The number of traditional finance chads (e.g. @arbitragegoth) asking me questions about DeFi LP staking is 📈📈 📈
Here's what it is:
1. @synthetix_io / @kaiynne pioneered paying users for liquidity by staking CFMM LP shares
2. CFMM LP shares replicate options portfolios
👇🏾
Here's what it is:
1. @synthetix_io / @kaiynne pioneered paying users for liquidity by staking CFMM LP shares
2. CFMM LP shares replicate options portfolios
👇🏾
∴ LP staking is equivalent to collateralizing a leg of an interest rate swap with future expected cash flows from an options portfolio
This is actually *really* hard to execute in normal finance — especially because the CFMM replication is a continuous combination of strikes
This is actually *really* hard to execute in normal finance — especially because the CFMM replication is a continuous combination of strikes
Traditional finance has focused on swaps as
a. In-kind (e.g. interest for interest)
b. Purely Synthetic (e.g. variance swaps, VIX)
DeFi let's you combine the two — in-kind on one side in exchange for synthetic on the other
Impossible to do this without non-custodial assets!
a. In-kind (e.g. interest for interest)
b. Purely Synthetic (e.g. variance swaps, VIX)
DeFi let's you combine the two — in-kind on one side in exchange for synthetic on the other
Impossible to do this without non-custodial assets!
I feel like all of the stochastic calculus and weird convolutions of strike densities that you see in math finance books is *actually* possible in DeFi, in a way that is hard to do in normal finance
