Aug 3 | 4 min read
Built using Set Protocol’s integration with Perpetual Protocol on Optimism, MNYe automates a continuous basis trading strategy that returns a high, price-neutral yield to token holders. Basis trading, also known as cash-and-carry arbitrage, is an established strategy for achieving price-neutral profit by arbing the difference between an asset price on the spot and near-term futures markets. In DeFi, perpetual swaps – also called perpetuals or perps – can be used in lieu of futures, with the caveat that perps have no settlement date.
MNYe takes simultaneous long spot (ETH) and short perpetual (vETH) positions. By maintaining a fully hedged position, the product has no net price exposure to the underlying asset.
The yield is generated through the funding rate, or periodic USDC payments made between traders based on the difference between perpetual and spot prices. In the case of the ETH perpetual market, there is generally a positive funding rate, which means that longs pay shorts. MNYe captures these funding rate payments three times a day by maintaining a -1x short perpetual position.
It is worth noting that volatility over the short term may cause the funding rate to become negative, translating to a negative APY for certain periods of time. However, over the long term, the funding rate for the ETH perpetual market is predominantly positive.
MNYe has several key features:
Automation - management of underlying spot and perp positions are automated
Composability - ERC-20 token that can be freely integrated, issued, redeemed, and exchanged across DeFi
Accessibility - abstracts a sophisticated trading strategy into a single token
MNYe uses a series of smart contracts and keeper systems to monitor and maintain short perp exposure and long spot exposure to ETH. Using USDC as collateral, short perp exposure is set to a target leverage ratio of -1.0x, with a minimum leverage ratio of -0.95x and a maximum leverage ratio of -2.0x. If the active leverage ratio breaches either bound of the safe range, MNYe will automatically adjust the short and spot positions while maintaining a delta-neutral position. If levering up, MNYe increases the short perp position within Perpetual Protocol, withdraws some USDC collateral, and acquires more spot ETH through Uniswap v3. If delevering, MNYe decreases the short perp position, sells spot ETH for USDC thru UniswapV3, and deposits USDC to collateralize the position in Perpetual Protocol.
In addition to managing the delta-neutral position for token holders, MNYe also auto-compounds realized yield every seven days. Assuming a positive funding rate over a seven day period, MNYe withdraws USDC funding from the collateral position to acquire more spot ETH, and then deposit the remainder back into the short perp position. MNYe holders do not have to claim or manually compound - simply hold the token and watch interest accrue to the token’s NAV!
Like all Index Coop products, MNYe is an ERC-20 token that can be freely integrated and exchanged throughout DeFi. MNYe could be used as collateral, as a component of a yield aggregator, and many other use cases. MNYe can also be minted (or “issued”) and redeemed permissionlessly through the Index Coop app. If users prefer to create new tokens or redeem existing ones rather than buy or sell on secondary markets, they can flash mint new MNYe tokens with USDC or ETH.
The basis trading strategy executed by MNYe is one of the highest yielding, price-neutral strategies available today. Historically, this strategy could only be executed manually on dedicated exchanges and by sophisticated traders. However, by tokenizing this strategy and abstracting away the management, anyone with a web3 wallet can buy MNYe and capture some of the highest yield in DeFi.
Fees: MNYe will have a streaming fee of 0.95% (95 bps), no mint fee, and a redeem fee of 0.30% (30 bps).
How to Access:
The Index Coop has seeded a MNYe / USDC pool on Uniswap v3 (Optimsim) with a 0.05% trading fee, which can currently support a $150k MNYe purchase with less than 1% slippage.
Token holders are also able to provide liquidity through this Arrakis vault, which manages the Uniswap v3 LP position parameters for you. Please note that this is a third party service and that the Index Coop does not control this pool. More information is available in the MNYe Easy Issuance & LP Guide.
Disclaimer: This content is for informational purposes only and should not be construed as legal, tax, investment, financial, or other advice. Each purchaser of an Index Coop product should consult with his or her own legal adviser and tax adviser before purchasing such products.
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