USTX WARP: how to bend space and time to simplify DeFi

What is WARP?

It’s a DeFi app, within the USTX ecosystem, that implements a pseudo delta neutral farming strategy. Mmmm… that doesn’t sound simple at all. Let me try again: it’s an app that allows the users to stake USDD and get 30%+ APR with low risk and easy access.

Background

During the last weeks the DeFi space took some serious hits, beginning with Luna-UST crash and the following down-trend of the market. In the middle of this crisis, TronDAO launched USDD, a very ambitious project to give added value to users via a decentralized, over-collateralized, algorithmic stablecoin promising very interesting yield rates (up to 30%). Everything looks good now with USDD, it ticks all boxes: it’s decentralized, over-collateralized with great APY. But is it enough for users to jump on board?

Let’s look at the last part, the promised high yield, up to 30%. How easy is to get that APY? Where is it available? After a quick search everyone can see that 30% is available only on CEX, which is not great for a stablecoin that has the word “decentralized” in its name. So, what about DeFi yields? At the time of writing this is the situation:

  • 12.7% on JustLend.org
  • 16.5% on USDD/USDT (SunSwap) liquidity farming on Sun.io
  • 19% on USDD/USDT (2Pool) liquidity farming on Sun.io
  • 48.5% on USDD/TRX liquidity farming on Sun.io

So, the 30% APY is not available on DeFi, unless you chose to farm the USDD/TRX LP, which exposes your capital to TRX price fluctuation.

The second best option is farming on USDD/USDT pool, which gives you 16%-19% APY. But how easy is to do it? To enter the Sun.io LP farming you need to supply USDD/USDT liquidity to 2Pool or SunSwap and then stake the LP tokens to earn USDD while farming. If you want to exit, you need to do it all in reverse. This might seem intimidating to inexperienced users, DeFi should be accessible to as many users as possible.

Supply liquidity on JustLend.org is the simplest way to access USDD yield, but it’s also the lowest APY of the pack, less than 13%.

So we did some research and tried to find a way to offer Tron and USTX users the best USDD DeFi APY and the simplest way to access it. We worked the math, coded the smart contracts, tested them and now we present WARP, our way to simplify USDD yield harvesting.

What is a Pseudo Delta Neutral farming strategy and how is it different from farming the USDD/TRX LP pair directly?

Farming the USDD/TRX LP pair doesn’t protect the user against TRX price loss, so if you enter at a certain TRX price and after some time the price dips significantly your capital has reduced its value, even considering the high farming yield. There is a way to compensate this effect and JustLend makes it possible. If the user supplies USDD to JustLend and then borrows a part in TRX to get the USDD/TRX LP, it creates a situation where the TRX price variations are (almost) cancelled, so the name pseudo delta neutral.

How can it be? If you borrow TRX from JL and add as liquidity in USDD/TRX pool you now have two positions on TRX: the borrow and the LP value. If TRX price increases, the LP value increases, but so does your debt. On the other hand, when TRX price decreases, the LP value is lower, but also your debt position. The overall value of the user invested capital stays roughly the same (supply value— borrow value+LP value). Let’s see this in a chart.

Capital value for TRX price variation

So we’ve fixed the TRX price dependancy, but how about the yield? Can we do better than the 20% that the DeFi options are currently offering? Let’s put some real numbers and make a new chart with the APR, taking into account also the TRX price variation.

Raw APR considering 13% USDD JL supply, 20% TRX borrow JL, 48% USDD/TRX LP

Now it looks nice, APR is about 35%. But we’re still not done yet, what is the role of USTX in all this? WARP will merge in the USTX ecosystem in two ways: to generate more buyback and to increase the APR for USTX holders.

The WARP app will distribute weekly rewards to users, but a part of the raw APR will be routed to USTX buyback. The amount of user rewards will always be at least 75% of the total rewards (hardwired in the smart contract), the rest will be used to buyback USTX tokens from the DEX and also as reserve for the WARP contract, to make sure that the overall equity level stays positive at any time (even when the blue line in the chart goes below 0).

To incentive WARP users to also buy and stake USTX tokens, they will benefit from a multiplying factor over the base APR, called Warp Factor. The user warp factor is determined by the amount of USTX the users holds in any of the locked staking options that USTX offers. Maximum warp is obtained when 20 USTX are held for every USDD deposited. At the beginning the Max Warp factor will be 5, meaning that the warp APR will be up to 50% higher than the normal APR. Let’s see the final APRs in a chart.

Average, Normal and Warp APR compared (considering 10% buyback and 50–50 share between normal and warp deposits)

So, making the best use of Tron USDD DeFi options, we’re able to maximize the user rewards and simplify the overall experience at the same time. Warp users will get over 37% APR, while normal deposits still get 25% APR (these APRs will change over time and will depend on Sun.io and JustLend conditions).

USTX Warp will be launched in the next days, in time to compete for the second round of Tron Grand Hackathon 2022.

Ok, what’s the catch? The deposit will be locked forever and I’ll get the rewards in anonymous token after 6 months?

Not at all! Here comes the best part. We tried to keep all the complication on our side, delivering the simplest experience from the user point of view.

The dApp has three sections: Warp, Technology dashboard and Help.
  • Interface: web app accessible via browser (pc, mac, mobile)
  • Wallet: Tronlink (Math and Klever will be validated shortly after the release)
  • Deposit token: USDD TRC20
  • Rewards token: USDD TRC20
  • Deposit lock: 1 full epoch (epochs duration is 1 week, changes every Saturday)
  • Rewards lock: till next epoch transition (unlock on Saturday after the request)
  • Rewards compounding: yes, manual compounding available
  • Max Warp factor: 5.0 (+50%) if user has at least 20 USTX in locked staking every USDD deposited
  • Fees: app requires energy to operate, a portion of the rewards will be used for buyback and reserve (max 25%), balance withdraw is not taxed unless the equity ratio is below 100%. This can happen after significant changes in TRX price, but recovers naturally within a few days. The team will create a reserve in the contract to avoid equity ratio < 100%.
  • Custody: the deposits are fully managed within the contract, they will NOT be moved to team wallets. The smart contract handles all the interactions with JustLend, SunSwap, Sun.io and all other contracts required to manage the strategy.
  • Management: the team will monitor the equity level continuously and weekly will re-balance the strategy, to make sure that it stays close to neutrality.
  • APR: Warp yield will vary over time and will depend on Sun.io and JustLend conditions. The team will make sure the contract parameters are always optimized for the best yield and lowest risk.
  • Anti-whale: There is a limit on how much a single user can deposit. At launch the limit will be 1,000 USDD but it will be increased to 10,000 USDD after a few weeks.

Risks

As always, we want informed users, so here’s the risks associated with Warp:

  • smart contract risk: we carefully designed and tested the contracts on Nile and mainnet, but human error can never be excluded 100%;
  • capital risk: in case of TRX price variations, the value of the underlying assets (deposits, borrows and LP value) can go below 100%. The team will make sure that over time and adequate reserve will be created to handle these events;
  • liquidation risk: TRX is borrowed from JustLend against USDD deposits. The strategy is balanced so that if TRX price increases up to 85% there is no liquidation risk. The team will monitor the margin and act to re-balance the strategy in case of significant variation from nominal;
  • USDD price risk: the contract works with USDD, so all values are relative to USDD. If USDD price is reduced from nominal (1$), the same will happen to the deposit value. This risk is NOT strictly related to Warp, but is present every time the user holds USDD (or any other token).

This is not financial advice, DYOR.

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