$241.35 0.31%
ETH · 37w

Hedging Risk: LSDAI Shows Promise in Furthering Ethereum Financial Innovation

LSDAI Shows Promise in Furthering Ethereum Financial Innovation

Popular DeFi applications like Maker, Compound, and ChainLink continue to command a lion’s share of attention and hype. Smaller dApps haven’t been able to garner much awareness, but the sheer level of financial innovation is proving to be the real selling point for Ethereum’s DeFi ecosystem. In a community call with Maker, Market Protocol and LSDAI engineer Dan Matthews described how anyone can take a synthetic position in Ethereum or lock in their current yields on Compound, October 22, 2019.

Hedging Risk, Betting with Intuition

In the traditional financial system, there are loans and investment products that allow customers to guarantee a fixed interest rate. A floating loan consists of a floor and a cap; interest rates will be able to fluctuate between the two depending on market rates, but it can never go above the cap or below the floor.

In the same way, banks offer fixed duration deposits (CDs), where the customer earns a yield above that of a savings account for depositing their money over a certain period.

LSDAI is, more or less, a modern iteration of the above on Ethereum. People actively lending or borrowing on Compound can take an opposite position on LSDAI based on the interest rate they were given upon the inception of the loan/deposit.

For example, someone who lent 100 DAI on Compound at 7.5 percent APR can hedge their position on LSDAI by entering a short position based on the amount they lent. All they have to do is enter the details of their initial Compound position, and LSDAI’s UI takes care of the rest. Additionally, users can also bet on whether they expect Compound yields to move up or down in the near future.

An interesting name for an interesting project; befitting.

Continuous Building Cycle

Just over a month ago, there was a proposal to build SwanDAI to hedge against the risk of the DAI peg collapsing. Today, we have the abil...

Continue on
Recent news
ETH +0.31% · · 7h

Contract verification made easier

Smart contract authors can now express security properties in the same language they use to write their code (Solidity) and our new tool, manticore-verifier, will automatically verify those invariants...
ETH +0.31% · · 10h

Notable news and events in Ethereum for Q2 of 2020

Throughout 2020 we have witnessed a serious demand and therefor increase in liquidity across decentralized exchanges (DEX). Binance DEX, IDEX and the Kyber Network are the three that managed to ca...
ETH +0.31% · · 10h

Recap: DeFi Week of July 6 🦄

Hello Defiers, hope you’re having a great weekend :) Summing up last week: Yield farming is producing unintended consequences as demand for Dai as a way to access governance tokens, is causing it to t...