TLDR
- Reya Network is a trading-optimised network, that is enabled by a novel network-owned-liquidity model
- Right now liquidity has been deployed into a passive LP pool mechanism, which supports perp trading on Reya DEX
- But this was only ever a network proof-of-concept - can we embed liquidity into a network and make it available to applications on the network? The answer was yes. Now the question is - how do we do that so it can support multiple DEXs and even aggregate order-flow that exists off-network.
- This will be enabled via the decoupling of Network Stakers (LPs) and Liquidity Managers (LMs) in Reya Network v2 (more on this soon)
- The first step towards this involves embedding Elixir as the very first LM. This can be done without fragmenting the pool, so will enable liquidity to be used in 2 places at once - Elixir deUSD/sdeUSD and the existing passive LP pool model.
- Given the evolution required to the pool design, this is going to a community vote, where specifically we are proposing
- Elixir is embedded as the first additional Liquidity Manager, as a stepping stone to the wider Reya Network v2 vision.
- 80% of the rUSD currently staked into the Network is converted into deUSD/sdeUSD at a 40:60 ratio. Due to the mechanism design, this can be done without reducing the liquidity in the passive LP pool used to support trading.
- This should generate a blended return of 5-8% for Network Stakers (based on current Reya + Elixir blended yield). Along with Stakers being able to accrue Reya Network XP and Elixir Potions.
- This proposal will now enter a period of community discussion, before a vote starts on Monday 14th October 2024.
- If the vote goes through, the Reya Labs team will implement the necessary changes to the network prior to proposing the changes to the DAO Multi-sig.
Please note, additional community votes will be taking place throughout October 2024, where additional information will be shared on Reya Network v2 and the Tokenomics design.
Introduction
Reya Network is a trading-optimised network. This is made possible through a novel network-owned-liquidity design which servers a dual purpose:
- [Immediate Term] Providing applications on the network with liquidity
- [Medium Term] Acting as economic security of the network
As of today, this exists in a proof-of-concept, where the capital of network stakers (LPs) gets automatically passed into a passive LP AMM, so that the network can support derivative trading applications with instant liquidity.
With this proposal, we’re outlining the first step of how this network-owned-liquidity will evolve, simultaneously providing an early insight into Reya Network v2
How network staking will evolve: an early insight into v2
- Network staking and liquidity management are currently one and the same thing
- However, with v2 ‘liquidity management’ will be decoupled from network staking
The primary objective is to create a mechanism that attracts and retains Liquidity Managers (LMs) who offer the most competitive risk-adjusted returns to Network Stakers (LPs). In turn this will act as a liquidity backbone for ecosystem dApps that in turn will bring end-users and order flow into the network. The Tokenomics design will aim to tie together Network Stakers (LPs), Liquidity Managers (LMs), DEXs and Traders in order to carefully balance incentives and ensure that actors who are additive to network success are rewarded while bad actors are penalized.
Moreover, it is worth noting that a LM can come in various different forms:
- A passive market-making algorithm
- An active market-maker allocating to on-Network or off-Network order flow
- A passive optimiser across lend/borrow primitives on Reya Network
Where possible, LMs should operate in a way that avoids fragmenting the underlying network-owned-liquidity, e.g. by making it possible for an LP position in one protocol to be used as collateral to support trading in another venue within the ecosystem. More details on this (and the tokenomics design) will be released later this month, with the intention for both of these to be discussed openly as a community.
We want to re-iterate this final point: the people who own and maintain the network must be the people who use it. This means Network Stakers (LPs), Liquidity Managers (LMs), DEXs and Traders. Let’s build Reya Network v2 openly, together.
The next Liquidity Manager (LMs): Introducing Elixir
Reya Network v2 is a big bold vision.Contrary to many projects, we don’t want a long roadmap that takes years to implement. Instead we want to build iteratively. Testing, learning and adapting as we go, all towards the broad vision of a new type of network with liquidity at it’s core.
The next step on this journey is to add in a new liquidity manager (LM). We’re herewith proposing that next manager should be Elixir leveraging a share of network liquidity to acquire deUSD and sdeUSD in order to give Stakers exposure to yield opportunities from a basis trade strategy. In order to enable this, we’re proposing the following changes to the passive pool:
- Reya’s passive pool design will be adapted to make it possible for a proportional amount of rUSD supplied by Stakers to be allocated towards acquiring deUSD and sdeUSD.
- Reya Governance will have the power to decide what percentage of passive pool TVL is allocated towards supporting futures trading activity on Reya DEX vs. acquiring deUSD vs. acquiring sdeUSD.
- Once the percentages are set, rebalancer bot(s) will be responsible for maintaining the ratio by exchanging rUSD, deUSD and sdeUSD at the oracle price as long as the makeup of pool holdings deviates from the target ratios beyond a deviation threshold.
- The deviation threshold is a buffer that is used in order to avoid frequent rebalancing events happening from day to day fluctuations in the pool make up as a result of pool deposits, withdrawals and yield accrual.
- Deposits to and withdrawals from the passive pool will keep happening in rUSD terms as they do now.
- The rUSD denominated value of the passive pool shares will be impacted by both the pnl from passive perp market making activity on Reya DEX and changes in the price of deUSD and sdeUSD in rUSD terms.
It’s worth being clear that this first step doesn’t currently enable Elixir to provide liquidity through to the applications on Reya Network, but it can be done without fragmenting the liquidity currently going into the pool - meaning the passive LP pool for perp trading will continue to have the same market depth as before this change (assuming the same underlying TVL).
We strongly believe this integration is a perfect next step towards the bigger vision and enables us to learn how to evolve the architecture of Reya Network whilst also keeping deep liquidity for the Reya AMM. The 2 key decisions are:
- What % of capital to be managed by the Elixir Liquidity Manager vs. the existing Reya AMM.
- What the split should be between deUSD and sdeUSD in the Elixir LM strategy
For #1 we propose 80% managed by Elixir Liquidity Manager and 20% managed by the Reya AMM, given this can be done without impacting the depth of the Reya AMM Perp markets. For #2 we propose 40% towards deUSD and 60% towards sdeUSD (of 80% allocated to Elixir LM)
What this means for Network Stakers (LPs)
- At a practical level, Network Stakers will receive
- Yield from Liquidity Managers (LMs)
- Incentives from liquidity managers (and DEXs in the future)
- If this proposal goes through, Network Stakers (LPs) will therefore receive:
- Reya AMM yield
- Elixir sdeUSD yield
- And will also receive
- Reya Network XP, proportional to capital staked
- Elixir Potions, proportional to capital staked and the share of pool capital allocated towards deUSD and sdeUSD
Keep in Mind: This is the NEXT STEP towards our bigger vision. Look out for announcement later this month covering the full details on Reya Network V2 Tokenomics and how it will further accelerate network growth.
Discussion will now start on this proposal before moving to a vote on Monday 14th October.