STRIPS Trader Use Case — Advanced

Advanced Trading Strategies

Arbitrage Different Funding Rates

BTC perpetuals funding rate across the 4 largest derivatives exchanges
Historical funding rates between Binance, FTX and dydx
  • The 8hr funding rate for BTC perpetuals on Binance is 0.01%. The funding rate on FTX is currently -0.0016%.
  • With $100,000 collateral and 10x leverage, you can long the Binance funding rate and short the FTX funding rate. You can collect $348 (0.348%) return a day, or 127% annualised return!
Lending rates in DeFi can vary
  • DAI on Compound lending rate is currently 4.45%. DAI on dydx lending rate is currently 0.73%.
  • With $100,000 collateral and 10x leverage, you can long the Compound lending rate and short the dydx lending rate. You can collect $101.92 (0.101%) return a day, or 37.2% annualised return!
Binance vs FTX: OMG-perp x100 difference — at the beginning
  • Orange: Annualized funding rates of OMG Perp on FTX
  • Turquoise: Annualized funding rates of OMG Perp on Binance
  • Dark blue: difference between 2 funding rates
  • Long Binance > OMG-PERP Funding (pay fixed and receive floating at -1.98% at the beginning)
  • Short FTX > OMG-PERP Funding (receive fixed and pay floating at 8.4% at the beginning)
  • Lock in the yield difference at 10.7%
  • Short Binance > OMG-PERP Funding (receive fixed and pay floating -0.0295%)
  • Long FTX > OMG-PERP Funding (pay fixed and receive floating at -0.03%)
  • Unwind and realize the profit from yield difference collapsed from 10.7% to -0.15%
Binance vs FTX: OMG-perp x100 difference — at the end

Hedge Yields

  • Hedge Yield Farm Returns: yield farmers can hedge yield farming returns by shorting the
  • apparently short perpetual IRS can lock in the fixed return as certain income while traders expect APY% to decay. Furthermore, short IRS’s profits can further increase if market fixed rate trends lower as well.
  • Hedge perpetual futures’ funding rate: short perpetual or fixed term IRS (such as 3 months) can also lock in the fixed rate as certain funding costs if the funding rate spike on exchanges. Below is a quote received from one of our ambassadors describing IRS as a tool to hedge his perpetuals funding rate on exchanges.
  • Hedge for Basis Trades: traders can also use IRS to hedge against their basis trade on futures. For example, if 3 month futures basis is 24%, the 3month fixed rate on STRIPS if 20%. Without STRIPS: normally to capture futures basis, you sell futures and buy perp, however you will pay funding fees on the perp. If you hold this position for 3 months — you are paying 3 months of perp funding. There is a risk that the perp funding you pay is more than the futures basis. If there is a market for the perp funding rate, then the trader can hedge his funding rate by going long the 3 month IRS (pay fixed, receive float). If the fixed rate is 20%, and the futures basis is 24%, then there is a 4% risk-free profit.

Shape of yield curve and more…

  • Traders can put on steepening and flattening between fixed term vs. perpetual
  • Traders can bet on convergence and divergence of rate difference (between floating and fixed) across the terms. If 1yr fixed rate is in deep discount while perpetual fixed rate is not, then traders can long 1yr and short perpetual if the trader thinks such divergence will converge eventually

Extended Applications

  • Fixed rate perpetual bonds: these are fixed yield bonds that will pay forever. Imagine a bond that will not only pay you to retirement, but pay your kids, and your grandkids. This is generational wealth.
  • In the future, any lending/borrowing protocol can use our APIs to create their own fixed lending and borrowing markets and bonds. Open-sourced fixed-rate lending and borrowing for all platforms. Platforms and companies can whitelabel their bonds, and Strips acts as the clearing/settlement platform and source of liquidity. STRP holders will benefit from this.
  • USD lending and borrowing institutions to hedge their interest rates. Company treasuries need certainty in their lending and borrowing costs. There currently doesn’t exist anyway for lending and borrowing companies like Blockfi, Celsius, Circle, Matrixport etc. to hedge their interest rates. They are exposed.
  • Miners borrowing USD, who want to hedge their borrowing costs (miners borrow hundreds of millions a year in short term loans and they are most affected when funding rate spikes). When interest rates spike, that is millions of dollars of additional cost that these miners have to pay. We lower their cost of hedging so they can focus on the more important things.

Disclaimer

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To build the largest fixed income trading platform for DeFi

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Strips Finance

Strips Finance

To build the largest fixed income trading platform for DeFi

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