Introducing Strips: All You Need To Know Before Start Making Money on STRIPS
Strips Finance is the world’s first decentralized interest rate margin trading platform. Interest rate swaps (IRS) allow participants to swap variable APY% for fixed APY% instantly. Inspired by our own need for APY% hedging, we decided to create Strips. Strips is a set of smart contracts deployed on Ethereum network to enable traders and farmers to:
- Lock in the high APY%, and avoid APY% decay over time
- Trade interest rates with leverage
- Leveraged yield farming
Easily go long or short interest rates with up to 10x leverage.
- Connect your metamask wallet
- Select your market (Nerve > 3pool)
- Input your position size
- Select your leverage (1–10x)
- Open long/short position
- Confirm the transaction on your metamask
If a trader currently has a long position, she will benefit from a rise in the market rate or a rise in the oracle rate. The market rate is determined solely by the supply and demand of market participants. Whereas the oracle rate is the reference yield APY%. Vice versa, if the trader currently has a short position, she will benefit from a drop in the market rate or a drop in the oracle rate.
Long/Buy/Receiver will pay fixed rate, we call it Trading PnL:
Long/Buy/Receiver will receive Floating Oracle APY%, pulled for each market
Long/Buy/Receiver will receive Total PnL as the sum of two above, where
Use cases of IRS
Lock in the high APY% from your yield farming strategy, and avoid seeing APY% decay over time.
Depositing USDC on Compound for example:
- Yield farming only: If you choose to stake $10,000,000 in Compound from Feb 15 until May 23, you will earn up to 1.47% of the interest rate shown in the blue line.
- Yield farming with hedging: In addition to the existing yield farm strategy, you can lock in your future yield today by shorting and IRS on Strips. In total, the hedged yield farm strategy will boost your return from 1.47% to 2.5% over the same period of time.
Bet on the direction of interest rates (or yield farm APY%), and monetize your market views
If you want to make directional bets on the interest rate% move, then you can realize your idea by trading in Strips. We take cream.finance as an example:
- Yield farming only: if you choose to stake USDC in cream.finance from Feb 15 until May 23, you will be able to earn up to 3.7% in interest, shown in blue.
- Long interest swap with leverage: going long cream.finance IRS; paying fixed APY% and receiving floating APY% over the same period will receive a net return of 88%.
Strips enable the traders and investors to express their views on the market, both bull and bear.
Release “locked” capital from yield farms and receive higher return% from arbitrage
Existing “yield locking” protocols require you to lock your yield-generating tokens to fix your yield. With Strips, we enable more flexibility and easier access by only requiring 10% of your position as collateral.
- Furthermore, you can instantly arbitrage interest rates between two different protocols without holding the underlying assets.
- AAVE USDC interest rate is currently 3.5%
- Compound USDC interest rate is currently 6%
- Trader: long AAVE > USDC interest rate swap
- Trader: short Compound > USDC interest rate swap
Arbitrage “basis” trading
With Strips, you can also trade perpetual derivative funding rates with 10x leverage. For basis traders, that means you can “lock in” your profits by hedging your swaps position funding on Strips.
- Trader currently has a short basis position
- Trader is currently short BTC-0924 and long BTC-PERP on Binance
- Trader is currently paying BTC-PERP 8hr funding
- Trader can go long an IRS on BTC-PERP funding on Strips and pay a fixed interest, while receiving the BTC-PERP 8hr funding rate. Therefore, converting his floating rate to fixed.
- Arbitrage funding rates between derivatives exchanges
- Binance BTC-PERP funding rate is currently 12%
- FTX BTC-PERP interest rate is currently 6%
- Trader: long Deribit > BTC-PERP interest rate swap
- Trader: short Binance > BTC-PERP interest rate swap
Strips.Finance differentiates itself from other interest rate related protocols by listening to what traders and the community wants**.** By continuously iterating and improving the product, Strips aims to give traders the full flexibility and power to express their market view. In doing so, Strips will create an efficient and robust marketplace for interest rates and become the market benchmark for future fixed-income products.
The Strips insurance fund acts as the line of last defence in highly volatile market conditions. It is the liquidity of last resort, ensuring all traders are paid in full, and markets remain solvent.
However, not all markets are covered under the insurance pool. In order for a market to be insured, community governance must pass with 66% of votes.
Traders’ position will be liquidated if a trader’s margin ratio falls below 3.5%. The insurance pool will take over the position and automatically liquidate the position.
Running 800+ market simulations for historical market volatility and 10x market volatility the AMM achieves:
- 22% median Annualized ROI
- 5.64 median Sharpe Ratio
- 55 median Sortino Ratio
Based on historical data from 15 Feb 2021 to 23 May 2021 from Compound, AAVE, and etc., for total 5 markets.
AMM = ROBUST
In order to test the robustness of our AMM, we’ve put the AMM under various stressed market conditions. Using 6x higher standard deviation vs historical, we’ve found that the AMM can achieve +200% over 100 days.
AMM = EFFICIENT
Strips’ AMM is designed to fulfill certain characteristics：
- Efficient capital usage, 24/7 liquidity
- More staked amount results in lower slippage
- Current market price will always reflects the view of the broad market
Our Vision and Mission
#1 DeFi will take over traditional finance
#2: We believe that interest rate swaps are the building blocks for future fixed-income trading in DeFi
#3 Build an open and collaborative community around Strips