Use cases

Alpha leak!

As a novel new DeFi primitive, there are a lot of powerful use cases of Derivio's interest rate & index derivatives market.

We provide several examples for illustration:

1. Enable leveraged yield farming

   It is inherently hard to leverage on market making for traditional order book-based trading given its structure. What would a trader do on Derivio to leverage on market making? Borrow and deploy more capital as a liquidity provider? With rDLP, for the first time a trader has an elegant tool to leverage on market making — just buy/swap more rDLP, stake them, and enjoy the leveraged yield.

2. Index fixed-rate & variable-rate market

   A trader can swap variable-rate yields to fixed-rate yields, gain leveraged exposure to an index’s price or yield, and convert their future yield instantly into a stablecoin to manage their exposure to index volatility. This operates similarly to interest rate markets in TradFi.

3. Yield farming without delta exposure

   It is hard to construct delta-neutral yield farming strategies that are both robust & capital-efficient. Oftentimes it comes with a high cost and over-complex operations. Derivio’s yield-principal separation design offers an easy way of yield farming without delta exposure. A trader could deposit liquidity and get DLP, refract it then sell the principal component. Since rDLP is not exposed to index delta but just the yield, effectively this is a highly capital-efficient way of doing zero-delta yield farming.

4. High capital efficiency for principal-protected passive investment

   As an investor who wants to get exposure to the principal only (i.e. the underlying asset basket), he/she could use 1 DLP to mint 1 r-token and 1 b-token. Notice that the price of 1 r-token + the price of 1 b-token = the price of 1 DLP (otherwise there is an arbitrage opportunity so the market will fix it). He/she could swap r-token for b-token from others, then the investor could hold more than 1 b-token. As the b-token holder stakes the b-token, he/she can expect to gradually receive r-token from the staked r-token pool and convert the p-token back to DLP.

Notice that all the use cases above provide leverage without the risk of being liquidated.