The wait is over! Early access to Ostium’s Market Making Vault opens Wednesday, 7/10. Deposit Derby participants earn boosted yields on deposits for the duration of their locking period. Boost access ends August 1st.
July 9, 2024
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7
min read
The wait is over! Liquidity Providers can now deposit early into Ostium’s Mainnet Market Making Vault and earn boosted yields. The Deposit Derby, Ostium’s first launch campaign, runs through August 1st. Yield begins accruing when trading begins (by 8/1) and accrues for the duration of an LP’s deposit period. The minimum locking period to participate is 45 days, with a maximum of 365 days. More details below.
Ostium’s liquidity model is designed with two core aims: to minimize the adversarial nature of the relationship between LPs and traders, and to reduce the volatility and drawdown risk for LPs. Vault LP ownership ultimately has the potential to act as an anti-correlated asset to the larger crypto market with organically accruing yields.
The Deposit Derby is a three-week campaign running until August 1st that allows early depositors to earn boosted yields.
What is OLP?
OLP (Ostium Liquidity Provider) tokens represent your ownership of the Ostium Market Making Vault. When you deposit USDC into the vault, you receive OLP tokens in return. More ownership of the vault means you are entitled to a greater portion of the vault's organic yield, programmatically derived from trading fees and liquidation rewards.
How the Derby works:
- Duration: The Derby runs until August 1st, 2024
- Locking period: Participants must lock their deposits for at least 45 days (until three weeks after trading begins)
- Maximum lock: You can lock for up to 365 days
Boosted yields explained:
During the Derby, you receive more OLP tokens for your USDC deposit compared to normal. This means you own a larger share of the vault, which translates to higher yields.
Example:
- Alice deposits 1,000 USDC during the Derby, locking for 365 days
- She receives 1,160 OLP tokens (16% boost)
- Bob misses the Derby, and deposits 1,000 USDC afterwards with no lock
- He receives 1,000 OLP tokens (no boost)
- After a year, the baseline APY from trading + liquidity fees is 10%, which accrues directly to the OLP token
- Alice unlocks and withdraws her OLP and receives 1,160 * 1.1 = 1,276 USDC
- Bob withdraws his OLP and receives 1,000 * 1.1 = 1,100 USDC
- This means Alice’s net APY is 27.6%, while Bob’s is 10%. Alice’s yield was nearly 3x that of Bob’s.
Boost scaling:
- The longer you lock, the bigger your boost
- 45-day lock: ~2% OLP boost
- 90-day lock: ~4% OLP boost
- 365-day lock: 16% OLP boost (maximum boost)
What multiple boost on yields these OLP boosts translate into is a function of baseline yields (e.g., baseline 10% vs. 30% for the vault). In the example above, a 16% lock boost translated into a nearly 3x multiple in total yield. Were the baseline yield lower (e.g., 5%), that lock boost would have been even greater (>4.3x).
Important dates:
- Derby ends: August 1st, 2024, at 12:00 UTC
- After this date, the boost rates will be lower
Key takeaway:
Participating in the Deposit Derby allows you to earn a larger share of the vault's yields by giving you more OLP tokens for your deposit. The earlier you join and the longer you lock, the larger a share of trading and liquidation fees you earn.
The Deposit Derby is designed for early Ostium depositors to easily share their activity and benefit from referrals. Click "share" next to your username or wallet address and:
- Track the total number of referred wallets & cumulative referred deposits.
- Get a streamable sharing link, show off your size and referrals in real-time.
- Top Referrers become eligible for [redacted🤫].
Climb the Leaderboard: Win the Derby.
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Read on for more context on Ostium's vault structure and liquidity model.
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First, some context. Ostium’s pool-based model extends liquidity to traders through a Shared Liquidity Layer (SLL). This layer enables trading on Real World Asset perpetuals without reliance on institutional market makers. Instead, anyone can participate as a Liquidity Provider, acting as a de facto market maker, extending maker liquidity to traders with USDC as universal collateral.
In exchange for the potential risk LPs take on as counterparties to trades, they are rewarded with a majority of trading fees captured by the protocol: 100% of liquidation rewards and 50% of opening fees.
Sound familiar? This model bears many similarities to that of other pool-based perpetuals exchanges. LPs on Ostium extend liquidity to traders, acting as their counterparty, and in return receive a majority of trading fees.
However, the status quo LP model has two major drawbacks:
- It pits LPs and traders directly against one another, creating an adversarial relationship.
- LPs are often subject to large fluctuations in LP token value during periods of market dislocation, due to:
* The highly correlated nature of assets in the LP pool – when the market rips, most assets move together and LPs get rekt
* The lack of any buffer liquidity to absorb fluctuations in trader PnL, which is instead directly absorbed by the LP token
Ostium’s liquidity layer is unique in that it attempts to solve for both of these issues simultaneously. But how?
Ostium’s Shared Liquidity Layer design is motivated by two aims:
1) To minimize the adversarial nature of the relationship between LPs and traders, creating positive-sum win-win games, and
2) To minimize the volatility and drawdown risk for LPs, with vault LP ownership eventually approximating a risk profile uncorrelated to the rest of the crypto market (but in the form of a crypto-native, organically yield accruing asset).
How? Ostium’s Shared Liquidity Layer (SLL), contains a dual vault structure. It has two core capital pools:
- Liquidity Buffer: The settlement layer for trader PnL, accumulating value during periods of net trader losses and shrinking during periods of sustained trader gains. It does not accumulate trading fees and cannot be deposited into directly or withdrawn from by LPs, acting as a buffer;
- Market Making Vault: Settlement for trades in the event the Liquidity Buffer has yet to accrue value, as in the early days of the protocol, or is depleted by a recent string of trader gains. LPs deposit (and/or lock) capital into the LP Market Making Vault and are rewarded for the risk they take on of potentially needing to act as counterparties with liquidation rewards and a majority of trading fees.
This dual structure affects Ostium’s liquidity model in several key ways.
- LPs benefit more from higher volumes and resulting higher trading fees than they do from negative trader PnL, as potential trader losses accrue first to the to Liquidity Buffer, rather than directly to the Market Making Vault, and
- Trader PnL effect on LP ownership is dampened, with the Liquidity Buffer absorbing volatility. It accrues USDC when traders have a string of losses, and becomes depleted when traders have a string of gains – rather than these natural fluctuations immediately impacting LP token value.
The final, critical piece for LPs is the nature of the assets for which LPs extend liquidity. Ostium offers trading on dozens of Real World Assets, from forex, to energy, metals, and agricultural commodities, to major foreign indices – and eventually, to every liquid market on earth.
These varied assets and asset classes are largely un- or anti-correlated, enabling, on average, less capital needed per unit of risk. In other words: more capital efficiency through natural diversification. Instead of acting as the counterparty to positions on a small number of highly-correlated crypto assets, LPs act as the counterparty to positions on mostly uncorrelated TradFi assets. You can read more about how we quantify these risks here, reaching favorable conclusions about RWA-liquidity LP pools as compared to crypto-only liquidity LP pools.
If you want to learn more about Ostium’s trading engine or test the product on testnet, visit the application here or see our list of markets.
- Deposit Derby: Early access to Ostium’s Market Making Vault starts on Tuesday, 7/9, with the Deposit Derby running until August 1st.
- Boosted Yields: Earn boosted yields for deposits, with a minimum locking period of 45 days and a maximum of 365 days.
- Liquidity Model Objectives:
* Minimize adversarial relationship between LPs and traders.
* Reduce volatility and drawdown risks for LPs.
* Facilitate steady flow of capital from protocol-generated fees to LPs.
- Market Making Vault:
* Features a dual vault structure: Liquidity Buffer (buffers short term trader PnL fluctuations) and Market Making Vault (accrues protocol rewards + settles trades before Liquidity Buffer filled).
* Combined, this dual vault structure is composes the Shared Liquidity Layer (SLL), which extends liquidity to traders with USDC as collateral.
* Vault rewards LPs with 100% of liquidation rewards, 50% of opening fees, and 100% of volatility fees.
- Benefits for LPs:
* Higher benefit from trading fees than from trader PnL.
* Dampened impact of trader PnL on LP ownership.
* Exposure to diverse, uncorrelated assets, enhancing capital efficiency.
- Diverse Assets Include: forex, energy, metals, agricultural commodities, and major foreign indices.
Deposit here.
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