GM, this is your Daily Bolt briefing.
In today’s edition, we’re going to be giving you a rundown on Nabla, a capital-efficient AMM with RWAs in mind…
Stay alert, stay informed ⬇
What is Nabla?
Nabla is a new and novel AMM that mitigates Impermanent-Loss (IL) for LPs, as well as reducing slippage and fees for users. The AMM will be launching on Arbitrum, and then expanding to Ethereum mainnet and Polygon shortly thereafter.
How is this possible? The main differentiating factor in the protocol’s design is the use of Oracle-guided pricing for assets. This contrasts with most projects, which typically use price feeds from CEXs. Besides crypto assets, RWAs also usually use off-chain computation to compute prices. In addition to using Oracle-guided pricing, Nabla implements single-sided pools. This can be a key attraction for many LPs who could be concerned with impermanent loss.
Nabla on the other hand, is able to frontrun arbitrageurs, eliminating most IL. The remaining IL is actually insured thanks to a Backstop pool provided by the protocol. This pool consists of stablecoins, specifically USDC or USDT. You can think of providing single-side liquidity to a swap pool on the Nabla platform as providing a self-overcollateralized, specified loan directly to the Backstop pool. Measures like this increase consumer confidence. Meanwhile, this liquidity is used for leveraged market-making.
What happens if Backstop coverage falls below 100%? Swap pool LPs can withdraw deposits in their original token, minus slippage. Alternatively, LPs can opt to receive an Insurance Withdrawal from the Backstop pool. This withdrawal can come in the form of USDC or other stablecoins in the pool, with a set fee deducted. The ability for LPs to withdraw liquidity at any time is significant.
Another attractive feature of the Nabla AMM is that its pools are single-sided. This makes it even easier for people or projects to issue their own asset pool on the platform since they just need to provide their own token. Typical unweighted AMMs require an equal amount of a pair token, perhaps ETH or stablecoin, in addition to the capital committed in the primary token. This effectively doubles the capital required to provide a certain amount of liquidity for a token. Single-sided liquidity is attractive to retail users as well as conventional stake-holders.
Projects like Sommelier Finance, and Radiant Capital are seeing large increases in deposits. This is because there is great demand for yield on primary crypto assets, including stablecoins, BTC, ETH, and staked forms of ETH. The market simply has a lower risk appetite at the moment. Though this could change, projects like Nabla that give single-sided yields on Bluechip assets are attractive at the moment. Nabla will be kicking things off with pools for USDC, USDT, DAI, ETH, and ARB. Bull or bear, these are tokens that are likely to see high swap volumes as well as a lot of demand from depositors.
The protocol provides low-risk and single-sided liquidity provision possibilities for LPs. This is actually what most LPs want; something that is simple and mostly hands-off that doesn’t significantly penalize those who do not want to actively and effectively manage positions. While Uniswap V3 introduced important innovation to the market, the reality is that most LPs are not profitable. A select few are able to leverage the unique capabilities available to users. This has led to an influx of attention on projects that can simplify and automate the liquidity provision and management process. It is clear that there is deep demand for products that can remove the risk and complication associated with concentrated liquidity and dual token liquidity provision in general. Nabla’s unique design increases capital efficiency all around, for traders and LPs.
The RWA Vision
What is the end goal of Nabla? Ultimately, the protocol wants to become a premier on-chain exchange for RWAs. As you’ve probably heard, RWAs are a narrative currently gaining a lot of momentum in the crypto markets. Among market participants, sentiment is shifting slightly more bullish. Protocols that directly involve RWAs or facilitate use cases around RWAs are getting more attention, and this trend shows no signs of stopping. MakerDAO is one such example, as its $DAI savings rate allows users to effectively get a treasury bond yield. This is beneficial as the FED continues to hike rates. Maker’s $MKR is up significantly as the market takes this into account. This is just one example of a project that stands to gain from RWAs.
So far, the primary form of RWAs is fiat currencies and their related products, such as treasuries. Forex and swapping between fiat currencies can often be volatile. The same problems present in AMMs also apply to non-crypto assets. Traditional AMMs that use Constant Product Market Maker (CPMM) model, would make onchain forex expensive. High slippage and trading fees simply do not cut it, and current AMM options do not present any sort of meaningful on-chain competition when compared to traditional Forex exchanges. One of the primary goals of Nabla is to make onchain Forex trading much more efficient, and perhaps a viable option. The increased AMM efficiency that enables this applies to non-fiat RWAs as well, including on-chain equities, ETFs, tokenized real estate indexes, and more. These are all unique assets that don’t have established pricing methods, which Nabla can provide.
While crypto has its strengths, TradFi products have their own inherent advantages. A protocol that can facilitate the trade and transfer of a variety of RWAs has immense potential, especially with institutions showing increasing interest in the industry.
What’s In The Cards
Now, the onset of RWAs is yet to come. Especially during the bear market, the volumes for RWA swaps simply aren’t there yet. This is why Nabla is taking the time to focus on Bluechip crypto assets. The team will actively attract volumes by partnering with DEX aggregators. Given the low slippage and fees available on the Nabla platform, partnering with protocols that prioritize capital-efficient trades could very well be a great move.
Eventually, the team plans to integrate permissioned pools specifically for tokenized securities, catering to institutions. One key class of RWAs is onchain T-bills. T-bills provide the risk-free rate in traditional finance. Right now, there aren’t too many easy-to-access methods of earning the risk-free rate in DeFi, leading to more capital leaving the ecosystem. Since T-bills have maturity dates ranging from a month to a year in length, they become the most valuable towards the end of their maturity date. This can make for more impermanent loss. Nabla’s single-sided pools for RWAs can help to mitigate this, and avoid having the risk-free rate yield of T-bills diminished due to impermanent loss when paired with another asset.
If this isn’t attractive enough, a Request for Quote (RFQ) feature is also planned. Recently, Uniswap made waves at EthCC for its introduction of UniswapX, a new upgrade that would implement an RFQ system.
Nabla is also working on several key partnerships:
Ondo Finance - a protocol providing onchain investment fund products, including money market funds, US Treasuries, and corporate bonds.
Backed Finance - a protocol providing tokenized RWAs, including a variety of bonds as well as a Core S&P500 asset.
Openeden - a smart contract vault offering 24/7 access to US T-bills.
These are key players in the emerging market of on-chain RWA and treasury providers, and having potential partners of this caliber could be impressive. The team is now ramping up its marketing efforts this month. The TGE is planned to occur sometime around New Year's. Curious users can verify eligibility and participate in the internal test-net here.
Currently, market participants and investors alike are actively seeking out solutions to some of the existing kinks and inefficiencies present in on-chain trading. By providing a capital-efficient AMM and building out plans to facilitate RWA trading, Nabla puts itself in two of the hottest camps in crypto today.