From conversion to belief: obtaining the best DeFi certificate in history (part 2)

Hundreds of schools are fighting for a permanent contract.

Interest rates are available everywhere on DeFi, including loans, AMM LP exchange rates, giveaway closing procedures, mining capabilities, and collectively revenue sharing, but blockchain interest is determined by market forces. acting.

However, the uncertainty of the interest exchange rate affects the future development of DeFi as it is difficult for investors to have a secure future. for long-term financial planning. . Although DeFi is still in the early stages of its upgrade and has an insane market share with third-party APYs everywhere, making early adopters less likely to be affected. Interest rates are changing, there are still many DeFi pioneers who understand the importance of DeFi. Stable Value: They use their specialized skills to develop DeFi processes with various strategies to open a stable value market.

In our previous article, we did an in-depth analysis of all the firm contracts in the market. In summary, it can be divided into two groups and three sub-channels.

Category 1: Medical payments

Agree on a date, fixed price and fixed interest rate with the borrower.

No debit card:

The lender offers coupon free contracts and sells them to the lender at a reduced price. Here the difference between the buying price and the selling price of the contract is the fixed interest rate on the loan between the two.

Step 2: redistribute the results

Co-invest in interest-bearing assets, with risk-divided returns.

Main division:

Interest-bearing assets separate bank and future interest rates, bundle them into a marketable asset, and sell interest-denominated securities in the future to earn interest.

Product design:

The risk and future income are stratified, the low risk level can give preference to the approved income, the additional income can be transferred to the higher level. , and the top level must bear the risk of changes in the market. interest. Therefore.

According to the above classification, these agreements are described in the text below.

The fixed price contract uses an information dissemination mechanism

The above procedures have slightly different procedures for generating interest rates and have similarities and drawbacks, but they all have some income (loan level, income). or all ...) and all not only the flower business, but also the original. capital manager. I changed. However, what we really need in the process of transitioning from a variable rate to a stable price is to hedge the “exchange rate interest”.

In other words, we don't really care whether the leader is betting on the asset or the interest itself. And this is the first expectation of the price, I hope the above unfortunate risk can be ruled out somehow.

The most widely used instrument in modern finance is the exchange rate.

interest derivatives

The 1970s saw the onset of the oil crisis and the collapse of the Bretton Woods system, resulting in increasingly high inflation, unchanged interest rates. In order to control the interest rate risk, the associated interest rates have been gradually developed and well received by the market. Since the world's first exchange rate between IBM and the World Bank in 1981, exchange rates have become one of the most important financial instruments in the interest rate industry.

Like futures trading, interest rate exchanges have traders with the same base but reversible instructions. You can apply long or short interest rates and get similar or decreasing interest rates based on future interest rates, and by purchasing the exchange rate appropriately, you can minimize the gain or loss of interest rates of different interest rates (borrow or lend). somewhere.

For example, Company A is valued at $ 1 million with a float value of 2% of US 6-month LIBOR, expects LIBOR to rise, and wants to adjust its interest rates first. At the same time, Company B has a debt of $ 1 million which is paid at a constant rate of 5%, but also has capital with different income. Since this is an interest rate, he hopes to convert it to US dollars in six months. LIBOR-based floating flowers.

As a result, the two companies signed a 3 year IRS agreement with a $ 1 million manager in which company A agrees to exchange 6% fixed interest on company B. 6 month LIBOR at floating rate of 1%.

Company A: receives 7% of total interest based on expenses.

Company B: Receive expenses with different LIBOR interest rates

At the same time, during the actual negotiation, only the difference of opinion is exchanged, and for A it is 5% - LIBOR.

For example:

The first time the LIBOR is 4.8% and A only pays B for 1M ⨉ 0.1% spread.

Note: 0.1% = (5% -4.8%) / 2

The second LIBOR is 5.2% and A can apply 1M ⨉ 0.1% spread by B.

Lus Cim: -0.1% = (5% -5.2%) / 2

In the example above, we can see the benefits of the IRS. Since both parties pay only a portion of the different interest rates and do not include the chairman, investors can pay by a small down payment from the CFO to protect themselves. . ), so. The efficiency of investments is very high.

Based on this idea, the best design direction of DeFi Fixed Price is to market interest rate derivatives so that investors can trade more interest rate with less money. , therefore iGain - The Synth Interest.

iGain - page summary page

iGain is a DeFi derivative trading framework provided by Hakka Financial that uses contract float price to benefit payment information (e.g. float price in loan agreement) and contains mental content. Create an interest synthesizer with financial tools and build an interest rate business that has never been seen before in the DeFi world.

design ideas

IGain trading framework adopts dual long / short token design and can run long and short term with each finger. In the IRS, hold a long representation for a bullish flower and hold a short representation for a discount.

An important design of iGain is that the Long / Short price influences each other, and it looks like the two values ​​add up to $ 1.

1 long 1 court = 1 $

The long term settlement rate is tied to the interest rate over time, and the rates are limited between $ 0 and $ 1 and the short term charge is 1-Long plus one, the difference is also true.

Long and Short rates are generally $ 1.

All iGain longs and shorts are created by depositing tokens. Exchange, it can also be created by destroying the same value. Convert Long and Short for the same number of chips.

Integrated DEX

To trade long and short positions, you must first trade, establish a trade on iGain and use the stable trading products x × y = k according to the AMM model. This pool includes Longs and Shorts If there are Longs and B Shorts in the pool, the values ​​of the two currencies in the pool are as follows:

Take DAI as an example, by solving the equations with the relation 1 Long 1 Short = 1 DAI mentioned above, the value of the formula for Long and Short can be obtained.

When a trade occurs, the values ​​of a and b in the pool change, which also affects long and short rates.

As you can see in the instructions above, there is no exchange like Long / DAI or Short / DAI in iGain system, only change between Long and Short, so if you want to buy Long With DAI, you have to launch using DAI. before. Use the same amount of Long and Short and replace Short with Long on hand flow.

Pollution and Long & Short Buy

To trade, sell longs for DAI, you must first trade longs for shorts and trade DAI for the equivalent of longs and shorts.

Long sale for X DAI

speech terms

In iGain trading, many financial derivatives can be created as long as the instrument is used to trade.

The lending process is supported by the first version of Payment Synth's Aave (IRS), with higher revenues such as Yearn expected to be supported in the future. In the case of Aave, the long settlement rate of "interest on time" is indicative, and the more the interest was collected on time, the higher the value of the order of Long and reduce the cost of short settlement . This means that investors can buy long term interest rates and sell short term interest rates.

The procedure

Value tokens are received when borrowing at a different value from Aave, and the exchange rate is determined by the size of Aave's getReserveNormalizedVariableDebt difference. As interest rates rise, borrowing costs will gradually increase and the value of getReserveNormalizedVariableDebt will increase. The IRS calculates interest rates through the system based on the “exchange rate” of that exchange over time, and based on that change, including the negotiated cost of the Long Term.

The way the program is used is to start collecting conversion rates at the start of the contract.

taux initial = AAVE.getReserveNormalizedVariableDebt(자산)

When your payment is complete, read the final conversion rate.

endRate = AAVE.getReserveNormalizedVariableDebt (자산)

First Rate and endRate let you calculate the rate of increase of the interest rate difference over time.

비율 = (finRate - initialRate) / initialRate

For example, a ratio of 0.04 on growth means that 4% of loans were disbursed during this period. If you decide directly on this amount, the long term rate is $ 0.04 and the short term rate is $ 0.96.

In order to maximize the efficiency of the investment, you can re-evaluate based on historical data and add the necessary capital to your interest rates. If 10x leverage is added according to the previous example, the gain for Long is $ 0.4 and short for $ 0.6.

_bPrice = Leverage * Ratio

If the amount of payment is more than $ 1, $ 0 to use BPRE at $ 1 up to $ 1. here are some specialty calculations:

Long payment: bPrice = min (_bPrice, 1)

Selling cost: 1 - bPrice

How to get constant interest

fixed loan rate

When depositing with Aave, the interest rate changes according to the usage rate, in this case, if you discount and shorten the interest rate, you can set the repayment position and prevent future interest rates. . For all interest rates on the due date (see table), the actual “Required Amount” and “Lockable Interest Rate Amount”, see description below.

Price to buy:

If you want to offset future interest rate changes on your deposit position, you need to buy some discount, and the size of the lender will affect the leverage ratio. The higher the leverage ratio, the faster you need to buy and repay.

Take the example of the Dai deposit, a deposit of 1000 Dai without leverage requires the purchase of 1000Shorts against the interest rates, and if the leverage is 10x, you only need 1000/10 = 100Shorts.

Requirements = Total deposit / Leverage ratio

The higher the comparison, the fewer tokens to buy and the higher the investment.

Fixed report size:

As seen in the previous section, Long's value is determined by its interest rate and comparison.

At the time of settlement, the long-term settlement rate can be calculated based on the interest rate received from the current ratio, and similarly, the interest rate comparable to that rate can be calculated from the average cost of 'a long-term business. , interest covered.

Then calculate the time of ToMaturity from the expiration date to give a stable APY interest.

Note: Since the National Tax Service fees are calculated as the cost of the loan, it is not possible for depositors to compensate for future fluctuations in deposit interest rates. The payment term may differ from the above calculation. The results are a bit imprecise.

iGain - IRS provides one-click mortgage assistance.

Mortgage rates are stable

To borrow at a fixed rate, you will need to buy Longs equivalent to the long term to adjust the future value of the loan. Long-term purchases for mortgages are calculated the same as for the term of the deposit.

Requirements = Total loan / Leverage ratio

When calculating APY loans, just change the calculation method from markRatio to short market value.

The other steps are the same as for a fixed loan and you may end up with something like this:

real example

Long / short term holding does not mean that the interest rate on a loan contract can be changed directly from variable rate to fixed price, but to benefit from a fixed price.

The following is an example of a constant interest loan to illustrate the role iGain plays in this system with a real life example.

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Jack library $ 10,000 from AFove and buy $ 1,000 to complete $ 400's interest at the early 0.4 dollars.

Here is an attempt to calculate the final known interest rate for different situations.

Case 1:

After a year, Jack realizes the interest rate on Aave's loan (the interest rate difference is 8%).

At this point, Jack's total interest rate on Aave is $ 800, the long-term payment is $ 0.8, and he can repay the entire $ 800. This is the income of $ 400 over the cost of Long Buy.

After adding the P&L to both, Aave and Long, this equates to paying a total loan of $ 400, or 4% interest on the loan.

Case 2:

After a year, the loan cost of Jack is 3%.

Meanwhile, Jack's total loan amount to Aave was $ 300, and Long's repayment amount was $ 0.3, the total repayment amount was $ 300, a loss of $ 100 from the cost of Longevity.

This is equivalent to adding a P&L to both Aaves and Long, then paying off the full loan amount of $ 400 and still borrowing at 4% interest.

As the two examples above show, whether Aave's borrowing rate is above or below 4% after one year, as long as it is long enough to start, the total income and loss will be -4. %. The rise and fall can eliminate each other.

Based on the above description, various events have been plotted and documented below.

With iGain = No iGain Long Token PnL

The leverage ratio determines the amount of interest that can be hedged, and the maximum interest rate limit is 100% / leverage ratio.

The size of the interest rate is determined by the long or short purchase price, and the lower the purchase price, the better the interest rate that can be adjusted.

iGain - The benefits of the IRS

iGain - IRS takes place as standard, unlike other fixed contracts, and creates a market for interest derivatives, so it has four advantages:

high efficiency peev

As mentioned in the first sentence, "interest" is provided by the "manager" placed in the asset, but to achieve a constant value you need to focus on the interest rate itself, even at rates. different. Interest rates and the need for the best interest rate for other plans, this can be very profitable as it only resolves the propagation of "interest rate changes over time" and excludes the president from investors in beneficial ownership. Traders only need to give a small interest in the market or the big hedge manager.

sensitive to value detection

On the other hand, due to the high impact of iGain interest rates, compared to coupon-free AMMs such as Yield Protocol, if there is an opportunity to arbitrate the contract price and external market costs, mortgage rates are stable. points, Pendle theme tokens, etc. The Split Between Nominal and Chairman Arbitrage Traders should be prepared to invest heavily to offer zero coupon contracts to raise their prices, but the IRS doesn't need a lot of money to steer them . .

Network interference from DeFi Home Blocks

iGain - The IRS is interested in other process outputs, allowing you to take advantage of existing flows and existing process flows. Mortgage lenders such as Yield and Notional are independent from existing loan agreements so income can be broken, but for IRS users the primary position is still Aave / Compound / Year. You have to put money aside to defend yourself. Integration with other protocols can have a bigger impact on both parties' contracts and can absorb users of the original DeFi protocol, as well as integrate multiple TVL protocols into the process.

Establish a short-term flower business.

DeFi fixed spot contracts can protect the interests of the merchant, but not sell the interest. For example, "income divisions" create a "constant income" and "long-term interest" market by shifting the risk of fluctuating interest rates. For example, interest on separate contracts is long-term interest rates, and similarly, the high risk of construction equipment lowers long-term interest rates. However, we have interest leverage to buy the market, but not similar leverage to sell the market.

If they cannot agree on future prices, investors can avoid the need to recover from their work, there is no way to create a short-term, profitable return from falling prices. IGain-IRS short tokens don't have to save money on interest rates, and holding them alone makes them less attractive to interest. the cost of services.

iGain Aave = win-win?

iGain - The first derivative of IRS is based on Aave. While Aave already provides secure loan services, the IRS allows Aave users to benefit from the latest features.

First of all, iGain will create a fixed-amount deposit service for Aave, and for DeFi newbies, deposits are an option over loans. Newcomers switching from traditional financing to DeFi have expected to require a more stable deposit than the standard deposit which provides a non-refundable deposit. new users.

Second, while the difference between the interest rate of the Aave Fixed Lending Rate and the General Lending Rate is large, the IRS iGain is the derivative interest rate and the long / short cast is 1: 1, that is to say without transmission. The downside for buyers and sellers is that Aave can restrict the mortgage market by comparing mortgage rates and loans against each other.

concludes

In traditional finance, most business expenses are managed by low interest rates. For example, about 90% of US loans are securities. They are more confident in their resources and more willing to accept more complex financial instruments.

At the same time, borrowing, the importance of capital formation, often requires estimated interest rates. Examples include mortgage deals, fixed income assets based on government revenues, capital gains, or leveraged Bitcoin positions based on loans. Since fixed prices are the basis for improving financial equipment, whether DeFi is to attract more financial users or create more financial products to expand the market, firm contracts play an important role. .

However, in DeFi, the market value of a floating contract is much higher than the market value of a fixed contract.

Currently, the total stable value of Aave and Compound is over $ 20.5 billion. As mentioned above, we have broken down securities lending agreements with legal instruments including all securities lending agreements like performance protocol, notional, etc. , Element, Pendle, BarnBridge, Slice, and more. The total cost is only around $ 767 million.

Variable rate TVL protocol as of 09/01/2022. Source: DefiLlama

TVL du Fixed Rate Protocol au 01/09/2022. Source : DefiLlama

Therefore, we boldly believe that DeFi stable price companies have a lot of room for growth. In fact, 2021 has extended many stable contracts, and there are still many new developments that have supported the development of the DeFi site. Blockchain has become an important example.

So far, around 20 DeFi legal mortgage rates have started or will start. There are many, but compared to this sentence, it is not difficult to see that some of the laws are "micro innovations" of others and similar to each other. It's hard to move forward. Fortunately, the market is still very large, and one or two policies may be needed for our three-pronged approach - bringing new products and applications to the DeFi market.

However, most fixed spot "spot" contracts have yet to move away from the core of the market. According to statistics from the Bank for Global Conferences, the most common trading in the financial markets is the exchange rate. First, 80% of all financial derivative transactions relate to interest rate derivatives and over 75% of interest rate derivative transactions originate from interest rate exchanges. The trade will amount to more than $ 372 trillion.

The reason that exchange rates can play such an important role in traditional finance is that only investments that benefit from “different interest rates” are attracted to investors and financial companies. Change in Interest Rate Since no contract model in the financial world has always existed, it is necessary to face the problems of competitors and develop iGain - Synth Interest, a supported derivatives trading marketplace. suitable for blockchain.

We believe the appeal of DeFi is that anyone can use DeFi to the best of their ability to meet financial needs for a variety of risks and returns, without compromising on licensing and middlemen. To make huge profits in the Create and Compete Finance network, always have tycoons together!