Greythorn Core Research: Nitro Has Arrived

Arbitrum has transitioned onto its Nitro upgrade, lowering fees & increasing throughput.

Users continue to flow into the Arbitrum ecosystem as more projects develop & migrate onto the network.

Figure 2: Unique web3 Addresses on the Arbitrum ecosystem, Source: Greythorn Research Team, Data: Arbiscan

Arbitrum’s popularity comes as no surprise to the markets as the upcoming merge of the Ethereum network has been anticipated since July. For the first time, the ETH token economy is set to move into a new deflationary era with improved throughput & cost of transacting.

This fortnight, we will highlight three projects that have benefited from the attention across Arbitrum & offer various products ranging from options, a stablecoin money market fund & yield aggregation.

  1. Jones DAO

Jones DAO is an Arbitrum-native options protocol. The protocol’s key features are two-fold:

Vaults:

  • The primary vaults seek to generate yield through option strategies focused on covered calls. These vaults cover multiple assets, are actively managed, and optimised. These vaults also allocate 5% towards hedging.
  • The auxiliary vaults seek to utilise more aggressive & directional options strategies through various spreads.

jAssets:

jAssets are yield-bearing tokens that aim to provide capital efficiency & liquidity by utilising locked assets across options strategies. They are minted & burnt upon deposits & withdrawals. Users primarily use their jAssets for:

  • Lending/Borrowing
  • Liquidity Pools

The native token of the protocol, $JONES, has several key characteristics: Liquidity Incentives: Rewards for the lending & liquidity pools Fee Accrual Governance The protocol also uses the Curve model in which $veJONES can be used to vote on emission rates for vaults & pools while accruing a portion of the protocol’s fees & additional $JONES rewards.

The protocol’s revenue is composed of:

  • 2% management fee on total TVL, applied after each epoch.
  • 20% incentive fee on yield generated. *Note that this performance is measured in the underlying asset, not USD.
Figure 3: Jones DAO Protocol Stats, Source: Greythorn Research Team, Data: CMC, CG & Jones DAO

Bullish Fundamentals:

  • Capital Efficiency: Unlock liquidity for assets locked in partner protocols, such as Dopex’s SSOV.
  • $veJONES Optimisation: The utilisation of the Curve model allows inflation to be optimised to vaults & pools that users are using.

Bearish Fundamentals:

  • Anonymous Signing: Transactions are executed by a multi-sig (multi-signature) wallet, currently approved by five anonymous DAO members who are also protocol strategists.
  • Delays: The protocol has missed several deadlines concerning improvements such as Metavaults & community strategist vaults.

2. Plutus DAO

Plutus DAO is a governance aggregator which enables holders of specific tokens on external protocols to earn additional rewards.

Figure 4: Plutus DAO Protocol Stats, Source: Greythorn Research Team, Data: CMC, CG & Plutus DAO

It began as a project that wanted to be aggregated within the Dopex ecosystem at the beginning of the year to now, where it has partnered with Jones DAO & GMX.

Its main features are its vaults:

Plutus Vaults: Builds on top of protocols like Dopex & GMX to offer higher returns than traditional staking.

For instance, 1 $plvGLP should always have a higher value than 1 $GLP. This is enabled by:

  • A supply cap on $plvGLP
  • 2% redemption fee (0.5% distributed back to plvGLP stakers)
  • Automatic compounding of rewards
  • 10% performance fee

Dollar Maxi Vaults: Strategies integrated with Dopex & Jones DAO that increase yields but increase risk of impermanent loss (IL).

This is enabled through a 10% performance fee split into:

  • 3% is paid to plsJONES stakers (paid in DPX)
  • 3% is paid to plsDPX stakers (paid in DPX)
  • 3% is paid to PLS stakers (paid in plsDPX)
  • 1% is paid to PLS lockers (paid in plsDPX)

Bullish Fundamentals:

  • Various yield layers for holders of partner protocols: It has delivered its business proposition of generating additional profits for token holders of trending assets through formal partnerships.

Bearish Fundamentals:

  • Highly dependent on the progress of its partner protocols: Any swing in the market sentiment of its partners may adversely affect the TVL of Plutus DAO.

3. Sperax

Sperax is a stablecoin project native to the Arbitrum ecosystem.

Figure 5: Sperax Protocol Stats, Source: Greythorn Research Team, Data: CMC, CG & Sperax

$SPA is the governance token for the protocol. The stablecoin is $USDs. $USDs is essentially a money market fund with a portfolio of other stablecoins.

Figure 6: $USDs Collateral Composition, Source: Greythorn Research Team, Data: Sperax

The collateral behind $USDs is farmed to earn a return where:

  • 50% is paid to depositors
  • 50% is paid to stakers through $SPA buybacks. *These 50% buybacks are set to change to 25%, with the other 25% allocated towards $SPA burning.

Currently, the collateral is allocated between the Core Vault, Aave, Stargate & Curve.

Figure 7: $USDs Collateral Allocation, Source: Greythorn Research Team, Data: Sperax

Bullish Fundamentals:

  • It is integrated with Demeter (assists with launching LP pools on UniSwap without the need for programming experience), L2DAO, Streetbeat & Juno Finance.
  • Minting fees are set to be replaced by redemption fees to incentivise entries and disincentive exits.
  • The foundation burnt 250m $SPA in May 2022 and pledged to burn another $250m (~17%) SPA by the end of 2022 to decentralise the protocol further.
  • Allocation of $SPA from the private sale has begun under a strict vesting schedule of 1 year starting from 18/09/2021 and will conclude soon.

Bearish Fundamentals:

  • The collateralisation ratio is only 1:1, so any de-pegs in its stablecoin portfolio such as $USDC, $FRAX & $VST will have follow-on effects. This was the case when $UST was a part of its portfolio & a portion of $USDs was algorithmic. This brought significant selling pressure on $SPA during the market downturn in May.
  • A large amount of inflationary supply is due over the next two years (~65%), with only ~7% of circulating supply currently staked onto the platform.
  • Attractive staking rewards require lengthy lock-up periods.
Figure 8: $SPA Staking APYs over different timeframes, Source: Greythorn Research Team, Data: Sperax

References

Arbitrum (ETH) Blockchain Explorer. 2022. Arbitrum Unique Addresses Chart | Arbiscan. [online] Available at: <https://arbiscan.io/chart/address> [Accessed 9 September 2022].

CoinGecko. 2022. Cryptocurrency Prices, Charts, and Crypto Market Cap | CoinGecko. [online] Available at: <https://www.coingecko.com/> [Accessed 9 September 2022].

CoinMarketCap. 2022. Cryptocurrency Prices, Charts And Market Capitalizations | CoinMarketCap. [online] Available at: <https://coinmarketcap.com/> [Accessed 9 September 2022].

Docs.jonesdao.io. 2022. Protocol Overview — Jones DAO. [online] Available at: <https://docs.jonesdao.io/jones-dao/> [Accessed 9 September 2022].

Docs.sperax.io. 2022. USDs (Sperax USD) — Sperax. [online] Available at: <https://docs.sperax.io/> [Accessed 9 September 2022]. Jones DAO. 2022.

Jones DAO. [online] Available at: <https://jonesdao.ghost.io/> [Accessed 9 September 2022].

Medium. 2022. PlutusDAO — Medium. [online] Available at: <https://medium.com/@plutusdao.io> [Accessed 12 September 2022].

Plutus Docs. 2022. Protocol Overview. [online] Available at: <https://plutusdao-1.gitbook.io/plutus-docs> [Accessed 12 September 2022].

Important notice and disclaimer

This presentation has been prepared by Greythorn Asset Management Pty Ltd (ABN 96 621 995 659) (Greythorn). The information in this presentation should be regarded as general information only rather than investment advice and financial advice. It is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy. In preparing this document Greythorn did not take into account the investment objectives, financial circumstance or particular needs of any recipient who receives or reads it. Before making any investment decisions, recipients of this presentation should consider their own personal circumstances and seek professional advice from their accountant, lawyer or other professional adviser. This presentation contains statements, opinions, projections, forecasts and other material (forward looking statements), based on various assumptions. Greythorn is not obliged to update the information. Those assumptions may or may not prove to be correct. None of Greythorn, its officers, employees, agents, advisers or any other person named in this presentation makes any representation as to the accuracy or likelihood of fulfilment of any forward looking statements or any of the assumptions upon which they are based. Greythorn and its officers, employees, agents and advisers give no warranty, representation or guarantee as to the accuracy, completeness or reliability of the information contained in this presentation. None of Greythorn and its officers, employees, agents and advisers accept, to the extent permitted by law, responsibility for any loss, claim, damages, costs or expenses arising out of, or in connection with, the information contained in this presentation. This presentation is the property of Greythorn. By receiving this presentation, the recipient agrees to keep its content confidential and agrees not to copy, supply, disseminate or disclose any information in relation to its content without written consent.

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Greythorn Asset Management

Greythorn Asset Management

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