Back in early 2021 when we joined the Yearn ecosystem, we set out to contribute by creating yield-generating products that don’t predominantly rely on inflationary emissions as the main source of yield and that may generate returns regardless of the market conditions.
To achieve this, we are working with a close group of experts with experience at major financial institutions and we present to you our first product, Vortex!
Vortex is an on-chain basis trading strategy that aims to generate long-term, sustainable and rewarding returns while remaining market-neutral.
Basis Trading in a nutshell
‘Basis trading’ is an arbitrage strategy used in financial markets which takes advantage of the difference between the spot and future price of a commodity (the ‘basis’).
As an example of how basis trading works — and without going into too much detail — imagine a trader had the opportunity to purchase 1 ETH at $3500 and sell the equivalent of 1 ETH of futures contracts at $4000. The trader would then be able to lock in a profit from the basis, which in this case is $500.
For a real-life example, we can look at how the founder of BitMEX, Arthur Hayes, used this strategy back in the early stages of his crypto career. He details his history and approach here, but the key takeaways are:
- Basis trades are “the bedrock of crypto capital markets” and can make traders “beaucoup moneys”;
- Basis trades are one of the “highest risk adjusted return trades” you can execute;
- “Bitcoin is LIT!” and attention to detail is important — Hayes messed up his boss’ breakfast order for the first and last time.
Vortex works in a similar way to these examples, but uses DeFi innovation instead of a centralized futures market to generate returns. We’ll be sharing more details about basis trading and how it works with Vortex in a future blog post.
Vortex (v1) doesn’t utilize Bitcoin like Hayes’ early strategy, but it does capture the advantages of basis trading and, due to its construction, benefits the ecosystem by contributing liquidity that is crucial for all platforms it’s integrated with. We’ll be exploring why in a future blog post.
Being market-neutral is another key strength of Vortex. This neutrality means the strategy is:
- Not exposed to any cryptocurrency vs. fiat price risk, just like when farming with stablecoins;
- Proven to be sustainable, profitable across all market conditions and has historically outperformed many other market-neutral strategies and higher-risk yield farms;
- An alternative to other DeFi market-neutral strategies — such as the lending markets — that also automatically compounds positions to generate even higher yields.
Vortex also has numerous risk management procedures in place to ensure it can weather all market conditions. These will be detailed closer to launch, but the focus is on ensuring Vortex remains secure, rewarding and consistent with expectations.
To summarize, Vortex will allow our users to:
- Enter a proven strategy where they are not exposed to volatile market swings;
- Generate sustainable and lucrative yields that are not reliant on token inflation;
- Passively manage and compound their position by leaving their deposit in the vault.
Vortex v1 will launch on testnet imminently and on mainnet in Q4 21. While the testnet will be public, we are also looking for a select group of users to be granted early beta access to the mainnet release. If you’re interested, please: