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MrStiive

Oct 19, 2021 • 22 tweets • 14 min read

@warpfinance

@warpfinance🧵1/20

A ~$4M micro-cap w *$13B* TAM

$WARP is about to release its v2 #BlackSmith, further innovating on lending for yield bearing assets

The #DeFi 2.0 narrative is strong, but the potential of the @element_fi ecosystem it will leverage is underappreciated =>THREAD

2/ $WARP was a pioneer in #DeFi summer by being the first to enable borrowing against Liquidity Positions (LP).

This innovation unlocked a $4.7B TAM beast, whilst the borrower continued to earn LP fees on their underlying assets 🔥

Other DeFi dApps have since copied this idea.

3/ This V1 is live today with $16.5M TVL
eg if you’re bullish on $WBTC / $ETH in Q4 and wanted to keep exposure, but also wanted $ to trade alts you could;

1. Add 50% of each as univ2 LP & earn ~2.5% APR
2. Borrow 75% LTV $USDC at 2.19% APR (-0.31% net)
3. Buy alts
4. Profit 💸

@element_fi

4/But now $WARP are innovating again with the goal to freeing the potential of other illiquid yield generating assets.

Introducing Warp V2 #BlackSmith with initial focus on integrating @element_fi fixed yield assets ($163M TVL!)

$WARP will service & expand this TVL.

How??

@element_fi

5/ First, what does @element_fi do? Well, it leverages yield generating pools like @CurveFinance and @iearnfinance, and splits it into;

Principal Token (PT) = the locked upfront capital. eg 100ETH

Yield Token (YT) = future yield expectation (eg 12 ETH), accruing value over time

6/ The innovation here is that the primary market maker can now sell this PT and just keep the YT.

e.g., if the primary sells the PT for 90 ETH to a secondary buyer;

- Primary has spent 10ETH for a YT worth 12ETH (20% APR)

- Secondary has spent 90ETH for a 100ETH PT (11% APR)

7/ That is element allows the primary to sell a PT at a fixed discount, which becomes the secondary’s fixed interest rate.

This is a great innovation! 👏

BUT, from the example, you can see that the secondary has much higher capital requirements (900%), and earns lower APR (-9%)

@element_fi

8/This means we see the market force the discount to be as high as possible, often resulting in the fixed APR exceeding the YT APY

This is not good for the primary, who would be at a loss to sell; thereby limiting TVL

This IMO is the main reason @element_fi *only* has $163M TVL

@element_fi

9/ Why do I say *only* $163M TVL?
Well, the potential of the ecosystem is MUCH bigger!

e.g., let's look at the TVL of the 3 $CRV assets supported on launch:

$triCrypto2 – $725M
$LUSD – $112M
$stETH – $4.8B

that is, *$5.7B* could find its way through @element_fi in these alone!

@warpfinance

10/ Enter @warpfinance V2 #Blacksmith, which will provide a platform for borrowing stables using @element_fi assets as collateral

That is, instead of forcing the primary selling the PT at an unfavourable discount, they could instead borrow against it 🤯

warpfinance.medium.com/the-warp-v2-bl…

11/This drives a competing market force to selling the PT, and forces the market to reach a nash equilibrium to benefit both primary and secondary equally.

e.g. when annualised discount < borrowing interest rate, primary will sell at fixed rate. Else, they will borrow against it

12/ We saw that the fixed APR is greater than the YT APY for many assets. In this case, the primary APR is 0%!

Adding the option for the primary to instead borrow against this asset, forces the secondary to reduce their fixed rate to remain competitive.

I even did the maths 👇

@element_fi

13/ That is, equilibrium should normalize about the threshold where 50% will sell at fixed discount, and 50% borrow against the asset

This is great for @element_fi, as a more balanced system will undoubtedly lead to more Curve/YFI assets locked ($13B potential!) for greater TVL!

14/ Further, both the primary and secondary participants can use $WARP to borrow against their PT, to buy even moar PT at discount!

This creates LEVERAGE in the ecosystem, creating further demand in the system for PT, thereby increasing the incentives for primary to mint more!

15/ How does leveraged APY work?

e.g. let’s assume a fixed/YT APY of 24%:

If the WARP lending rate is ½ that at 12%, the borrower now gets a 10x return on original APY = **240% APY**

As the WARP lending rate decreases (12% is high APY for stables), leverage tends towards 20x!

@element_fi

16/So, if both primary & secondary are using WARP, we could see up to 100% of the @element_fi TVL come through $WARP.

Whilst simultaneously making @element_fi PT/YT more attractive to significantly increase the size of the pie

That's why assuming just $163M TVL in $WARP is FUD.

17/ Why is this important? Well, you can lock your $WARP into veWARP to earn a share in the platform fees!

The fees generated will be able to be used to market buy WARP🚀

Further, veWARP can be used as collateral for borrowing against LP and PT positions
warpfinance.medium.com/warp-introduce…

@warpfinance

18/Another innovation is that each lending pair on @warpfinance is isolated to that pair, and each carries its own risk/reward

WARP will also release #Chisel, which will enable users to add lending to multiple pools in 1-click, to create a weighted fund of varying APR and risk🤯

19/ And there’s so much more… The WARP team has BIG plans. Some more milestones planned 4 next months;

- Custom pairs (borrow ag ANY fungible token)
- Uniswap v3 LP (borrow ag NFT)
- Free bridged L2 capital

The aim of WARP is to pioneer unlocking capital efficiency.

#DeFi2.0

@element_fi

20/ Also worth mentioning that the circ. supply on CG/CMC is wrong. Admins in TG says ~15k

From my est. circ supply should be closer to 17k, which would put the market cap at ~$3.7M, *NOT* ~$6M.

FDV is like $30M, well below the expected minimum TVL from @element_fi integration

@element_fi

21/ So in short, V2 will instantly join the @element_fi ecosystem with $163M TVL.

Then, the market balancing and leverage capabilities of $WARP could quickly bolster that TVL to absorb more of the $13B+ TAM

Collected fees will be distributed to veWARP stakers.

WARP is <$4M MC