LSDai (Long-Short Dai Interest) Updated Intro
LSDai.Market creates a unique mechanism to tokenize on-chain variable rates, which allows the market to take leveraged long and short positions against the movement of variable rates without borrowing. Simultaneously, it also enables market makers — who seed liquidity to the system — to earn interest on collateral, in addition to spreads. We start with the variable Dai interest rate, a financial primitive currently most common in the Ethereum DeFi space. This way, we’re creating the first tokenized Eurodollar-style futures on the Dai interest rate. Positions are represented by the LongDi and ShortDi tokens (Long and Short Dai interest). Establishing a liquid market for these is significant for the DeFi space beyond trading or hedging: it can inform the market of the expectations about the future interest rate. For example, in MakerDAO’s case, it can serve as a signal to the MKR governance (who set the stability fee) and Dai users (who are affected by the peg). In the future, we will extend our market to interest rates beyond stablecoins, creating long/short token pairs for indices of other crypto-native variable rates (e.g. variable staking rewards).
- DApp Interface: www.lsdai.market
- Documentation (working draft): https://github.com/carboclan/pm/blob/master/research/LSDai.md
- GitHub repos: https://github.com/carboclan/LSDai-dapp https://github.com/carboclan/LSDi-airswap-bot
As a next step, we plan on offering structured products such as tokenized fixed rates and term-limited lending and borrowing, while leveraging the liquidity of existing variable rate DeFi lending products. We are currently designing a stable-revenue-stable-interest rate token, the LSDai token. This will be backed by a rate insurance pool called the LSDao, with a simple interface and ease of UX, similar to that of a certificate of deposit that may be redeemed at any time or traded on secondary markets. LSDao members will seed the liquidity of LSDai tokens and earn the best available variable interest on their collateral, along with a spread (insurance premium). When LSDai holders redeem their tokens, the LSDao will automatically buy them back. Essentially, these tokens behave as puttable bonds. The fixed interest rate of newly issued LSDai tokens and the LSDao insurance premium can be algorithmically priced and dynamically adjusted. These values are functions of the capital supply in the LSDao collateral pool and the fixed-rate lending pool.
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