RNIP2: The introduction of the first Institutional Liquidity Managers (Selini Capital & Amber Group)

General
1

TLDR

  • We recently outlined the vision for Reya Network v2, which will allow Liquidity Managers to run trading strategies leveraging Reya network-owned-liquidity
  • The value of this, is that it provides a path to internalising the 35tn of orderflow currently stuck on CeFi venues, whilst also helping drive APY growth for Reya Network Stakers
  • Within this proposal, we outline how this vision will come to life by running proof-of-concepts with Selini Capital and Amber Group as the first ‘Institutional Liquidity Managers’
  • For the proof-of-concepts we propose 2m rUSD is provided to Selini Capital and Amber Group respectively.
    • Selini: via an MPC wallet on Reya Network that they can use to run a market neutral CEX arbitrage strategy. Importantly, this is not a basis trade strategy, meaning it should work in all market conditions and provide Network Stakers with access to a high-performance strategy used by a market leading trading firm. This strategy is expected to generate 10-15% APY for Stakers
    • Amber: via Ceffu to run a CEX basis trade on Binance. Importantly, this model means no funds ever go onto Binance as an exchange. It is expected to generate 10-40% depending on market conditions.
  • To accommodate this change, we propose the pool is allocated as follows
    • 2m rUSD is allocated to the Selini strategy as outlined below
    • 2m rUSD is allocated to the Amber strategy as outlined below
    • 2m rUSD is kept in the pool to support withdrawals when needed
    • The remaining TVL of the pool is kept in sdeUSD
  • The pool should then generate between 10-20% for Network Stakers, alongside the existing XP and Potion benefits.
  • Discussion will now start on this proposal. We also have a provisional start date for the vote of Wednesday 27th of November, depending on the feedback received.

Context

  • Reya Network is a trading-optimised network that looks to remove liquidity fragmentation across three dimensions
    1. Between projects on Reya Network
    2. Between Reya Network and CeFi
    3. Across networks
  • Core to addressing this challenge is the novel network-owned-liquidity model within the Reya Network design
  • By delivering on this vision, Reya Network aims to provide immense value to Traders and Network Stakers (LPs)
    • Traders: can use Reya Network as their one-stop-shop to facilitate all trading needs
    • Network Stakers (LPs): can supply liquidity to the network and access enhanced risk-adjusted returns
  • We recently outlined ‘Phase 2’ of this vision - the SQUID - which will connect network owned liquidity to CEXs through ‘Liquidity Managers’ i.e. best-in-class trading firms. This will help move towards our long-term objective of bringing CeFi order-flow on Reya Network
  • This proposal outlines the first proof-of-concepts for this model.
  • To enable this, we are also proposing rUSD evolves to better accommodate the Liquidity Manager model, and provide more value through to Network Stakers

The First Institutional Liquidity Managers - Selini Capital & Amber Group

  • As outlined in the Phase 2 announcement, Liquidity Managers are a key agent to help address liquidity fragmentation and provide value through to traders and network stakers (LPs) on Reya Network
  • We propose Selini Capital, a best-in-class trading firm focused on liquidity provisioning in the crypto ecosystem, as one of the next liquidity managers. Allocating a portion of network liquidity to their market neutral CEX arbitrage strategy is expected to generate attractive yield to Reya Network Stakers and open the door to bringing more order flow to Reya Network
  • Alongside this, we propose Amber Group, a leading Digital Asset Manager and institutional trading firm, act as another liquidity manager. This proposal suggests allocating a portion of network liquidity to their market netrual CEX basis trade strategy.
  • Enabling this is relatively straightforward and consistent with the design mechanisms used for introducing Elixir as the first LM, as outlined in the image below
  • Importantly, this model is not Elixir or Ethena (who are partners/potential partners).
  • Instead it provides a framework through which multiple Liquidity Managers can run strategies that provide value to Network Stakers. Whilst also keeping rUSD backed by USDC, which gives confidence to traders.

rUSD and Network Owned Liquidity: Liquidity Manager Setup

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The details of the proposals

  • The Squid vision will allow Liquidity Managers to deploy Reya Network liquidity into CEX strategies, to generate returns for Network Stakers. Over the medium term, this will also help bring CeFi orderflow into Reya Network
  • As a proof-of-concept for this vision, we propose 2m rUSD is allocated to Selini to run their CEX arbitrage strategy and 2m rUSD is allocated to Amber to run their CEX basis trade strategy.

Selini

  • The Selini strategy is delta neutral and is expected to generate 10-15% APY in all market conditions. The model here works via a performance fee - Selini will receive 15% of the returns they generate, with the rest being passed onto Reya Network stakers.
    • To explain - if Selini generates a 15% APY on 2m rUSD that would result in 300,000 rUSD of annual returns for Network Stakers.
    • The performance fee means Selini would receive 15% on the 300k = 45k
    • This deal is deliberately competitive vs. the usual performance fees (20%) associated with providing capital to a Hedge Fund directly
  • As communicated previously, the intention here is for no assets to go onto a CeFi exchange. However, this requires Selini’s onboarding of partners such as Copper, Fireblocks or Ceffu. Whilst this is in progress, it will take some time to complete.
  • As a result, for the proof-of-concept we are proposing Selini use Foredefi as the secure MPC wallet provider. Fordefi is already integrated into Reya Network though they do not have an off-exchange model for CEXs. The CEXs Selini will use are deliberately limited to Binance, OKX, ByBit and Coinbase to minimise CEX risk.

Amber

  • The Amber strategy is also delta netural and expected to generate 10-40% APY depending on market conditions. This will also work via a 15% performance fee. The variation in trading strategies provides network stakers with yield generating diversification and access to the strategies deployed by high-performing trading firms
  • The Amber strategy will use Ceffu, which enables trading on Binance without the assets ever going onto Binance as an exchange. The benefit of this is that Binance has historically had some of the best funding rates out of the CeFi exchanges, meaning the strategy has the potential to provide access to higher yield for Network stakers

Conclusion

  • In practice, if approved by governance, 2m rUSD will be allocated to dedicated MPC wallets for Selini and Amber. Both institutional Liquidity Managers will provide a member of the Reya DAO with with full visibility to these wallets and associated balances and movements.
  • These strategies will be tokenised on Reya Network, so in practice will work akin to the way sdeUSD accrues yield today.

What this means for Network Stakers

  • To accommodate this setup, we therefore propose
    • 2m rUSD is allocated to the Selini strategy as outlined above
    • 2m rUSD is allocated to the Amber strategy as outlined above
    • 2m rUSD is kept in the pool to support withdrawals when needed
    • The remaining TVL of the pool is kept in sdeUSD
  • Note this proposal involves removing deUSD from the pool, which is not yield generating
  • Based on the above, the total Network Staking APY can be expected to be between 10-20%, plus XP and Potion benefits.

Discussion will now start on this proposal. We suggest a provisional vote start date of Wednesday 27th of November, depending on feedback received.

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