Title: SIP-23: Rage Trade x Sperax Partnership
Author(s): Rage Trade Team
Created: November 29th, 2022
Labels: #RealYield, #DeltaNeutral, #GMX, #YieldStrategy, #USDsUseCase
Simple Summary
This proposal is to forge the start of a multilevel partnership between Rage Trade and Sperax. The Rage team proposes seeding USDC from SperaxUSD collateral, to earn yield by staking USDC into Rage’s Delta Neutral Vaults to earn yield. If the proposal passes, collateral will be deployed following a successful 8 week monitoring of vault performance.
Seeding USDC collateral in Rage Trade’s vaults will not only allow diversification, but it will also pave the way for future synergies such as creating more use-cases for USDs within DeFi.
Abstract
Rage Trade's Delta Neutral Vaults are a set of contracts that allow users to pool in funds for providing liquidity on GMX in a delta neutral way while earning ETH rewards on GMX. This vault operates on-chain for minimising exposure on ETH and BTC by performing a short on Aave + Uniswap with the help of two separate risk vaults.
What are the Vaults?
Risk-Off Vault: Allows users to deposit USDC that can serve as collateral on Aave, while earning the Aave Supply APR as well as a portion of ETH Rewards from GMX based on the utilisation ratio.
Risk-On Vault: Earns yield on GLP while neutralising ETH & BTC price exposure. Since proportions of ETH and BTC can change on GMX, the vault updates the open short on every rebalance.
By staking USDC in either vault, Sperax can be paid out in real yield by our USDC denominated delta neutral vaults. Our vaults will have a $5M smart contract insurance policy live on day 1 which has been paid for completely by the Rage Trade team.
Rage Trade also proposes to open a $RAGE/USDs Demeter Farm once the $RAGE token launches on mainnet in Q1 2023.
Motivation
Rage Trade is an ETH perpetual platform that facilitates perps and perpetual products on Arbitrum. Rage Trade’s two-vault system allows for users to take advantage of delta neutral positions in the GMX ecosystem according to their risk appetite. Rage Trade’s vaults are also great avenues for stablecoin protocols to deploy some of their USDC backing and earn real yield. Depositing into Rage Trade’s vaults would not only be a great opportunity for Sperax to take advantage of a high-yielding delta neutral stablecoin farm, but also an opportunity to develop a long-lasting relationship between both protocols, as well as the introduction of a new Demeter farm incentivized by RAGE tokens.
A Strategic partnership would benefit both parties;
Sperax Benefits:
- Integration with the largest perpetual protocol on Arbitrum
- Access to the highest yielding delta neutral stable farm on Arbitrum
- Exposure to high-yielding real yield delta neutral vaults with no fees or lock-ups
- A new Demeter pool - $RAGE/USDs Uniswap V3 pool
- Deeper liquidity in Demeter
- Co-marketing efforts
- Further use-cases for USDs
Overview
- Sperax will allocate up-to 10% of the total USDC collateral from SperaxUSD collateral and earn yield by taking advantage of Rage Trade’s Risk-Off delta neutral GMX vault, following a successful 8 week monitoring of vault performance.
Technical Specification
1. How does the strategy work?
Rage’s Delta Neutral Vaults turn GMX's GLP into a stablecoin farm by hedging the ETH & BTC exposure. This is done by catering to two types of users: the risk-on users and the risk-off users.
The Risk-On Vault allows users to provide delta neutral GMX liquidity by depositing sGLP or USDC while benefiting from trader losses. The vault hedges ETH & BTC price exposure in GLP by systematically opening short positions on Aave. Additionally, the Risk-On Vault provides an extra boost in yield by auto-compounding the ETH rewards into sGLP & restaking earned esGMX.
The Risk-Off Vault has no liquidation risk or GMX risk and earns interest from lending USDC on Aave. It also earns a fraction of ETH rewards from GLP based on the amount of USDC lent to the Risk-On Vault.
2. What are the fees involved?
- Risk-on Vault
- Fees paid to Uniswap
- Uniswap V3 ETH fee : 0.05% fee pool (0.15% max swap slippage threshold)
- Uniswap V3 BTC fee : 0.30% fee pool (0.90% max swap slippage threshold)
- Fees paid to Aave
- Aave Borrow Rate ETH : 3-4% APY (variable)
- Aave Borrow Rate BTC : 3-4% APY (variable)
- Slippage Fee : 0.5% on deposit/withdraw
- Risk-off Vault
- Protocol Fees
- 15% on ETH rewards accrued from GMX
3. What is the expected APY?
- Risk-on Vault : 15-25% APY
- Risk-off Vault : 6-8% APY
4. Most importantly, what are the risks involved in investing in this strategy for the SPA community?
Risks
-
Risk-on Vault
- Inherent GMX risk
- Once traders are profitable on GMX, it is at the expense of GLP holders
-
Risk-off Vault
- If arbitrum sequencer went down and the entire chain is halted
- Won’t be able to pay / rebalance AAVE positions
- (No GMX risk, no price risk, and no liquidation risk)
-
Tokens that are deposited in Rage Trade’s vaults are managed by contract and do not sit in any wallet
- All contract changes will be behind a 4-6 multisig where 3 of the signees are Rage Trade team and 3 signees are amongst trusted community members
-
Both vaults are covered up to $5M total for smart contract exploits due to our Sherlock insurance policy paid for by Rage Trade
5. How exactly does the strategy maintain delta neutrality? What is the hedging mechanism?
The risk-on vault updates its hedge position every 12 hours or if one of two things occur— if there is a price change in ETH or BTC of more than 5% or if the health factor on AAVE goes below 1.2.
If ETH BTC weight changes:
- As weight decreases, we reduce our short positions
- As weight increases, we increase our short positions
If ETH BTC price changes:
- As price decreases, we transfer profits from shorts to GLP
- As price increases, we transfer profits from GLP to shorts
6. Is any component of the hedging mechanism off-chain?
Rage’s hedging strategy is fully on-chain and uses Aave, Balancer & Uniswap to create the hedges. For triggering rebalances, we run keepers bots that can be permisionlessly run by anyone in the community.
Security Due-diligence: Rage Trade has secured a $5m smart contract exploit insurance policy which has been completely paid for by Rage Trade and will be live on day 1. Our first audit has been completed by Sherlock, who has additionally provided us with the smart contract insurance. We will provide security details such as audit reports, github access, and more.
Risk Management: Rage Trade vaults do not enforce any deposit or withdrawal fees (besides slippage costs), as well as any lock-up periods.
Rage Trade’s Docs: https://docs.rage.trade/
Voting
Yes: Deploy 10% of the USDC collateral held in Sperax USD collateral vault into Rage Trade’s Risk-Off vault to earn yield. Collateral will be deployed only after a successful 8 week monitoring of vault performance.
No: Reject the proposal.
