Introducing: Leveraged bAsset Strategy

It’s an open secret that Nexus Protocol benefits from ideas and suggestions that come from the community about how we can introduce new products that users want. Over the past few weeks, we have engaged with several community members on building new vaults that mimic strategies to help users gain leveraged price exposure to everyone’s favorite asset: LUNA. Idea & strategy has been contributed by LUNAomics :full_moon:

The Nexus team is therefore currently exploring providing the above as an on-chain service utilising both the borrow and earn side of Anchor Protocol. When users deposit bLuna, our code will execute:

  1. Deposit bLUNA into Anchor Protocol; borrowing UST

  2. Swap UST for bLUNA in a recursive process until a target LTV (e.g. 25%) is reached; Nexus will then borrow UST up to a reference LTV (e.g. 48%) which will be placed into Anchor Earn as a ‘vanilla’ deposit, less a buffer amount for operational needs

  3. Nexus will continuously manage user positions to achieve the target LTV ratio for the bLuna position as prices fluctuate over time, and to ensure no liquidations occur above this ratio

By executing this strategy, users will gain leveraged exposure to the price of LUNA (relative to their starting amount of bLUNA) while also earning a decent amount of yield in the process.

At the same time, users who are already executing this strategy manually benefit from this product as Nexus helps them lever up by borrowing more as the price of Luna climbs, and unwinds borrowing where LUNA price declines. This significantly alleviates anxiety about position management and cascading liquidation scenarios.

This service, in a nutshell, consists of the following features:

  • Automated "one-click’ setup and exit from the strategy

  • Position management and monitoring dashboard on Nexus Protocol

  • Stop-loss thresholds as configured by the user

  • Yield generation through the use of Anchor Earn

We also wish to highlight some risks to users who will use the product:

Price Risk:

As this is a leveraged strategy on the price of LUNA, users must be ready for volatility and the potential for losses arising if LUNA price declines. To help users manage risk, Nexus will introduce a stop-loss feature for this product, allowing users to fully unwind their borrowing position if the price of LUNA passes a specified threshold defined by the user. In that vein, it is also possible to have a take-profit feature though the possibility of this is still under study.

Liquidation Risk:

As leverage is involved in this product, users must be aware of the potential for liquidation if sharp price declines in bLuna results in the user’s position passing the 25% LTV threshold.

Development Status

Having completed an initial discussion and scoping for this service (many thanks to LUNAomics - @Shigeo808 on Twitter for the suggestion), we still require time to undertake further study on the feasibility and architecture required. This would also include setting initial parameters for target LTVs and how best to dynamically manage user positions.

In the meantime, we will be happy to receive feedback about the product from the community, especially user input on how they are currently executing this same strategy on a manual basis.

We hope you’re excited for this product as we are!

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Great concept! This, to me, would be priority No. 1!

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Liquidation Risk:
As leverage is involved in this product, users must be aware of the potential for liquidation if sharp price declines in bLuna results in the user’s position passing the 25% LTV threshold.

A bit confused as these two statements seem to cancel each other out. If liquidation risk is true, then how does the vault even aim to manage the user’s position in the first place?

I’m not an engineer so I may not fully understand how the code works, but my first thought was that this vault be built to also front-run the anchor oracle like the bLuna vault, allowing it to constantly manage LTV of the position.

Or does it mean that this is not a 100% fail-safe and that sharp drops in price may still cause a liquidation? In that case then I think that simulations should be done to then determine an appropriate LTV that will not be liquidated in the event of a sharp drop (based on historical price data or max pain event like in May 2021).

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Let me clarify:

The strategy will target a high LTV similar to the levels currently seen on our bAsset vaults - around 48%.

In the simplest of terms and not taking into account dynamic rebalancing, and assuming a user deposits $1000 worth of bLuna collateral, this means that the strategy will borrow $480 in total. $250 of this will be swapped for bLuna and provided again as collateral in Anchor Borrow while the remainder ($230), will be deposited into Anchor Earn to generated yield.

LTV management in this scenario would be the management of the deposited UST into Anchor Earn to prevent any possible liquidations as the price of bLuna fluctuates. However, if a bLuna price drawdown occurs such that the 25% level is breached, then the user will be liquidated.

We are still working on the architecture for this strategy so the above is subject to changes, and we are also looking to implement stop-loss conditions as well that users may specify.

Happy to hear the community’s thoughts.

2 Likes

Ah this clarifies my confusion! Thanks Alex.

Hey @Alex , since there’s been change in the net APY of Anchor, the strategy may also want to factor in the Net APY of the Anchor Borrow. While there’s quite a distance to -9.50%, I believe there’s a trend to make Anchor more sustainable, thus, reducing the emissions of ANC tokens.

Screenshot 2022-01-17 at 2.04.46 PM

If you see the image, it does show that the position with the 25% LTV on bLUNA and 23% on Anchor Earn goes to a negative position once it hits -9.5% net borrow APY. Perhaps this could be the “Conservative Mode”, and “Full Moonboy” can factor in a higher negative Net APY since Degens will probably Moonboys will not mind a negative position if they believe LUNA will moon.

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Hey Max,

This is a great datapoint - we will consider this when drafting the architecture of the strategy :slight_smile:

First of all,hi to yall guys!!!Been around crypto for awhile but just joined Nexus,so am actually thrilled that (even relatively smaller) Defi communities are so actively involved.I hope Devs pay attention to the communitys suggestions and we see this protocol catchin up.

Basically,the only thing i wanted to say is the concept of this thread-Leverage,introduced one way or another,is i believe paramount fr the protocol to remain relevant.

“Off record”,i think we all know by now multiple strategies that involve 3rd parties-from the basic MIR strategies all along to Degenbox,i dont think anyone is simply using Ancr solely for its 20% Stable Earn(even tho it beats at least 90% of competition regarding “natural”/non Looped/rebased etc Stablcoin APY) ,and iitsSUCH a pity spending hundreds in gas fees to Bridge from subpar platforms that happen to provide the no1 tool to maximize gains.

Btw, there is a channel that since months now-posts strategies including all kinds of methods and variation regarding Anchor,albeit pure Luna token accumulation or even maximizing yields via loops-the channels name is Defi warrior,Defi investor smthn like that,and am preety sure he mentioned LUNAomics and broke down his strategies on a couple of his vids actually.(LUNAomics guy should getthe TERRA Award of the year,hes provided great info that other ppl wouldnt,fearing they would saturate the market)-Absolute Legend!!

So even as a guy whos been practicing manually pretty much most of these strats,and my vast majority of exposure towards Leverage is straight up frm the Markets using Margin tbh,and not from this kind of “flippin 10 diff things among 10diff platforms-10 times”-types of shenanigans 0 :smiley: ,id still absolutely insist that-Even a basic conservative 3x-5x Lvg Option
-no auto compound/stake/fund alllocating Automated protocols needed
-no long/short Delta Neutral Farms

Just that 1 fearure by itself,would get everyone,Nexus,Anchor,the Entire Luna Ecosystem-and of course us users,on track with other platforms/networks,that inherently came with Lvg features regarding their Lend/Borrow counter offers.

So in my humble opinion,in order to conclude cause this is lengthy enough already xd,i absolutely agree we should push this up to the Devs asap,cause a lot of opportunity is being passed on to third parties,somethin i believe has a -EV impact on both us-dedicated LUNAtics,and obvsly the Nexus owners as well.

Again,very excited i joined this commmunity of active partaking users,and looking forward to see if a plan can be found to influense the developers to adopt this very essential feature!

2 Likes

Hi Folks,

Is this product the same as Nexus eth vault currently on test by community at the moment.

Also, with the Nexus eth vault will it be possible to deposit non-native eth like bETH or wETH etc.?

The current vault on test net is for our EthNexus product that was announced since the inception of Nexus Protocol. This is mainly targeted at users primarily on the Ethereum blockchain to take advantage of the bETH vault we have currently on Terra.

For now, we will only accept bETH as the deposit asset for this vault, other tweaks can be considered at a later date.

Hope this helps!

Hi Alex,

Thanks for the response. Can you deposit bETH straight in or do you have to start with native eth via the vault UI? Reason I ask is because I was involved with testing platform via the Discord test group, and had to go from native eth into bETH for the deposit via the test UI. So if there will be the option to skip the wormhole bridge step from native then that would be amazing, as I have existing bETH that I would like to deposit.

Can you bypass the bridge token step and just deposit bETH?

Hey @MrTicks , that’d be just depositing your bETH into the bETH vault that’s currently live on Nexus. The EthNexus is designed for users who wants to remain in Eth to derive yield via the nexus bETH vaults.

Hi Max, I am a current user of Nexus bETH vault. Love it but would prefer yield straight back in bETH on that vault.

For the NexusEth vault it is exactly what I do manually, but am wondering if in the deposit phase you will have the ability to skip to step 4? So yes, if you have native ETH you start at step 1, but if you hold bETH you can just deposit that? The steps detailed in the litepaper are the reason I ask.

Both the soon to arrive NexusEth and the leveraged bAsset strategy here, Nexus 2022 Plans are what I do manually. And as a result I will have both eth and bETH in different places. Being able to have the option to deposit both would be amazing.

Does the above re-frame my question? Would love if the new NexusEth vault can take in both eth and bETH. Do you know if that is possible?

Both EthNexus (Eth chain) and bEth vault(Terra chain) uses the same strategy to obtain yield, which is borrowing on your bEth collateral to obtain yield from Anchor. The only difference is that the yield from EthNexus is automatically converted back into Eth, whereas the bEth vault pays you in Psi by converting the yield from Anchor into Psi.

If you’d like to deposit bEth and would like to auto-compound the Psi yield, I’d suggest you to look into Spectrum’s bEth vault which will auto-compound for you and on top of that, you’ll be able to get some SPEC tokens with it.

If you’re coming from Ethereum chain and you have some Eth, EthNexus will be your best bet. Note that both of them uses the same strategy to extract yield but because Nexus automates many of the processes from Eth to Terra, EthNexus APR is expected to be lower than what you’ll get if you interact directly from the Terra chain using bEth.

Hope the above clarifies.

Already doing that and but am wondering about the EthNexus vault.
Can you deposit bETH into EthNexus vault? So skip to step 3 on the UI deposit? I will have native eth to put into it but would also like to get my bETH from bEth vault and put that in their too?

I’m not too familiar whether you’ll be able to deposit bEth midway since the product isn’t on mainnet yet, perhaps the Nexus team could address this instead?

Hi MrTicks,

Could you submit a support ticket on the Discord so that we can talk directly?

Thanks!