom-right corner of the website (as above), you will find a green-colored “Submit feedback” button.
As soon as you click on the button, the above box will pop up at the bottom-right corner of your screen. Simply fill in your feedback request and click on the “Submit” button. We have received several feedback requests from the Warp community already and are actively working towards resolving them, thereby creating a better product, together! 😄
P.S: We are actively preparing for the implementation of further lending pairs, which also entails improving our Oracle services. More on this later 😜
Featured art by @yongse123 (Warp.finance member)
Thank you for your love and support as always, #Warparmy! While each question asked is an active avenue for product improvement, here are the top three questions which met our fancy:
Q.1: Will Warp Finance partner with other projects and onboard additional lending pairs? (Shiba Master, Telegram)
Answer: Yes, this is a key component of the Warp v2 (Beta and full-featured) roadmap. We would like to take this opportunity to update the Warp community that the roadmap will be introduced to the Warp landing page (warp.finance) soon. We will also publish an article highlighting the post-Beta vision early next month (or highlight this in the next magazine edition). Getting back to the question, as liquidity is crucial for Warp’s success, several current projects could add great value to the Warp ecosystem and we are already in conversation with a few of these projects. As always, follow our socials and the $warp magazine for updates regarding this.
Q.2: Full-featured Warp v2 launch was promised earlier this year but the team only recently launched a Beta version without key features such as Chisel and $veWARP. Why? (Mike J, Telegram)
Answer: The members of the Warp community that have been with us since the beginning of project development know that the Warp team was reassembled (from scratch) this year, after numerous months of hiring drives to find the right personnel to meet our vision. As stated above, the team was rebuilt from top to bottom, with Bamlak taking over as the new project lead. What followed was a fresh approach to building Warp, including adapting to trying market conditions and an evolving DeFi sphere. Having rolled out Warp v2 Beta, the team feels more equipped now than ever to release Chisel and $veWARP, along with the other features we have planned for the future.
Q.3: Has Warp Finance moved on from the OHM liquidity proposal? (@Kevin_delvas, Telegram)
Answer: Yes, due to unfortunate circumstances affecting OlympusDAO (OHM) and other POL solutions in general, the team is actively working on pursuing other solutions to bootstrap liquidity. We will release an in-depth look into the bootstrapping plan in an article shortly.
The Alpha Man needs no introduction. The stage is yours, Stiive!
Servicing the Next Phase of a Maturing DeFi
In the fallout of the bearish conclusion to the most recent crypto cycle, we witnessed the effects of significant contagion from a few bad actors. From Terra’s bloom-to-doom story to overleveraged top-tier VCs and trusted centralized yield platforms being margin-called or liquidated on-chain (for example, 3AC, Celsius Network, Voyager, etc.) — the market has seen it all.
In particular, most contagions in money markets stemmed from a lack of transparency, with the majority of deals being OTC or off-chain. No one knew just how deep the bad collateral rabbit hole went. However, even transparent on-chain markets were affected, with contagion stemming from insufficient risk isolation between markets, combined with poor communication and mitigation strategies of risks, as well as leveraging outright Ponzi yield strategies.
At Warp, we believe the next DeFi cycle will be dominated by the theme of transparency. For example, transparency of risk exposure; asset backing (stablecoin regulation comes to mind); and yield sources.
Further, we believe as the market matures in this direction, this transparency will enable more integrated protocol-to-protocol/B2B interactions, with each protocol able to truly act as a transparent lego brick for others to build on top of.
Warp embodies these principles in the following ways:
- All of our lending pairs are isolated, with explicit and limited counterparty asset risk exposure. This is in contrast to the current status quo of lending platform forked code as solidified in the previous bull run.
- In contrast to many current money markets, we will only lend out exogenous stablecoins, rather than mint our stablecoin using supplied collateral as backing. This lowers our costs (no requirement to defend peg), and minimizes external risk and trust requirements, making our platform more attractive to partner with a wider variety of B2B use cases. Furthermore, we will also offer isolated lending pools for regulated assets such as stablecoins (for example, Lummis and Gillibrand, Toomey, etc.) as the regulatory environment catches up.
- Warp’s USP is focused on borrowing against niche-yielding positions. However, the team is very cognizant of delivering yield which results from primary services, rather than unsustainable Ponzi strategies.
We believe the above points make WARP a leading contender to capture significant market share moving forward, especially after the full suite of v2 is released.
Designing the Ultimate Incentive Mechanism
One of the main goals of the native token of a DeFi money market is to incentivize TVL (both lenders and borrowers) to the pairs where it will be most effective. This is usually achieved through providing rewards (read; emissions) to users of the platform (both supplying and borrowing assets) in proportion to demand. Warp too had a similar setup for its v1 implementation.
However, there are a few issues with this method. Crucially, offering rewards is only an indirect manner of moving the capital to where desired. This also requires the token emissions rewards to have some value to make the incentive attractive. In status-quo implementations, this value is often justified by providing governance (for example, veTkn) over reward gauges to determine where future emissions should be directed. In all cases, there is a lag time between changing the reward structure and the change in user behavior.
There is also no alignment of goals between users and the platform. For example, what mostly ends up happening is that power users accumulate the veTkn solely to vote rewards to pools in which they have an outsized representation so that they can accumulate veTkn to vote even more future emissions to themselves (aka flywheel). This means users are mainly incentivized to act selfishly and there is no actual incentive to simply direct the rewards to the pools where liquidity is most needed for the bulk of genuine users as intended.
This means once the power users start jumping off the flywheel to sell their rewards rather than compound (read; farm-and-dump), it quickly becomes evident just how debased and inflated the native token currency has become. It is then that everyday users realize that rewards have consolidated to a few power users and that the token has no underlying value apart from the rigged promised future emissions of itself. The token price quickly trends towards $0, thereby causing the rewards to lose any incentive they may have once had (aka a death spiral).
In contrast, through the unique implementation of its Chisel liquidity vault, Warp’s $veWARP governance has direct control over moving the underlying liquidity to where it is most needed. Additionally, owing to $veWARP holders’ fee share in the platform (% of interest repaid) while also being incentivized to supply to the pool themselves through veBoost, they are incentivized to vote to maximize platform-wide APY for the most favorable risk-adjusted return. The interests of the user and platform success are aligned.
However, individual users should not be the only ones to show interest in $veWARP governance, as $veWARP holders directly control the capital on the platform — external protocols may also find interest in directly diverting this TVL to pools relating to their protocols. The $veWARP governance, therefore, offers defacto TVL-as-a-Service through its direct control over capital.
For example, if 1 $veWARP has direct control over say, 100 USDC, a third-party protocol can now attribute a quantifiable underlying value to veWARP governance based on the value of controlling 100 USDC. Thus, protocols can make an informed business decision on the value of accumulating veWARP governance voting power for their DAO. This quantifiable governance value is in stark contrast to the faux indirect TVL incentive mechanisms of other platforms which do not provide direct control of the underlying TVL, and therefore make it extremely difficult to make an informed, non-speculative business decision to participate in governance.
That said, Warp will still have some emissions to encourage behaviors that benefit the platform and ensure that stakeholders have sufficient skin in the game to cement good governance. However, due to the underlying intrinsic value of $veWARP governance, which increases over time as TVL and thus assets-under-management and fee sharing increases, every single emission we do give out will have an actual tangible incentive impact. There will be more information on this reward structure in an upcoming dedicated article.
The latest internal news! 🤫
As any Warp user would know, we launched Warp v2 Beta with a single isolated pair — USDC <> ePyvUSDC. We chose this pair, as it has the greatest liquidity depth on Element Finance. However, this pair currently has one of the lowest underlying Yearn APY of all Element pairs and combined with the fact we set our maximum LTV conservatively, meant the economic case for utilizing Warp for capital efficiency has been muted and thus TVL has been self-limiting.
However, from the below internal leaked memo, it looks as though we will launch two new pairs soon to overcome this shortcoming — and with some interesting twists!
Let us decipher what we can from this tidbit:
The first pair looks to be a duplicate of the existing launch pair, however, redeployed with collateral factor maxed out to offer a whopping 98% maximum borrow LTV. This means the amount of leverage one can achieve has increased from 6x leverage (current 83.33% LTV) to beyond 50x leverage using current rates!
Maximum leverage is the single most important factor in capital efficiency. This efficiency ultimately dictates the effective APY of the position and thus moving from 83.33% to 98% is a bold move on the way to enabling mind-numbing APY numbers. For example, at maximum borrow and current pair borrow APR of 1.47%, a borrower could leverage the current fixed ePyvUSDC rate of 2.71% up to 70%+ APY, paid in USDC!
That sounds great, but DeFi power users will know that such strategies usually do not come without risk. For example, traditionally, the main risk for a borrower taking on such a highly-leveraged position is the risk of liquidation. That is, high leverage usually means high risk and high reward; but, what if we could do better? High reward and low risk? Is that even possible?
Yes, it is. Warp will now offer a no-liquidation guarantee on this pair! We bet you wondered if you read that right! We will not liquidate the position before the term expires, no matter if the net present value of the collateral respective to debt exceeds the initial maximum borrow limit.
70%+ APY, denominated in USDC, with no liquidation risk!?! How is that even possible?
Element Finance, my Dear Watson
We know each ePyvUSDC token will always be redeemable 1:1 for USDC at the end of the term period, irrespective of what the intermediate fixed discount rate becomes. You can therefore view the fixed discount as pricing the time-discounted cost of capital, and thus, given a long enough TWAP filter period, the discount should always trend toward 0% as we get closer to expiry. Furthermore, we have crafted the parameters such that the debt can never exceed the collateral at the expiry of the term period, thus it is impossible for the pair to naturally accrue bad debt.
Is this feasible? Astute followers will have noticed that we have already been testing this concept with the launch pair, by implementing a fixed price representing the average fixed discount for ePyvUSDC in place of a traditional oracle feed. However, for this next pair, we will go a step further to fix the value of ePyvUSDC to the maximum possible value of 1 USDC (0% discount, representing term maturity), meaning that for every $1 of ePyvUSDC deposited, you can borrow $0.98 of liquid USDC.
Since when purchasing Element PTs you effectively receive your yield upfront, we are ignoring the discount to price 1 ePyvUSDC at its guaranteed future value of 1 USDC. Therefore, a user’s borrowing power is even greater than 98% LTV when factoring in the USDC spent upfront to purchase the ePyvUSDC. That is, if the term adjusted discount is greater than 2% (1-LTV), a user effectively makes money immediately after opening the position on Warp (that is, they can immediately borrow more USDC than they spent on the position!).
We believe such strategies will enable a whole new era of degeneracy — high APY, but with muted risk, uniquely enabled by the Warp Finance + Element Finance partnership.
Synergies and Analogies
In such a strategy, the primary Element user mints a principal and yield token. This user can use a service like ytc.component.fi/ to continually sell the principal token and compound the yield token. Doing so necessarily puts downwards pressure on the price of the principal token and thus increases the fixed APY discount. Once the discount of the principal token gets too high, the yield-compounding strategy becomes unsustainable — the user needs someone to buy the discounted principal tokens.
Warp users on the other hand are happy to purchase the discounted principal token and leverage the fixed APY. However, as Warp users buy the principal tokens, this necessarily increases their price and thus reduces the discount. As the discount decreases, so does the yield opportunity, so there is a symbiotic relationship between yield compounders (for example, Component users) and Warp users leveraging the fixed discount.
As Warp does not mint its stablecoin, we need the involvement of a further party to supply the USDC to offer lending against Element principal tokens.
Why would a user supply their USDC to lend out in such a strategy? A few reasons are listed:
- Demand for leverage will determine the interest rate, and suppliers will likely result in the lion’s share of the underlying yield.
- 100% utilization shall represent an interest greater than the fixed yield and therefore the lending position should always remain liquid.
- Supply risk is always lower than borrow risk.
- Asset suppliers will be further incentivized through rewards.
- Regulation and compliance; perhaps users can only have exposure to USDC and not ePyvUSDC or other PT assets.
We will dive into examples of APY and the second lending pair in the next edition of the $warp magazine.
All we can say for now is the second pair, USDC <> ePyvCurve-alUSD will offer OVER 750% APY at current rates! 😜
Enough said. Let’s $WARP things up, #Warparmy! 🚀
Join one or more of our social platforms to follow our journey! We are creating DeFi’s first isolated lending protocol that optimizes yield-bearing receipt tokens, and much more!