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Difference between revisions of "Lemma Finance"
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'''Lemma''' is a protocol built on [[Arbitrum]] | '''Lemma''' is a protocol built on [[Arbitrum]] that offers a basis trading vault and a decentralized stablecoin, called USDL, backed by arbitrage opportunities. Users can deposit assets into Lemma Basis Trading Vault or they can use them as collateral to mint USDL. When a user deposits assets into the Basis Trading Vault, the protocol uses these assets to mint and stake USDL, while the user receives xUSDL (staked USDL) in return.<ref>https://docs.lemma.finance/</ref> | ||
== The USDL Stablecoin == | == The USDL Stablecoin == | ||
=== Peg === | === Peg === | ||
USDL | USDL maintains peg through arbitrage. If the price of USDL drops below its $1 peg, ideally rational actors would buy as much USDL as possible, and then redeem each USDL for $1 USD worth of assets. If the price were to rise above its $1 peg, ideally rational actors would mint as much USDL as possible (since 1 USDL can always be minted for $1 worth of assets), and sell the newly minted USDL for assets on the spot market.<ref>https://docs.lemma.finance/concepts-overview/usdl-price-stability</ref> | ||
Users can mint USDL and exchange USDL for $1 USD at all times as each USDL is backed by a "synthetic USD".<ref>https://docs.lemma.finance/concepts-overview/usdl-price-stability#decreasing-usdl-price</ref> | Users can mint USDL and exchange USDL for $1 USD at all times as each USDL is backed by a "synthetic USD".<ref>https://docs.lemma.finance/concepts-overview/usdl-price-stability#decreasing-usdl-price</ref> | ||
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Each USDL is fully collateralized by a "synthetic USD", which are created by Lemma using market neutral positions.<ref>https://docs.lemma.finance/concepts-overview/usdl</ref> | Each USDL is fully collateralized by a "synthetic USD", which are created by Lemma using market neutral positions.<ref>https://docs.lemma.finance/concepts-overview/usdl</ref> | ||
When a user deposits assets into Lemma, Lemma moves the assets to a decentralized derivatives exchange. The protocol uses these assets as collateral and opens a short perpetual position. If users only want to mint a stablecoin, USDL corresponding to the value of the deposited assets is issued to the user. If the user wants to use the basis trading vault and earn yield, then the minted USDL is staked to access profits and losses from funding rate payments (the user receives xUSDL in return which reflects these profits and losses) | When a user deposits assets into Lemma, Lemma moves the assets to a decentralized derivatives exchange. The protocol uses these assets as collateral and opens a short perpetual position. If users only want to mint a stablecoin, USDL corresponding to the value of the deposited assets is issued to the user. If the user wants to use the basis trading vault and earn yield, then the minted USDL is staked to access profits and losses from funding rate payments (the user receives xUSDL in return which reflects these profits and losses.)<ref>https://docs.lemma.finance/concepts-overview/usdl#creating-a-market-neutral-position</ref> | ||
==== Example ==== | ====== '''Example''' ====== | ||
For example, if a user deposits $1000 worth of ETH, Lemma will create a portfolio of 1000 "synthetic USD" on their behalf, and mint 1000 USDL to represent the user's stake in the overall Lemma "synthetic USD" portfolio. The protocol uses the users deposit as collateral to enter into a corresponding short Perpetual Future position on a derivative exchange. If the price of ETH increases by $100, the users long position (the ETH that the user holds which was deposited into the protocol) increases by $100 as well. At the same time, the worth of the short position (the short Perpetual Future opened by Lemma once the user deposited) will decrease by $100. Therefore, the total change to the position and the value of the users "synthetic USD" is 0, meaning that each USDL is backed by a market neutral position.<ref>https://docs.lemma.finance/concepts-overview/usdl#creating-a-market-neutral-position</ref><ref>https://docs.lemma.finance/concepts-overview/usdl#creating-a-market-neutral-position</ref> | For example, if a user deposits $1000 worth of ETH, Lemma will create a portfolio of 1000 "synthetic USD" on their behalf, and mint 1000 USDL to represent the user's stake in the overall Lemma "synthetic USD" portfolio. The protocol uses the users deposit as collateral to enter into a corresponding short Perpetual Future position on a derivative exchange. If the price of ETH increases by $100, the users long position (the ETH that the user holds which was deposited into the protocol) increases by $100 as well. At the same time, the worth of the short position (the short Perpetual Future opened by Lemma once the user deposited) will decrease by $100. Therefore, the total change to the position and the value of the users "synthetic USD" is 0, meaning that each USDL is backed by a market neutral position.<ref>https://docs.lemma.finance/concepts-overview/usdl#creating-a-market-neutral-position</ref><ref>https://docs.lemma.finance/concepts-overview/usdl#creating-a-market-neutral-position</ref> | ||