Simple Summary
Title: SIP-29 Jones DAO <> Sperax Strategic Alignment
Author(s): JonesDAO Team
Created: January 17, 2023
Labels: #Transparent, #GammaNeutral, #PrincipalProtected, #USDC, #YieldStrategy, #USDsUseCase
We extend this proposal to Sperax in order to align our two communities on common ground: stable, transparent yield.
Jones proposes that Sperax become a launch partner for our jGLP/jUSDC Gamma Neutral Vault. This would require depositing USDC into the jUSDC side of the vaults, earning the Sperax treasury composable, transparent, stable yield and setting up an environment to flush USDs with liquidity.
If this proposal is passed, the USDs token will bolt on one of its highest yielding, lowest risk, yield generating partners, which we will show throughout this proposal. This proposal will bring USDs closer to becoming the native DeFi yield layer, Sperax will be able to create more USDs over time based on the strength of jUSDC and its yield. By becoming an official partner, we will continue to seek to improve Sperax’s position in the Arbitrum ecosystem, and present the community with every opportunity to do so.
Abstract
How This Works
GLP is currently the most lucrative and scalable yield in DeFi, with over $400m in TVL earning consistent yield from trading fees on GMX. Built on GLP, jGLP and jUSDC are two distinct and efficient products for both risk-on and risk-off users respectively.
The jGLP Jones Vault borrows from the jUSDC Jones Vault to leverage GLP, enhancing its yield and delta, bringing the price behavior very close to the broader crypto market. jUSDC earns lending yield from the leveraged GLP, staying delta and gamma neutral.
It’s important to note - the leveraging & deleveraging of jGLP is what will keep collateral ratios and the principal jUSDC stable. This unique architecture results in yield, efficiency, and safety far greater than other GLP-based products.
jUSDC: Gamma Neutral Stablecoin Vault
Pristine stablecoin yield: ideal for risk-off users. Transparent and on-chain, with enforced lending parameters to ensure delta and gamma price neutrality. The APR is expected to beat yields offered on crypto blue chip money market and lending platforms.
Superior architecture to GLP hedging models: no exposure to GLP volatility, No risk of being outsmarted by GMX traders, no constant hedging costs.
Since jGLP leverages GLP’s already high yields, Jones is able to create a much higher base from which to reward jUSDC depositors than our competition. This means: even during periods of yield compression, jUSDC depositors will be rewarded through our vault incentives - including non-GLP related products.
As a USDC Stablecoin Vault, jUSDC accrues all of its yield in USDC.
jGLP: Leveraged Delta GLP Vault
The new standard for risk-on yield generation: Maintains exposure similar to ETH or BTC while earning leveraged multiples of the base GLP yield.
Liquidation-proof smart leverage: Automatically rebalanced within an algorithmically determined target range to maximize safety.
As a smart leverage GLP Vault, jGLP accrues yield in ETH.
Motivation
Jones believes that Sperax has been seeking a product with this type of yield and risk profile for some time. Therefore, we feel that the Sperax community would be interested in participating in this vault:
- This product is audited
- Principal loss risk limited to smart contract & GMX platform risk
- The jUSDC vault pays out yield in USDC real yield
- Expansion of Sperax liquidity in the future
Other mutual benefits:
- Co-marketing opportunities
- Future composability with highly liquid jUSDC pools
- Low-touch yield strategy - once deployed, deposits do not need to be managed
- Similar yield profile to LSD products, making USDs an ideal LP token
Overview
Following a successful 8 week monitoring of vault performance, as observed in previous proposals, we request that the Sperax Treasury allocate the maximum USD amount of tokens available, pending approval by the Sperax community.
This will bring some of the best risk-off yield in DeFi to the Sperax Treasury.
Technical Specification
Risk Management
jUSDC lends to jGLP with enforced lending parameters to ensure debt is sufficiently collateralised at all times. jUSDC is unaffected by normal price changes and PNL within GLP. As a stablecoin yield vault, jUSDC is principal protected.
jGLP rebalances automatically to target sufficient collateral. Keepers that manage this rebalancing process ensure jGLP is liquidation proof. jGLP incurs PNL based on price changes and trader PNL within GLP – through this, it behaves similarly to holding a basket of ETH & BTC.
Simulated Historical Performance
Backtests over the last year (from February 2022 to December 2022) show jGLP fluctuates similarly to ETH while earning 48.972% APR (APR is inclusive of fees), causing significant outperformance. jUSDC earns 7.200% APR. Similar performances were measured with randomized simulated data.
The delta-gamma neutral approach to jUSDC ensures that despite extreme market volatility, principal is unaffected. Meanwhile, jGLP earns high-yield and avoids liquidation through its automated rebalancing algorithm.
Disclaimer - These figures are not a guarantee of future performance.
Key Terminology
Gamma Neutral
Many current and upcoming delta-neutral GLP vaults attempt to create stablecoin yield by hedging exposure, and by doing so introduce often overlooked risks. In a hedged GLP position, the user is short gamma as changes in delta produce mismatch between hedges and exposure. This basis risk often leads to losses, not to mention the cost of carry skyrockets from frequent rebalances and variable rates on hedges.
The jUSDC Vault goes beyond delta neutral, to gamma neutral. Because jUSDC earns yield from lending to jGLP, it effectively remains delta-gamma neutral. jUSDC generates stablecoin yield without the need for inefficient hedges and hidden risks.
Leveraged Delta
GLP’s target ratio is half stablecoins, half non-stablecoins (BTC, ETH, and alts) although in practice these ratios change constantly. By leveraging up GLP >2x, the delta is increased i.e. the position value changes more as the price of constituent assets changes. Then, the beta produced is closer to ETH or BTC, meaning that jGLP behaves in tandem with the broader market.
Leveraging to increase delta within GLP creates jGLP, an asset that behaves similar to the broader market while earning leveraged GLP yield.
Voting
For:
Deploy the maximum USD amount of treasury tokens available into the jUSDC vault after an 8 week performance monitoring period.
Against:
Reject this proposal.
- For
- Against