#26 @smileefinance, Decentralized Volatility Product
#26 @smileefinance, Decentralized Volatility Product
My simplified version so everyone understands
#26 @smileefinance
Decentralized Volatility Product, My simplified version so everyone understands
In the thread
TLDR
What is Smilee finance
How does it work
What does it enable
Opportunity & Challenges
Summary & how I would play it
📍TLDR
Smile financee allow users to speculate on volatility within a time frame on top of liquidity providers (1st product).
Users are trading on the potential implement loss or implement gain on the LP pair
📍What is Smilee finance?
They have just released their white paper
Let’s not focus on the maths and formulas if it confuses u
Trust me bro on this
✅Providing Liquidity (uniswapv2) is shorting volatility
✅In high volatile market you get implement loss
📍The problem
You can’t long volatility right now & hedging your IL, and smilee wants to provide a solution to that.
📍How does similee work.
It creates a market between “Liquidity provider” and ‘ppl who want to long volatility”
“Ppl who want to long volatility” will pay a premium to “Liquidity provider” to speculate the implement loss.
Liquidity provider can earn extra yield if implement loss is low ( low volatility )
“Ppl who want to long volatility” will earn IL
Essentially it creates a casino for for people to pick “long volatility” or “short volatility”
📍Now that you understand the core of smilee lets go into more details
Each “volatility market” is a “vault” with a LP pair, Strategy and time frame.
E.g.
USDC-ETH vault, Delta Neutral Strategy and 14-18 Dec.
There will be an auction period where users deposit “Real Yield (LP short volatility)” or “impermanent Gain ( low volatility)”, payout will be based on the long short ratio.
“Real Yield (LP short volatility)” will earn additional yield based on volume of “impermanent Gain ( low volatility)”
“impermanent Gain ( low volatility)” will earn the IL.
📍Opportunity & Challenges
📍Opportunity
This enable users to trade, hedge and speculate on volatility on LP pairs, might be the first of something
Additional yield for people who are providing liquidity anyways. (added time frame element tho)
The same model can be apply on a lot of different LP strategy, might be a new page for vault/ leverage yield farm protocols
New is always interesting
📍Challenges
LP & IL is a complicated topic, can the UIUX display risk & return of IL to traders speculating on “impermanent gain”?
Even tho LP is earning extra yield, will there be an extreme one sided long/shot volatility balance, making the pay out not attractive?
📍Summary and how I would play it
I like smilee, their products enable a new field of speculation, their discord fomo and attracting threadoors, kol like @BarryFried1 is good.
It will be interesting to see what strategy you can long/short volatility on, a leverage LP position with leveraged IL will be fun. I can’t wait to see how the market will take this.
📍My play on this will be simple.
🐏Free ride @defi_mochi future dashboard to:
🐏Check out potential LP position that might end up +EV with additional yield from implement gain to deploy
🐏Try to work out potential IL to see is it worth to long volatility
🐏Key dates, if they launch before shanghai update will be very very interesting as it’s likely to be high volatility. My degen sense is tingling
Thanks for reading guys!