Thread by @GoolagCrypto

🧵on my @StripsFinance thesis for @scribeDAO

TL:DR; Strips is a derivatives DEX that's bringing a classic TradFi derivative to crypto: Interest Rate Swaps (IRS), and if executed properly Strip could see growth on the level of dYdX or other derivatives EXs

Not Financial Advice

1⃣ Product

IRS are forward contracts where you swap future interest payments based on some notional amount

There are 3 main types

1. Fixed to Floating: fixed to variable

2. Floating to Fixed: variable to fixed

3. Floating to Floating: variable to variable

1⃣ con

Offering IRS is a natural evolution in DeFi that mimics a trend in TradFi

Currently there's no protocol that offers IRS and so Strip is stepping in to meet that demand

Strip hasn't released its IRS DEX yet, but plans to offer the first two types of IRS

2⃣ Prevalence in TradFi

IRS have the most volume of OTC derivatives in TradFi and have consistently maintained 80% market share

As more TradFi goes to DeFi there should be strong demand for IRS from TradFi participants who want to hedge their interest rate exposure in DeFi

3⃣ Need for it in DeFi

IRS are also attractive for crypto-natives in DeFi

With protocols like COMP your exposed to variable interest rates which can be unappealing

If you're lending you don't want the rate to drop and if you're borrowing you don't want it to go up randomly

3⃣ con

Furthermore if you consider yield farming, its possible you don't want to be exposed to LM incentives drying up and your APY dropping significantly

With Strip you can get a fixed APY on your yield farm by providing some notional amount on the DEX

3⃣ con

Finally IRS allow people to speculate on interest rates on the market and given basis trading is a popular trading strategy that's basically an IRS we can observe that there's a lot of potential demand for IRS in DeFi for both crypto natives and TradFi entrants

4⃣ Specific Mechanics

Let's walk through an example of how it would actually work on Strip and some key design architecture within Strip

1. Exchange
2. Liquidation engine
3. Insurance pool
4. Example

4⃣ Exchange

Strips is a cash-settled IRS exchange. You deposit collateral to trade within interest rate markets.

You buy or sell the interest rate against passive liquidity provided by an AMM and pricing is automatically adjusted by the AMM

4⃣ Liquidation engine

If you account falls below maintenance margin then you'll be liquidated and your position will be unwound

The insurance pool keeps the collateral, but if a market move wiped out even the collateral the insurance pool will cover the losses

4⃣ Insurance pool

The insurance pool to protect against large market moves creating liquidation losses.

For providing protection the insurance pool receives:

5% of all realised profits of all market AMMs

5% of all trading fees paid

Liquidation profits

4⃣ Example

You enter a yield farm with a variable APY of 1000%

You have a feeling that people are going to FOMO in and start LPing for LM rewards and that APY will decrease significantly

So you go to Strip and do a floating to fixed IRS for 600% return instead

5⃣ Tokenomics, Team, Community

I think we can see that the product is interesting and should have some demand, but we should always look at other key aspects before building conviction on an investment

Let's consider the

1. Tokenomics
2. Team
3. Community

5⃣ Tokenomics

Value prop:

STRP gives you governance rights, and staking STRP gives you 20% of fees as a method of value accrual.

STRP can also be used as collateral on the platform, so you have three different reasons to buy STRP

5⃣ Tokenomics

The Token distribution doesn't look to bad, but I wouldn't say it really stands out. There's 100M total supply following this distribution

One thing I noted was that in at IDO today only 14 addresses got to buy and so FDV is already at $500M just through whales

5⃣ Tokenomics

There's a ~3 year vesting schedule which seems pretty decent and should stall inflation for some time

There's a lot of tier-1 VCs backing this project which could proxy some credibility but I don't take too much from that as IDK how invested they really are

5⃣ Team / Community

Their discord doesn't seem to active or vibrant, but its possible that its just so early a community hasn't developed

The team looks pretty solid as VCs would definitely look at least look for intelligent people, and they have a good understanding of IRS

5⃣ Community

One thing STRP is doing to build a stronger community is introducing gamification

They'll be holding lotteries for traders based on usage of the platform with rewards like badges or gift boxes

This should incentivize more participation from community members

6⃣ Conclusion

Strip is building a product that should see strong demand in the future, but they haven't released anything yet so they still need to execute

If they can create a seamless product with great UX and build a strong community they'll be very successful

Bullish

NFA