The $warp magazine edition #02
The #Warparmy Rises
Hey hey, #Warparmy!
The second edition of “the $warp magazine” is here and we appreciate the love and support shown towards the first edition and all the initiatives we have taken recently to establish greater communication between the Warp team and the Warp community. It is safe to say that our initiatives have been a success! For the sake of brand identity and consistency, we shall underline the purpose of the magazine format with each edition, so here goes nothing:
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 shall also share important links that you can refer to at your convenience, to better understand how Warp works, the vision we have for Warp and the greater DeFi sphere, and easy, one-click access to our platform(s):
- Warp v2 Beta run-through explainer video
- Warp v2 Beta run-through explainer script
- AMA outlining the platform & addressing questions
- Deconstructing the Warp vision
- The $warp magazine edition #01
- Landing page
- New platform
- Old platform
With all formalities having been completed, let us head straight into the “Dev Updates” section!
Featuring the latest development updates:
Further Work on the Chisel Implementation
Here is all you need to know about work on the ongoing Chisel implementation:
- Chisel and Blacksmith Deployment on Kovan for Testing: To improve system quality, we deployed the whole system with minor changes along with the Chisel implementation on Kovan. The goal is to prepare smart contracts for internal and external audits. We have already defined test cases for extensive testing sessions, and testing is underway.
- Work on Chisel Functionality: Chisel is a liquidity-directing contract, allowing authorized operators to direct liquidity to different isolated lending pairs. The benefit for ordinary users is the ability to invest in multiple lending pairs at once, without having to rebalance funds themselves. Throughout the testing period, we will ensure that all edge cases perform as expected so that we can achieve all aspects of the unique value proposition as intended, before sending the Chisel implementation for audit.
- Chisel Documentation Update: To define the Chisel functionality in the best manner possible and improve future maintainability, we created internal documentation highlighting its functionality. The documentation consists of explanations, sequence diagrams, and outlines.
Oracles Research and Finalization
Since we are working on deploying new lending pairs, it is important to determine how to handle the oracles of these lending pairs, especially for USDC <> ePyvCurve-alUSD. As a result, we dedicated some time to Curve Metapool research and explored the option of either using its spot price or formulating a TWAP implementation. While this work is still in progress, we are for now using our internal backend service to keep track of ePyvCurve-alUSD price changes and update the oracle directly if needed.
Since officially releasing Warp v2 Beta on 8/8, we have been working on improving our internal process, especially when it comes to protocol security, monitoring, and documentation, to make the v2 product more stable and easier to develop now and into the future.
Furthermore, the team has been brainstorming methods of increasing the TVL of Warp v2 Beta in preparation for Chisel and $veWARP and has identified a series of improvements to significantly increase the value proposition. We believe Warp v2 Beta is currently underutilized and thus the team is directing resources toward systematically adding these new features to extract as much potential from the platform as possible. Such improvements will further improve the use cases of the full-suite v2 launch of Chisel and $veWARP.
Recently, apart from fixing minor bugs, we added a new “Borrow Limit” variable that will ensure users will not be able to accidentally put themselves in a liquidatable position, as we can set the Borrow Limit slightly lower than the liquidatable LTV. This forms a core component of our new “no-liquidation guarantee” strategy as leaked in the last magazine, as we can now adjust this parameter based on the pair expiry.
For example, we can now dynamically assign the “Maximum Borrow Limit” based on the maximum interest rate multiplied by the remaining period before expiry, to ensure the user cannot accrue enough interest on their position that would cause the position to exceed the maximum LTV and become liquidatable. This also means we can offer max leverage at any given time. We will dive further into these lending pairs and yield strategies in upcoming sections (Stiive Alpha and Monday Blues), so read on!
On a final note, we have been receiving many questions on our socials regarding the project’s roadmap going forward and decided to judiciously answer this question in the following section ($WARP Community).
“Rekked” — Featured art shared by Johansten (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: Why didn’t Warp Finance have a plan in place to bootstrap liquidity right away after the liquidity rush program ended? (Ian, Telegram)
Answer: The team has been closely monitoring the situation and has noted that $WARP liquidity has remained fairly stable over the past months, even in the face of the reward period ending. The perceived drop in liquidity around the reward period ending has mainly been due to the drop in price of $ETH, rather than users unstaking their LP position.
The team has a long-term plan for liquidity which involves $veWARP, however, due to the expected time before this liquidity reward structure is ready for public consumption, the team will continue to monitor the situation and may elect to offer additional stop-gap rewards meanwhile.
Q.2: Who are the top holders of the $WARP token? (Babilonczyk, Telegram)
Answer: A blockchain is a public, yet anonymous ledger of ownership. The Warp team is unaware of the identities of the top holders beyond the public wallet addresses.
Q.3: Will there be a new roadmap released with dated targets, such as release dates for new lending pairs, Chisel, and $veWARP? (Alain023, Telegram)
Answer: Warp community members who have been following the project for some time know that the present Warp v2 Beta release represents just the first pillar of Warp’s three-core pillars of technology. The first technology pillar isolates all lending pairs from one another to ensure that systemic risk does not compound within the platform with each new collateral asset that is added. This is important as the goal of Warp is to allow long-tail, yield-bearing assets to be the primary collateral type for the platform.
Furthermore, isolating the risk per pair allows for transparent risk exposure of users to accurately price the risk-versus-reward (aka interest rate) of supplying or borrowing from each pair independently. Warp can therefore provide a pure capitalist and transparent marketplace for permissionless borrowing and lending against an array of yield-bearing assets in DeFi.
The next two pillars are Chisel and $veWARP (more info on these here) and we believe that the combination of these three pillars will set Warp apart from all other money markets in DeFi. That said, the team believes that the first pillar of isolated lending pairs that we have already launched, is currently not being used to its full potential and thus, the team has decided to implement further features to this pillar before the next pillars are deployed.
Hence, the team has been revising the roadmap to focus on boosting TVL for the Warp v2 Beta platform. Some of these measures are being leaked through this magazine series. The team would like to avoid setting firm deadlines for bodies of work, but will instead take a more agile approach to development and launch features and improvements as they become ready. For example, although we never set a date, the new pairs leaked in the last magazine have already gone live! Therefore, please keep up to date with the magazine releases and we will keep the community up-to-date on the current features being worked on.
That said, the long-term roadmap of larger tasks working towards the three pillars of Warp remains unchanged, and will be uploaded to the main website soon along with rough estimates of when the community can expect these features to be deployed.
Is it a bird? Is it a plane? The Alpha Bat-Bird is back. What Alpha do you have for us today, Stiive?
In the last edition, we covered the importance of our technology stack for a maturing DeFi and the superior tokenomics model of $veWARP compared to traditional implementations. We then provided some internal leaks regarding new lending pairs and the synergies within the ecosystem. These lending pairs have since been deployed, and thus in this edition, we will expand on the use case of these assets and what it means going forward.
Two New Launch Pairs
Since the last edition’s leak, the team stealth deployed the two new lending pairs:
- An updated USDC<>ePyvUSDC pair with 98% LTV, and a no-liquidation guarantee.
- A new USDC<>ePyvCurve-alUSD pair with 98% LTV and a high fixed APY discount.
The new ePyvUSDC pair with 98% LTV has replaced the old ePyvUSDC pair with 83.3% LTV, therefore we have paused the deposit and borrow options from this old pair. However, you can still withdraw and repay debts on this pair and we encourage anyone who supplied or borrowed from this defunct pair to remove their assets and apply to the new pair. You can view and interact with this retired pair by clicking the ‘Expired Pool’ toggle on the UI.
Both new pairs are now live but each has a very limited time remaining on the pair term. Although new pairs are being released now with 6 months+ terms, we purposely chose the older soon-to-be-expiring pairs so that we can stress-test our new, no-liquidation guarantee concepts with minimal consequences.
As a recap of the previous magazine, the no-liquidation guarantee is achieved through pricing the underlying asset price (that is, value at expiry), rather than the net present value, including the discounted-cash rate. Furthermore, we have set the maximum borrow limit to a position where it is theoretically impossible for a user to accrue enough interest over the remaining term period that would cause the position to become liquidatable (aka debt > collateral * LTV).
Therefore, we believe we can guarantee the position to not be liquidatable within the term period of the pair, so long as the user is using the UI as intended (that is, not manipulating values or interacting directly with contracts to bypass our measures). The pairs will also provide a great example of potential APY able to be achieved through the platform, however, due to the term being short, the magnitude of yield (or ROI) will be much lower.
Note: Although the ePyvCurve-alUSD does not come with an official no-liquidation guarantee, as we cannot be accountable for the price peg of the ~50% underlying alUSD, we do not expect this position to become liquidatable (more on this below).
We will take the next ~2 weeks remaining of these terms to evaluate the performance of the pairs while we roll out additional UX features in preparation for the launch of further pairs with longer terms. It is important to note that once a pair is deployed it cannot be modified, so this ~2-week period lets us ensure all settings are optimal for the soon-to-be-launched new pairs with ~6 months terms.
Examples of Leveraging FIXED Rate APY
At the time of writing (and pair launch), ePyvUSDC with September 17th expiry is currently yielding a fixed rate of 3.01% with 16 days remaining and an offered interest rate on the Warp pair of 0.829%.
This means that a user can today achieve up to ~117% effective APY on USDC by simply opening an ePyvUSDC position on Element Finance and borrowing against it at maximum LTV on Warp, with no risk of liquidation, and fully convert their profit within 16 days!
As impressive as the 117% APY on USDC sounds, due to the short-term remaining on the chosen pair, the ROI is closer to 5% (117*16/365). That is, at current rates, a user could expect to increase their capital by 5% in 16 days.
That is still a great return, paid in USDC but considering the time it will take to attract TVL, we do not expect users to be able to significantly profit from this within the period. However, we suggest it may be useful for users to become accustomed to using the Warp platform to be able to become “early birds” in preparation for what is to come (more on this soon).
To buy this asset, click on the “Fixed Rates” tab on element.fi or directly access the USDC-ePyvUSDC pool. NB: You need USDC in your wallet to purchase the discounted ePyvUSDC and then deposit the ePyvUSDC as collateral on the Warp pair here.
Please check all liquidity requirements arrangements before making the trade and be sure to use the pair with the correct expiry date.
At the time of writing (and pair launch), ePyvCurve-alUSD with September 17th expiry is currently yielding a fixed rate of 10.08% with 16 days remaining and an offered interest rate on the Warp pair of 0.572%.
This means that a user can achieve up to ~606% effective APY on alUSD! Again, this pair is soon to expire, so the ROI over the 16 days is closer to 26%.
Although we are not offering a no-liquidation guarantee on this pair (we cannot guarantee the peg of alUSD w.r.t USDC), we believe the strategy to be low risk for the following reasons:
- The discounted ePyvCurve-alUSD purchased will always be redeemable for alUSD3CRV-f at term expiry and only partially (~54%) priced to alUSD.
- At the time of writing, alUSD3CRV-f is currently composed of:
- 54.46% $alUSD
- 15.2% $DAI
- 14.9% $USDC
- 15.4% $USDT
- Similar to DAI, alUSD is heavily overcollateralized and therefore a relatively safe asset (i.e. not a Ponzi stable).
- The loan having stable collateral (~50% alUSD and ~50% 3CRV) and stable debt ($USDC) means volatility (is) and liquidation risks should be low.
- Since ePyvCurve-alUSD is derived from a curve LP position, by accessing this great APY you are actually deepening alUSD liquidity and strengthening their peg (that is, actively decreasing depegging risk).
However, even though this is currently offering a great ROI on paper, we fully expect TVL for the next 16 days to be muted until the new, longer-duration pairs are launched and more UX features are included which enable looping (more on this soon too).
To buy this asset, click on the “Fixed Rates” tab on element.fi or directly access the alUSD3CRV-f — ePyvCurve-alUSD pool. NB: You need alUSD3CRV-f in your wallet to purchase the discounted ePyvCurve-alUSD and then deposit the ePyvCurve-alUSD as collateral on the Warp pair here.
Please check all liquidity requirements arrangements before making the trade and be sure to use the pair with the correct expiry date.
The Early Bird Gets the Worm
Given the short period before the expiry of the above pairs, it would take a decent amount of capital just to cover the gas fees (especially without looping), so we fully expect the following ~2-week period to appeal more to power users who wish to get familiar with the system before the next pairs are released. Why would they want to do this?
One of the more interesting properties of the Element Finance Principal Tokens (PT) is that APY is fixed at the time of purchase. That is, you receive all of the tokens that the position will be worth at expiry for that APY, upfront. As explained in the previous magazine, the fixed discount is effectively just pricing the time-discounted cost of capital at any given time, and thus, given a long enough TWAP filter period, the discount price should always trend toward zero as we get closer to expiry.
In other words, through Warp, you are leveraging a token that is effectively “up-only” as the term gets closer to expiry. As more people purchase the fixed discount to leverage it on Warp, they necessarily increase the price of the PT token (reduce the fixed APY). Therefore, users that get in early can effectively flip their PT position for an even greater APY profit before the expiry even occurs by speculating on the price of the token increasing at a faster rate.
This is because the APY shown at the time of purchase assumes that the fixed price discount linearly dissipates to zero as the term expires, and represents the guaranteed amount of yield the user can achieve when holding to the term. However, if the fixed price does not linearly dissipate, but instead the discount decreases at any time, then the user could achieve multitudes more in terms of APY. That is, flipping the token early has the effect of being able to turbo-charge APY, by providing a profit within a much shorter time frame.
For example, if a user opened a 180-day position when the fixed APY was 10% but it later dropped to 5% halfway through the term (90 days in), that user can effectively sell their position to lock in an effective ~15% APY or 1.5x their original APY expectation. If the fixed rate dropped to 5%, one-quarter of the way through the term (45 days), the user could net 25% APY, or 2.5x their original APY expectation. After just 5% of term expiry (9 days), APY could be 10.5x higher than advertised (for example, 105% APY in the example above)!
Therefore, the APY at the given time of purchase only represents the MINIMUM amount of yield a user can achieve when holding the position to term. The user benefits from the fixed APY reduction after they have opened their position and is therefore incentivized to promote the farming opportunity for others to join. In this way, a user’s actual yield could be multitudes higher than the fixed rate expected when they opened the position.
This is a crucial difference to essentially every other leverage farming opportunity that relies on variable yield opportunities. In competing strategies, power users are incentivized to hide their lucrative opportunities, as other users who enter the pool will dilute their yield and thus collapse the APY. Lucrative farming opportunities are their “Alpha” and they generally keep them close to their chest.
However, in the case of Warp x Element Finance, other users entering the pool presents an opportunity for earlier investors to exit their position earlier than expected, and therefore game theory suggests users are rewarded by enticing others to also join in the farming opportunity. The team believes, in contrast to other platforms, this inverted game theory will be a great driver of peer-to-peer marketing and exposure to the Warp platform and the yield farming opportunities thereof.
Furthermore, in the case where the underlying token represents an LP position, the game theory incentivizing farmers to bring more farmers in, also necessarily deepens the LP position. Hey, that sounds like a positive thing for projects actively trying to attract LPs. More on this another time. 🤨
Looping, the Ultimate Gains Multiplier
For users without access to significant capital upfront, flipping a short-term PT position for a couple of hundred dollars in profit may not seem so impressive, until you factor in the looping potential.
For example, a user with just $10,000 starting capital may leverage their PT position and farm the discount with more than $500k (half a million dollars!) at 50x leverage, without fear of liquidation. This means that the price of the PT does not have to move a lot before the user can again onsell the PT position to lock in their profit. As a result, the effective annualized APY of such strategies is even more significant, as the profit is realized quicker than holding to expiry, and the user incurs less interest on the leverage borrowed amount.
For example, given enough USDC in the pair, even the current launch pairs with nearby expiry of fewer than 2 weeks can be profitable. E.g., a user could loop $10k into an ePyvUSDC position 52.5x to make up to ~$349 net profit (including interest and slippage) to achieve an ROI of 3.5% in just 16 days. The position could even generate up to $515 net profit / 5.15% ROI if it was not for the slippage of the resulting whale purchase of $525,000 reducing the average fixed rate to 2.3% (the PT LP pool currently has $6M in liquidity).
Likewise, disregarding slippage/liquidity, a user could loop $10k through the alUSD pair at 10% APY to take home a net profit of $2,646 in just 16days! That is an epic 26.62% ROI (607% APY), paid in stables with a locked-in fixed yield at the time of entry. Such strategies should certainly be lucrative enough to catch the eye of your average degen.
Furthermore, once we launch the longer-term pairs, users will also have the ability to “flip” the position earlier than expiry to super-charge ROI many multiples higher than the figures above. (for example 1k%++). Thus, users are incentivized to share the yield farming opportunity as widely as possible to boost their APY potential and this also boosts the underlying TVL.
This is because of the synergistic nature of Element Finance TVL as explained in the previous magazine. That is, there exists a nash equilibrium between PT compounders (Warp), and yield token compounders (Component Finance), and thus, if either user pushes the discount too far in the opposite direction, it increases the profitability of users from the other platform to push the discount back the other way. Therefore, the position should ultimately remain profitable for users on each side.
This also incentivizes more TVL through Element Finance by encouraging users to mint more PT and YT tokens to sell to PTC (Warp) and YTC (Component Finance) compounders respectively. The fixed yield potential is thus never-ending as long as the underlying variable yield of the principal (for example CRV/CVX rewards) continues. So farm along and bring your friends!
Furthermore, it is again worth noting that the FIXED APY which Warp leverages is the counter-trade of the VARIABLE APR offered by the underlying yield source. That is, the Fixed APY effectively represents the opportunity cost of capital for those willing to speculate on the long-term variable rate but without holding the underlying principal asset.
Therefore, the yield which Warp is leveraging does not come from the variable yield strategy directly, but instead directly from providing capital efficiency (primary service) to other users and represents a fixed discount at the time of the transaction. Therefore, considering the yield is funded peer-to-peer by other users, paid upfront, and denominated in the underlying token of interest, leveraging the fixed APY position comes with significantly lower risk than the speculative nature of the variable position (#RealestYield).
Not only does farming this fixed APY position have lower risk than basically any other farming opportunity but being a fixed-term position also uniquely enables the potential to flip the position over a shorter period than the term expiry to realize some truly mind-numbing ROI figures. 🤯
The Latest Internal News! 🤫
Internal Leak #1 — Near-Future Features
As discussed earlier, looping a yield-bearing position unlocks the new potential to supercharge yield for borrowers. Although the maximum effective APY remains constant, the magnitude of gains can be scaled by looping a yielding position over and over. This is crucial for users without access to significant capital upfront who require a significant number of loops to achieve a worthwhile outcome.
For example, if a user starts by depositing $10k of PT to Warp as collateral, they could then borrow $9.8k USDC at 98% LTV and use the borrowed tokens to purchase more PT to deposit on Warp as collateral, to borrow again, and so forth. With this strategy, at current ePyvUSDC rates, a user could do this more than 100 times to end up with over half-a-million dollars worth of PT and significant profit. However, doing 100 transactions would cost a lot in gas and thus significantly reduces the profitability of such a strategy. Furthermore, the manual implementation is incredibly time intensive and thus creates a barrier to entry.
With the implementation of flash loan leverage directly in the UI, 100 loops can all be achieved in just one click, thereby eliminating the pain (time and gas) of manually looping the position over and over — while receiving all of the gains.
We feel looping will drive a massive TVL boost towards the platform meaning users can borrow large amounts, without requiring significant upfront capital themselves.
Rest-assured degens, this is on the way!
Internal Leak #2 — New HIGH-APY Pairs Incoming?
The Warp team is working hard to bring new lucrative leverage farming pairs to the platform. The team is especially excited about high-leverage, no-liquidation guarantee pairs where yield is fixed up-front and denominated in stablecoins like USDC.
We believe such strategies are a unique value proposition to Warp and should attract significant TVL once the UX features, such as one-click leverage looping are ready. Element Finance is working towards implementing higher variable APR opportunities. For example, Aave USDC ($AUSDC), boosted in Balancer Finance (bb-a-USDC) at maximum boost using Aura Finance (aurabb-a-USDC), and then compounded in Yearn Finance. 🤯
Since this will be a new pool and initially have a long expiry, we expect the fixed discount APY to be significant, enabling the opportunity for leveraging high APY with maximum capital efficiency. For example, if the discount was to initially match the variable (currently ~7.5% APY) as common in such strategies, the current Warp USDC borrow rate (1.07%) would yield a 500% FIXED APY at 95% LTV, paid upfront, in stablecoins, with no liquidation guarantee (TBC)!
Plus, yields could be even higher for the “early bird” investors if a significant number of users are attracted to eat up the discount after them. That is, a user does not have to hold the position for the entire 180 days and if the discount reduces significantly within a short period due to the FOMO, early users could be looking at (tens of) thousands of APY%!
A true worm feast awaits the early birds when this pair finally launches!
The Warp team is working hard to introduce features we believe will be critical in turbo-charging our TVL before continuing with more advanced roadmap features. We believe there is a lot of underutilized potential in what we have already launched, which we intend to unlock. As we get closer to achieving all the required functionality, we will then begin the marketing phase to attract capital, while continuing work on the more advanced features as part of our broader vision.
To summarize, in the near term we are focusing on completing the following feature sets to highlight our unique selling points:
- High-leverage farming opportunities with a no-liquidation guarantee on select pairs.
- No yield risk — yield is FIXED and determined at the time of opening a position:
- Fixed APY represents the minimum achievable yield but can be many multitudes higher!
- Isolating risk exposure through isolated lending pairs.
- #RealYield paid in trusted tokens, especially stablecoins like USDC.
- Simple UX with one-click, mega-leverage.
- The novel game theory incentivizes users to promote farming opportunities to other users, rather than hiding the opportunity as Alpha to avoid yield dilution.
- All the while offering mind-blowing APY potential (1k%+). 🤯
Note that Warp is now testing two high-leverage stable farming opportunities, offering more than 100%++ APY, paid in non-Ponzi stables in preparation for a wider launch. We expect our new strategies on longer terms to yield even more than this and combined with one-click leverage, allow even our smallest users to access significant gains.
Furthermore, with longer expiry on new pairs, we expect plenty of opportunities for early bird users to be able to flip their leveraged position to achieve a significantly higher APY than advertised.
1k%++ APY on stabelcoin, with no risk of liquidation!? Ser this $UST skem? No.
We believe our unique, high-yield leverage stable farming strategy with all the points above could eventually rival the once popular Abracadabra $UST “degenbox”. For context, this degenbox got over $1.1B TVL in its peak, while offering no-liquidation protection, on a variable and unsustainable yield, denominated in an under-collateralized stable with significant (and now justified) de-pegging risk, all while offering no incentive for users to ‘spread-the-word’.
Now for comparison, re-read the above dot-points of the Warp system focusing on risk-mitigation, with fixed, #RealYield paid in legit overcollateralized stables, offering similar magnitude APY, with no-liquidation risk and an in-built incentive for users to heavily promote the use of the platform to attract other farmers to boost their APY. 👀
But this is all still just the very start of our journey. We believe the above features will allow Warp to gain significant TVL and attention that will put the project in good stead as we roll out the more complete product including Chisel and $veWARP and a much wider lending pair base offering much-needed B2B services. Please join us as we go interstellar on our journey toward DeFi-lending domination!
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!