Arbitrum Part 2 - Non Copypasta protocols
Last time was so nice, I had to do it twice.
Welcome Anon, the first Arbitrum article prepared you for the release of Nitro. This one will discuss exciting protocols that are widening the landscape since then.
There is no doubt that Arbitrum is among the most exciting layer 2 out there. Organic growth and the crème de la crème of DeFi can be found within the ecosystem. The success of the landscape so far is continuously bringing in new talent. While people were quick to copy the success of the first wave of protocols for a quick cash grab, it’s important to highlight the real builders planning on providing new value to the end users.
If you’re unfamiliar with the first wave of Arbitrum protocols that have laid the foundation for what it has become today, then you’re more than welcome to look at the prior Arbitrum article.
On another note, wen Odyssey?
What’s going on at Arbitrum?
Before we get started, there is no way that all protocols could fit into this article if it’s supposed to provide any value for the readers. I assume you want a brief overview of these protocols, not a flat-out list. So if a specific protocol got left out don’t get salty. Also, most protocols that were highlighted in the first article won’t be highlighted in this part so there is a reason for glaring omissions (I’m not going to cover 10 different GMX forks either).
With that out of the window, let’s get started.
The first protocol out of the gate that excites me is none other than:
Gammaswap is a volatility decentralized exchange that is oracle-free. You might wonder what that actually means and why I would be excited about this. Gammaswap aims to solve the impermanent loss problem that is claimed to take place due to a mispricing of volatility. It’s a perpetual derivatives exchange that will enable you to take up short and long positions in gamma (volatility) and this can take place for any liquidity pool on their impending platform.
This will enable you to take a hedging position against impermanent loss exposure or bet in volatility’s favor with leverage. Liquidity pools have generally been mispriced as the impermanent loss will be higher than the fees generated from a pool if the historical volatility is higher than the implied volatility (markets opinion of an asset’s potential move in either direction). If it’s vice versa it should be deemed profitable to deploy capital in the pool as the trading fees from the volatility will cover the impermanent loss.
In regards to the oracle free part, it is because it uses a different model in relation to other platforms. Other exchanges have to rely on oracles because relying on a constant-function market maker would make them susceptible to flash loan attacks because the price of the underlying collateral could be manipulated enough to force liquidations. While oracles have been fundamental as they have provided reliable price feeds, liquidity oracles are just as important as solely taking a price point into consideration and it otherwise can lead to slow updates at times.
Nonetheless, this is one to keep your eyes on.
Perpetual futures are already extremely popular in the DeFi industry with the success of decentralized perps such as dYdX, GMX, and Perpetual protocol. However, combine the degenerate nature of leverage traders that get liquidated for fun with NFTs and you have the perfect combination of left curves in one place. That is what Nftperp is building with their perpetual futures decentralized exchange for NFTs.
The protocol will start with having 3 collections available (that you can use now for paper trading), which are Punks, BAYC, and none other than the mentally ill Milady’s.
I would not fade this one.
Note: The people that subscribed to the higher-tiered part of this substack were eligible for the airdrop if they heeded the advice in one of the recent articles.
Onto the next one.
SFTX (Single Trade Finance Exchange) allows you to bet on individuals trading ideas (that you assume are smarter than you) and invest in their vaults as they execute a trading plan. One single trading vault equals one trading strategy that an individual will execute on and if it’s an idea you subscribe to you can deploy capital in this vault. Instead of sharing a trading setup publicly., you can simply open a vault on STFX and have people follow you into the setup. Get liquidated or make money together, the choice is yours.
Anyone can join these vaults until it is full. The alpha version of the product is currently live and can be explored here. SFTX brings an interesting element to the game by combining a social aspect with trading.
Y2K allows you to speculate and hedge against stablecoin de-pegging. However, I’ve already covered Y2K extensively in an article that you can check out here.
One thing worth highlighting is that doomsday is approaching and Y2K will launch their Initial Farm Offering (IFO) tomorrow (October 31st) for participating people so keep your eyes open for that one if you’re interested.
Rysk is building a self-governing options AMM (Automated market maker) that is aiming to create decentralized uncorrelated assets considering how the whole crypto market moves together. They achieve this through their Dynamic Hedging Vaults (DHV) that generate delta-neutral yield by buying and writing options. The reason the options AMM is self-governing is that it is always aware of its current positions and will price options in a way to incentivize both purchases and sales to bring its market exposure to delta neutrality. The vaults are built with modern portfolio theory in mind and if you’re unfamiliar with that, it essentially relates to maximizing expected returns for a given level of risk and stems from the efficient frontier. Here’s some more reading for intellectually curious people.
However, Delta Neutral yield is not risk-free as it means that you’re short gamma. In the case of tail risk events, it incurs heavy losses, so consider that. There is no such thing as a free lunch even if what they are building is interesting.
Moving on…
Rage trade is striving to build the most liquid ETH perpetual swap y recycling omnichain liquidity. It is built on a Uniswap-V3 order book and uses their actively managed 80-20 TriCrypto vaults to enable more capital efficiency for LPs. The 80-20 vaults recycle liquidity by allowing you to LP in more than one pool at once. This means that liquidity providers can retain their original yield in pools while also accumulating fees from directional perp positions being paid by traders.
The protocol is omnichain because it intends to include different liquidity pools from different chains in their product offering. However, it’s important to highlight here that while this is a novel approach that allows higher capital efficiency you also take a higher risk during large price moves that exceed 20% of the value of the vault as you would expect arbitragers to capitalize on the imbalances that take place. If that doesn’t occur, it would be harder for it to return to its optimal state.
Rage Trade’s recycled GMX vault is one to watch as it enables more capital efficiency for GLP holders that will be able to access GMX yield (it’s capital efficient in a crab market as the vault is delta neutral, in volatile markets the added risk will most likely duly punish you).
I would suggest you try the platform out because of [Redacted].
Gumball protocol aims to be a new NFT primitive that facilitates the process of creating liquid NFTs and extending the longevity of a collection. When you create NFTs on GumBall subsequent ERC-20 tokens are minted in return, representing that collection and these ERC-20 tokens are sold through a bonding curve. These tokens will act as liquidity for NFT collectors and users can easily swap between the NFT and ERC-20(GBT). ETH will be the base asset of the pools, thus providing a real tradeable market value.
Considering these GBT tokens are backing NFTs it provides the facility for them to represent any kind of asset in GumBall protocol that you want to make more liquid by minting GBT tokens. It also makes it easier to take loans against your NFTs as you have the tokens representing them (in the current overcollateralized lending landscape).
Buffer Finance is proof that GMX fork works for options trading and not only perps. It’s an options market that uses similar tokenomics to GMX through their main token and their version of GLP called BLP (everybody wants a GLP nowadays-imitation is the sincerest form of flattery). Despite GLP’s success, it’s not without flaws (and I might do an article about this because there is a growing narrative that no slippage is the best thing since sliced bread, which it isn’t).
The protocol is an exotic options platform that enables you to trade with positions open from 5 minutes up to 24 hours before it expires. There’s a payout calculator to determine your profit if your trade expires in the money. However, as you get access to capital by paying a premium it won’t be returned if your position expires out of the money (trade doesn’t go as planned).
Sentiment is the Arbitrum version of Gearbox. It's an on-chain credit protocol that allows for more capital efficiency as it allows you to take on leverage through a “margin wallet” which essentially means that it has some kind of limitations to refrain you from rugging the lenders. While the protocol allows you to take on 5x leverage against your position, this can only be done in whitelisted DeFi apps. If your health factor falls below 20% your collateral will be liquidated. It’s a step in the right direction toward undercollateralized lending.
However, as this induces higher risk for degen capital allocators in lending pools, it allows them to receive higher yields for being liquidity providers in DeFi protocols.
A wise man once said: “Manage your risk or your risk manages you”.
Last but not least.
Lodestar is a decentralized money market that will allow you to deposit Arbitrum native assets and earn a yield on them as other users will be able to borrow the. It works as most money markets and the platforms aim to also enable users to take loans against liquid staked assets without foregoing the yield. The platform will start by allowing a permissionless money market for $MAGIC, $DPX, and $plvGLP. The true degens here will see the possibility of leveraged staking as you can borrow against your staked asset and acquire more of the same (or any other asset such as USDC-enabling you to go leveraged long or short).
This of course entails liquidation risk if the health factor of your borrowed positions falls below 1 which is calculated by taking: the total collateral value in ETH ÷ total borrow value in ETH. Ape responsibly.
Honorable mentions:
Halls of Olympia - PvP battle game in gladiator format that will allow for betting on participants.
Non-Arbi native protocol jumping on the ship
Gains network - perpetual exchange and forex market currently residing on Polygon.
CVI - Volatility exchange that allows you to trade with or against the volatility of the market. One of the tokens on the exchange is CVI which aims to be a Crypto Volatility Index in a similar mold to VIX in the traditional financial world.
Note: Will probably make an eventual deep-dive on this one.Trident - old OHM fork on Harmony that has rebranded to an MMORPG game that is planning to launch on Arbitrum.
Neon Protocol - DCA tool that makes it easier for you to scale into position as you can decide the frequency of purchases in a non-custodial way.
Don’t want to fry your brains anymore, so it's time to wrap it up.
Going forward
The future for Arbitrum looks bright as more people are grasping the concept of L2s every day and expanding the ecosystem. It has led to Arbitrum now possessing more TVL than Solana (are we even surprised, tbh?) and it doesn’t look like it will slow down soon. On a serious note though, I would believe the community still wonders why the Odyssey hasn’t resumed yet.
However, one thing to pay attention to is that whenever ETH performs well, the Arbitrum ecosystem tends to outperform the rest of the market and that could be interpreted as a foreshadowing of what is to come when the market turns (I don’t expect that to be soon so not providing you with Hopium here).
Either way, Arbitrum looks like it’s on the right side of DeFi innovation and I suggest you place your bets accordingly.
Until next time.
(If you prefer a video summary, here’s a YouTube video by Lulo going through the protocols.)
Well done if you managed to congest all that information, I hope you enjoyed the post. Don’t forget that you are more than welcome to leave feedback or drop any questions in the comment section.
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Disclaimer: All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing on the site constitutes professional and/or financial advice, nor does any information on the site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. I am just a random degenerate sensei sharing an opinion.
Off lately, have been experiencing really high gas fees on arbitrum. Especially on GMX and Magic. Any idea if this is happening across protocols
Yeah like i was trying to do some staking on both GMX and MAGIC and fees were around 0.2E!!! So yeah not sure if its a Dapp issue or protocol issue.