⚒️How Yield Synths Work
The model underlying blends the 3 sources of yield:
Perpetual Funding Yield
Token Staking Yield
Lending Protocol Derived Yield
Umoja has the flexibility to sit out the market if one or more of these sources are generating negative yields.
Perpetual Funding Yield
Perpetual funding yield is generated by:
Entering into a long token position (e.g. BTC, ETH, etc.).
Immediately shorting a perpetual swap on a derivatives exchange.
This generates a delta-neutral, dollar-stable position with persistent yield.
Umoja can do this selectively on any token with a liquid and high-quality perpetual futures market on a centralized exchange. The Yield Synth strategy will choose the mix of high-quality tokens that generates the highest funding yield: we are not obliged to stay in a short perpetual position in any token that has a negative yield.
Yield Synths will initially start with a CEX-based trading strategy, but we will look to expand to DEXs as well, where the market is small but the funding rates are much more favorable.
Token Staking Yield
Token Staking Yield generation is an adjunct to the core Perpetual Funding yield strategy. Where we have a standing position in a Perpetual Yield structure, we may selectively increase the generated returns by staking in tokens such as stETH or other yield-bearing tokens, depending on the network the Yield Synth is deployed.
Lending Protocol Derived Yield
This is the least important source of yield, involving investment of excess/unused capital in a lending protocol such as AAVE.
Lending Protocol Derived Yield is generated in the following circumstances:
On centralized exchanges the Perpetual Funding Yield strategy does not require 100% collateralization of associated tokens: up to 40% of the associated tokens may be free for investment in a lending protocol.
Temporary periods of negative perpetual funding rates mean we may have additional capital on hand, which we can deploy in a lending protocol to generate yield until funding rates recover.
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