Onchain Margin In-Depth: How Does Arcadia Enable 10x Leverage?
AI Portfolio Management | Latest Updates w Pendle | Crypto Compliance vs Privacy
GM, this is your Daily Bolt briefing.
On this fine Sunday, we'll be providing you with an extended briefing on some pressing matters in the crypto world. In our extended briefings, we'll be diving deep into the potential of using AI in crypto portfolio management, Pendle's strategic plans for integrating new stablecoin protocols and LSDs, and the delicate balance between crypto's ethos of privacy and sovereignty, and compliance with regulation.
Read on for more information about Arcadia Finance, and their latest provision of undercollateralized margin accounts for their users.⬇️
Stay vigilant.
1/ Real Vision- Is AI Ready to Optimize Your Portfolio? W Stefan Klauser
Preview: In this episode of Real Vision, Ash Bennington welcomes Stefan Klauser, co-founder and CEO of Swiss-based Aisot, to discuss how AI-powered tools can help optimize equity and crypto investments. Click here to listen to the full episode (34 mins).
Read our Note (3 mins) and save 31 mins.
Here are some key takeaways:
Aisot provides advanced machine learning and quant insights as a service; Aisot provides a service to companies that don't have their own quantum machine learning team in-house.
Europe has a bit more regulatory clarity than most jurisdictions.
There is a DLT (Distributed Ledger Technology) law in place since late 2020, that gives clear regulatory space for all kinds of DLT applications.
There are specialized law firms that have been around and are at the forefront of development since the very beginning.
To be in Switzerland is what its people perceive as an advantage at the moment because there's a lively scene, and there is a bit more regulatory clarity than elsewhere.
Aisot has a couple of products currently, but most of them are still not related to the crypto market. Aisot is not UI optimized yet.
Stefan also started to issue an Aisot product that will be available mostly on the Swiss market, and it will be a bit tricky in terms of regulation to do internationally.
If someone runs their own funds, if they're a qualified investor, meaning a professional or institutional client, they can already apply today for full access to this better platform.
2/ Pendle Twitter Space - What Is The Future of Ethereum, DeFi & LSD?
Preview: In this Pendle Twitter space, hosted by KyberNetwork, joined by Temmy, Imran, Anton, Carvas, and Shirley, to talk about the Shapella upgrade and what this means for Ethereum, Liquid Staking Derivatives (LSD), DeFi, and why people should care. Click here to watch the full episode (63 mins).
Read our Note (4 mins) and save 59 mins.
Here are some key takeaways:
Changes to the execution layer, consensus layer, and eight-engine API will enable the withdrawals of staked Ethereum.
The Shapella upgrade is one of the most significant developments of the ETH ecosystem since the merge, allowing the ability to withdraw assets from the Beacon chain worth 30 billion worth of each one locked in.
Lido is upgrading its security audits and will only allow withdrawals in the light of high farm until May, meaning withdrawals will not happen until May.
It is important to ensure that upgrades and protocols are censorship-resistant, as there is a risk of major governments wanting to stifle DeFi and crypto.
Crypto is not a Central Bank Digital Currency (CBDC), it is not something that looks and sounds like a token and allows someone to do whatever they want with it to control that token on that supply.
Pendle has recently retooled and made DeFi more accessible for the average user.
Angle is working on version two of the protocol due to the U.S Dollar Coin (USDC) uncertainty.
The new version of Angle Protocol will be announced in a few weeks, and can potentially be the most popular protocol to be integrated with Pendle.
Pendle is looking at better ways to serve deeper markets, such as using synthetic positions as $ETH derivatives.
3/ Avalanche - Money Moves Ep. 2
Preview: In this episode of Money Moves, Patrick and Morgan from Avalabs invite Chris from Coin Fund and Jeff from Republic Crypto to discuss tokenization and how it can be an innovative solution in financial markets. Click here to listen to the full episode (65 mins).
Read our Note (5 mins) and save 60 mins.
Here are some key takeaways:
The most powerful regulations in the world for banks are the Basel regulatory capital rules. When Basel put out rules around crypto, it legitimized the asset class.
Once crypto got into the mix, knowing how much work has to go into compliance, it's hard to ever stop that train.
There is a potential for users when finance becomes one entity instead of being divided between institutional and decentralized finance, similar to how digital marketing and marketing just became marketing.
Blockchain technology enables trustless peer-to-peer exchange of value without intermediaries or centralization.
Traditional finance required intermediaries due to a lack of technology but blockchain technology has changed this.
Key principles to understand and handle the market structure should be strong client asset protections, transparency, cost efficiency, inclusivity, engagement, and privacy.
A good market should solve for client asset protections and transparency while being cost-efficient and inclusive.
Privacy can't be sacrificed in the name of transparency. Both are crucial.
Peer-to-peer transactions are important because they remove intermediaries from trust networks.
New technologies like zero-knowledge proofs can balance compliance with privacy.
Blockchains utilizing Zero-knowledge proofs, such as zkSync allow parties to interact peer-to-peer while institutions that may need to represent them can verify without having to know who they are.
If you read these 3 Notes on Revelo Intel you would have saved: 2 hours and 36 minutes!
Arcadia Finance AMA with AladdinDAO
In this April 20th AladdinDAO Discord Community Call, Jasper, Joseh, and Thomas from Arcadia Finance join AladdinDAO’s community call to discuss Arcadia Finance, a decentralized and composable marketing protocol that allows users to lend, borrow, and trade assets. Read our notes to learn more.
Background
Jasper (Guest) - Co-Founder of Arcadia Finance.
Joseh (Guest) - Co-Founder of Arcadia Finance.
Thomas (Guest) - Builder at Arcadia Finance
Arcadia Finance - Arcadia provides onchain margin trading accounts, available on both Ethereum mainnet and Optimism.
AladdinDAO - AladdinDAO is a decentralized network to shift crypto investments from venture capitalists to wisdom of crowds through collective value discovery.
Intro
AladdinDAO is known as the DeFi Big Brain, focusing on research and bringing the best projects to the community.
Arcadia Finance is building on Optimism, and Thomas, Jasper, and Joseh from Arcadia have joined the community call.
Thomas has a background in blockchain since 2016, passionate about mathematics, finance, and computer science.
Joseh has a background in venture capital, leading crypto for a European VC fund, and has experience in operations and business at startups.
Jasper has a background in blockchain since 2011, starting with small-scale Bitcoin mining and later focusing on DeFi and building various bots and strategies.
The idea for Arcadia Finance was born out of the experiences and insights gained while building MEV (Maximum Extractable Value) bots and working within the DeFi space.
Arcadia Finance
Thomas and Jasper were researchers exploring opportunities in DeFi protocols and playing the MEV game.
They both believe in DeFi's potential and its composability between protocols.
They faced pain points in collateral management, especially capital inefficiency, and difficulty managing multiple positions.
Thomas and Jasper noticed a lack of holistic approaches for using various asset types as collateral in DeFi.
Arcadia Finance aims to solve these problems by offering a generalized way to manage counterparty risks on-chain and creating user-owned margin accounts. These margin accounts can accept a range of quality assets, regardless of their token standard, and manage liabilities issued against those assets.
The risks are managed to ensure the asset side is always higher than the liability side, allowing users to interact with DeFi using their assets and borrowed funds.
Arcadia margin accounts aim to change the fragmented nature of collateral management in DeFi and offer cross-margin capabilities.
The accounts are fully user-owned, with users having sole control over the smart contracts governing their accounts.
Arcadia Finance provides the infrastructure, while counterparty risks are managed immutably and transparently through smart contracts.
Arcadia’s Margin Accounts
Margin accounts have token standard diagnostic properties, allowing various types of assets to be used as collateral.
Margin accounts are noncustodial but upgradeable by the user, ensuring users maintain control and can access new features.
Composability is prioritized, with margin accounts being built as NFTs to enable easy interaction with other DeFi protocols and NFT platforms.
Permissionless interactions are allowed with margin accounts, enabling users to perform actions like flash withdrawals and flash loans.
Arcadia Finance allows for a wide range of applications, such as leverage trading, futures, derivatives, and escrow services.
The margin accounts and lending protocol are separate, with the lending protocol issuing liabilities against margin accounts.
Arcadia V1
Arcadia Finance is a leverage lending protocol built on margin accounts to increase capital efficiency in DeFi.
Current lending protocols have limitations, such as over-collateralization and idle collateral; Arcadia allows users to borrow up to 10x the value of their collateral and use both deposited collateral and borrowed funds in DeFi.
The protocol works as a two-sided marketplace: lenders provide liquidity and earn a passive yield, while borrowers access leverage for permissionless on-chain actions.
Lenders supply assets to lending pools and receive yield-bearing tokens proportional to their pool share.
Arcadia introduces multiple risk tranches (senior and junior) to give lenders control over risk and returns.
Senior tranches receive lower yields but are shielded from bad debt, while junior tranches receive higher yields and liquidation fees but are exposed to under-collateralized debt.
Borrowers can access on-chain leverage in a single action by depositing collateral and performing actions within a transaction, as long as liabilities are covered at the end.
Arcadia enables borrowing against a wide range of assets, trading on margin, and leveraging yield farming.
Arcadia also enables a variety of strategies for users, including pair trading, leveraged farming, and more.
Pair trading allows users to go short on one asset and long on another, capturing the spread between the two.
Leveraged farming involves providing liquidity to pools, such as Curve or Balancer, and using leverage to boost yields on the deposited assets.
The flexibility of Arcadia's platform allows users to explore and develop other creative strategies to optimize their returns in the DeFi ecosystem.
Arcadia aims to change DeFi by allowing borrowing against an entire portfolio, accessing more borrowed funds than deposited collateral, and unlocking liquidity for long-tail assets.
Q&A
Q: How does Arcadia Finance price collateral with Oracles?
Arcadia Finance uses two types of tokens: those with a direct price feed via Oracle, like ERC20 tokens and floor NFTs, and derived tokens without a direct price feed.
For derived tokens, such as Uniswap LP tokens, Arcadia calculates the underlying amount of tokens with a direct price feed, allowing them to determine the overall basket value by summing up individual asset values.
Q: How does Arcadia Finance add new types of collateral and assess risk?
Currently, the core team identifies the most demanded collateral assets by users and works on adding them, following a risk-conservative approach.
They check for sufficient on-chain liquidity, acceptable historic price volatility, and the absence of known flaws in the token design.
They then use this data to calculate the collateral factor, liquidation factor, and the protocol's overall exposure to the asset.
Q: How does Arcadia Finance handle new collateral conforming to existing token standards?
If the new collateral conforms to a token standard already built into the contract, it only requires a new pricing module.
Users don't need to do any upgrades, and they can immediately start using the new collateral.
Q: What are the different reasons for bad debt, and how does Arcadia Finance plan to mitigate them?
Bad debt occurs when the value of a liquidated margin account is insufficient to cover open liabilities.
To mitigate bad debt, Arcadia Finance uses a well-designed risk model with conservative risk parameters to align incentives for liquidity providers and borrowers.
They also monitor and fine-tune exposure to single assets to prevent excessive slippage during liquidation.
Q: Will Arcadia Finance accept LP tokens from other DEXs, such as those on Optimism?
Yes, Arcadia Finance plans to accept LP tokens from other DEXs.
If the DEX is an exact copy of the Uniswap V3 code, Arcadia can use the same pricing logic.
If the DEX uses concentrated liquidity but has modified the Uniswap code or built a custom DEX, Arcadia will need to write an additional pricing module.
They plan to integrate with more DEXs after deploying the Uniswap V3 pricing module
Q: What are the main differences between Gearbox and Arcadia?
The three main differences between Gearbox and Arcadia are:
1) Gearbox uses permission connectors while Arcadia operates in a permissionless manner.
2) Gearbox is composable on one side, whereas Arcadia is composable on both sides, allowing other protocols to issue liabilities against the margin accounts.
3) Arcadia was built to be token standard agnostic, while Gearbox is not.
Q: What are the challenges in building on optimism or Layer 2 in general?
Building on Optimism or layer 2 can lead to liquidity fragmentation, as having many layer 2 solutions fragments liquidity in a similar way to the fragmentation of capital collateral liquidity over multiple protocols.
This creates challenges when trying to create margin accounts cross-chain, as it requires efficient and seamless communication between layers and different chains.
Despite these challenges, deploying and working on Optimism has been a smooth experience with good tooling and support.
Q: How does Arcadia Finance plan to capture market share?
Perpetuals are suitable for highly speculative, high-leverage trading, but they don't offer exposure to the actual asset.
In contrast, Arcadia Finance provides clients with the real underlying asset, allowing them to enjoy its benefits like yield, voting rights, and airdrops.
Additionally, perp contracts lack composability with other DeFi applications, while Arcadia's margin accounts maintain this feature.
Arcadia also doesn't rely on a single trading environment, instead routing trades over multiple decentralized exchanges for better liquidity and lower slippage.
Arcadia Seed Round!
Arcadia Finance has recently closed their seed round, which has not been publicly announced yet.
The seed round was oversubscribed, with numerous interested partners who wanted to participate.
To accommodate additional interest, Arcadia Finance is extending the round through a Simple Agreement for Future Tokens (SAFT), targeting specific DeFi communities and power users.
Arcadia Finance is seeking a partnership with the DAO, as both share a common goal of shifting crypto investments from venture capitalists to the crowd.
The team at Arcadia Finance is open to answering questions and providing more information to any interested DAO members or individuals.
They have already allowed some participants from Degen Score to join, and are engaging with other DeFi communities as well.
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Discord Call Information
Medium: Community AMA (Discord)
Project: Arcadia Finance
Date: April 20, 2023