Thread by @0xTindorr

'LPDfi' narrative has been under development for 8 months since I discovered.

Now, the cooking is nearly complete!

This narrative could be the breakthrough for the next DeFi use case.

🧵 Here's everything you need to know (ELI5 version). Get in before it's too late!

LPDfi stands for "Liquidity Providing Derivatives"

It means using concentrated "LP" positions (e.g., Uni V3) to create "Derivatives", (e.g., options, perps).

This is a breakthrough as it enables another layer of capital efficiency on top of Uni V3.

Here is the mental model for LPDfi:

It is a zero-sum game.

Liquidity Providers (Uni V3) receive trading fees while taking risk of impermanent loss (IL).

Basically, they're shorting volatility.

LPDfi just created a platform where traders long on volatility and pay fees.

LPers profit = Fees - Volatility (Short volatility)
Traders profit = Volatility - Fees (Long volatility)

When both LPers and traders participate in the platform, it becomes a zero-sum game.

Additionally, traders have opportunity to trade derivatives that are bets on volatility

There are more benefits to using this model:

• Traders on LPDfi won't face any liquidation.
• Highest possible leverage.
• Oracle-free.

And the best part is, LPers on LPDfi protocols get a higher yield than parking Uni V3 positions idly (aka more capital efficiency).

What every protocol needs at launch is "liquidity".

And this is where @logarithm_fi chimes in.

It is a decentralized liquidity management and market-making protocol.

Logarithm Finance is a liquidity layer for all LPD protocols.

The capital efficiency on the LPD protocol has higher yield, and LPs become profitable through CLMM (concentrated liquidity market makers).

It positions Logarithm at the forefront of this narrative.

Market makers ultimately want to generate real yield without exposing to any price movement.

Logarithm comes up with the innovative idea called "Liquidity Shell" which is the main product that will distribute liquidity to other LPD projects.

There is the first product called "Nautilus Vaults" inside the Liquidity Shell.

Nautilus vaults are a feature of Liquidity Shell, which includes a delta-neutral strategy, and autonomously managing concentrated LP while hedging volatile assets.

✅ How to get high yield from LPDs in Liquidity Shell

As Logarithm has partnered with LPD protocol @LimitlessFi_, liquidity will generate high yields from:

• Trading fees from Uni V3
• Fees and LM rewards from LPDfi partners
• $LOG tokens 👀

https://twitter.com/logarithm_fi/status/1682441986068959254

✅ How to neutralize price movement (Hedging)

In some pools, it is volatile/stable pair e.g., ETH/USDC that Logarithm farms yield on.

The automation prevents IL by shorting the volatile assets (e.g. ETH) on perps (@GMX_IO) to create a pseudo delta-neutral strategy.

The backtest result from this model is 11.8% APY on USDC. This is interesting place to park and generate passive yields for retail users. 🔥

Check more details:

https://twitter.com/logarithm_fi/status/1668502263038394368

And this is only the beginning, Logarithm has a plan to go cross chain and route liquidity to the highest yield possible on other chains and dexs.

Plus, Nautilus Vault is only the first product. There will be more to come from the team.

Currently, Logarithm isn't yet in beta but will open really soon for early adopters.

To not miss any opportunities, I recommend checking @logarithm_fi for upcoming events and updates, and joining its Discord 🔥.

I'm helping this project educate users about the LPDfi concept.

cc Tindorr's fav threadoors
@Louround_
@Slappjakke
@DeFiMinty
@crypto_linn
@TheDeFISaint
@Flowslikeosmo
@0xFinish
@stacy_muur
@0xSalazar
@Axel_bitblaze69
@wacy_time1
@cryptocrushmia
@CryptoStreamHub
@CryptoShiro_
@Hercules_Defi
@Deebs_DeFi
@Moomsxxx
@the_smart_ape

If you have any defi projects in mind, let's connect. I'm always happy to answer or discuss.

Feel free to share this thread with peers, and follow to be the first to learn about my next gems.

https://twitter.com/0xTindorr/status/1697614768318955762