Press releases • MEV Capital

Vault curation on Symbiotic

How much shared security should we allocate to which Networks in Symbiotic? We present a methodology that guides MEV Capital (as Curator) and Nodeinfra (as node Operator) in making this decision.

Our goal is simple: maximizing the risk-adjusted returns from Symbiotic Networks for restakers. The primary risk to minimize is the slashing risk that could lead to the loss of restaker collaterals. The return to maximize is the value of rewards that restakers receive from Symbiotic Networks in exchange for providing economic security.

In this article, we focus on minimizing slashing risks by gauging the risks of Networks. We first examine how slashing works in Symbiotic. We then identify slashing risk factors that increase the probability of a slashing event. We design a methodology to evaluate these risk factors for any Symbiotic network. Using this methodology, we evaluate an example of a network. Finally, we discuss future work, and conclude.

We hope this article contributes to the Symbiotic ecosystem by presenting:

An examination of code paths in Symbiotic smart contracts that could lead to slashing
Analysis of risk factors arising from Symbiotic’s flexibility and modular nature
A multi-dimensional risk approach to evaluate software, governance, and communication
A case study on Stubchain, a Symbiotic network based on the Cosmos SDK

1. Slashing in Symbiotic

We describe how slashing—which penalizes retsakers and operators for malicious behavior or underperformance—is invoked in Symbiotic. We provide a brief overview of the Symbiotic related parties and examine the code path leading to slashing. We then describe a slashing scenario using StubChain [1], an example of a Symbiotic network.

1.1. Overview of Symbiotic

The Symbiotic ecosystem consists of vaults, curators, operators, networks, and resolvers. Vaults are contracts that receive collaterals from restakers and delegate the collaterals to node operators. Curators perform risk management for restakers and optimize the allocation of collaterals across different vaults. Operators are entities that run nodes to validate networks by provisioning the delegated economic security. Networks are decentralized protocols that utilize Symbiotic to source their security. Resolvers are contracts or entities that veto slashing incidents.

The network middleware contract (Middleware [2]) binds operators, networks, and resolvers. Operators and networks agree on which Middleware implementation to use. Middleware has two key functionalities. First, Middleware provides methods to identify which operators and how much of their stakes are participating to secure the network. Second, Middleware provides methods to initiate slashing, which may involve resolvers to potentially veto slashing.

1.2. The slashing code path in Symbiotic ecosystem

The above diagram depicts a simplified overview of the slashing code path for a Symbiotic network. Distributed nodes managed by operators initiate slashing by invoking the Middleware contract. Slashing is propagated to the Slasher contract, and ultimately to the Vault contract where collaterals reside. In the process, resolvers can veto the slashing request.

Slashing in Symbiotic ultimately happens in the onSlash() function of Vault contract. The function transfers the slashed amount of collateral to the burner address, effectively making the transferred fund not accessible by anyone, resulting in a worst case scenario. We do not want this line to be executed on any collaterals we curate and run nodes for.

The onSlash() of Vault can only be invoked by a Slasher contract. Vault rejects slashing when onSlash() is called by an account or contract other than the configured Slasher. There are currently two types of Slashers: InstantSlasher and VetoSlasher. Slasher calls onSlash() instantly when its slash() method is called.

VetoSlasher provides three methods for slashing: requestSlash(), vetoSlash(), and executeSlash(). requestSlash() keeps slash requests from Middleware. vetoSlash() allows configured resolvers to veto the kept requests. The conditions under which the method gets executed are : 1. the caller should be the configured resolver and 2. the method should be called before the deadline. Ultimately, executeSlash() is called to penalize the vault by slashing it, but only if the veto process has failed to prevent this action.

Using the onlyNetworkMiddleware solidity modifier, both Slasher and VetoSlasher require that only the Middleware can initiate slashing. Middleware can be any contract that the Network and the Operator agree on. Middleware has public entry functions that allow external parties, particularly nodes managed by operators, to interact with it.

In summary, three components are essential in triggering slashing. First, nodes initiate the slashing process by interacting with Middleware. Second, Middleware determines the conditions under which slashing happens and invokes requestSlash() on the configured Slasher. Finally, assuming VetoSlasher(), Resolvers act as the final gatekeeper before the slashing is executed.

1.3. Example: Slashing in Stubchain

We examine a slashing scenario in an example Symbiotic network developed by the Symbiotic team called Stubchain. Stubchain is currently the only available open source Symbiotic network implementation. Stubchain extends the Cosmos SDK such that shared security sourced from Symbiotic secures the chain.

We first examine the Middleware implementation of Stubchain, called SimpleMiddleware. SimpleMiddleware faithfully provides the two key functionalities of Middleware: identifying the participating operators, and slashing the vaults associated with the operators.

As for the first functionality, SimpleMiddleware provides getValidatorSet() to identify the validator set for a given epoch. The function returns a list of ValidatorData, which specifies the operator key and the amount of stakes of the operator that are accounted for in the epoch. Note that it does not provide any information about the performance or malicious behavior of the validator.

Regarding slashing, SimpleMiddleware provides the slash() method to slash an operator.

The method has the onlyOwner modifier which means that only the account or contract that deployed SimpleMiddleware has the privilege to invoke this method. The function takes as inputs: the epoch, the operator(s), and the collateral amount, specifying how much amount to slash from which operator in an epoch.

Then, the slash() function finds the vaults associated with the operator, and slashes them using _slashVault(). The _slashVault() method is an internal method that invokes slash() from the slasher, configured at the inception of the dedicated SimpleMiddleware. Either InstantSlasher or VetoSlasher can be used by networks.

Stubchain extends the Cosmos SDK to integrate with SimpleMiddleware. Modified Cosmos SDK validators, which participate as the decentralized nodes of Stubchain, periodically issue an RPC call to the Ethereum L1 to invoke getValidatorSet() of the deployed SimpleMiddleware in order to fetch the validator information.Then, they use the information to compute the voting power of the participating nodes. Symbiotic operators are expected to run these nodes.

Although the Stubchain documentation mentions slashing based on the inactivity of the nodes, there is currently no direct integration between the validators and slash(). Nodes do not fetch information about slashing from SimpleMiddleware, and SimpleMiddleware does not maintain any information about the inactivity of the nodes. Instead, it simply provides slash() that can be only invoked by the owner. This means that there is a need for an additional trusted intermediary that has the SimpleMiddleware owner privilege to monitor the activity of the validators and request slash() based on it.

2. Risk Factors

We have observed complexity in slashing code paths, which makes it challenging to identify risk factors. The code paths involve multiple stakeholders spanning restakers, curators, operators, vaults, and resolvers. The paths are also invoked through complex software interactions between contracts on the Ethereum L1, such as network-specific Middleware implementations, and modules in the network node implementations.

To address this challenge, we take a practical approach by identifying three key risk factors that we believe have the most critical impact on slashing: software, governance, and communication. We provide the rationale for each of these factors and describe concrete examples using Stubchain.

2.1. Software

Software is a critical risk factor as slashing ultimately happens on-chain. In addition to the typical smart contract vulnerability risks, we examine risks stemming from the flexibility of Symbiotic. Although the core Symbiotic contracts such as the Vault and Slasher contracts are immutable, Middleware can be any smart contract the network developed. Nodes that connect to the middleware can be any distributed system, including Cosmos SDK and LayerZero DVN.

For example, suppose the Stubchain node implementation had a bug that resulted in incorrectly interpreting the data fetched from invoking getValidatorSet() on SimpleMiddleware. This may lead to slashing larger amounts of collaterals from vaults than what was originally planned, should the validators mistakenly provide wrong information to the Middleware owner that decides how much to slash when invoking slash(). Such software risks cannot be detected just by examining the smart contracts deployed on Ethereum L1.

2.2. Governance

Governance of different software components in Symbiotic is as important as software in determining slashing risk. The network’s governance determines software access privileges and updates to the software. Even with perfectly designed software, bad governance can easily lead to unintended or unfair slashing.

Compared to typical PoS chains where only restakers and validators are involved in governance, Symbiotic has a much more complex structure with restakers, vaults, curators, operators, resolvers, and networks due to its modularity.

For example, the slash() method of SimpleMiddleware can be called only by the owner of the contract. What is left unspecified in the current Stubchain implementation is who exactly the owner will be. In an extreme case where the owner is an EOA account sitting on a person’s laptop, that person can slash any vaults that opted into the network at free will.

2.3. Communication

Communication between responsible parties is critical in handling crises, and making sure different stakeholders are aligned and synced. As there are many different stakeholders in Symbiotic, a miscommunication between the parties at different layers (or lack of it) can potentially create flaws that may eventually lead to unintended slashing.

For example, suppose Stubchain uses Aragon [4] as its Resolver and a committee is assigned to vote on a slashing incident triggered by an attacker. If the committee is unresponsive and unable to vote before the veto deadline, the slashing will be executed, rendering the attack successful.

3. Risk Evaluation Methodology

Based on the three elements described above, we present our methodology to evaluate slashing risks of Symbiotic networks. Ultimately we assign a final score to a network based on its slashing risk. To compute the final score, we use a practical checklist that evaluates governance, software, and communication of three key components of the network: nodes, middleware, and resolver.

3.1. Risk scoring formula

Our scoring methodology utilizes a weighted sum approach to evaluate networks across 9 distinct categories, derived from the intersection of three elements and three components. Each category is assigned a weight reflecting its relative importance. Within these categories, we pose specific questions designed to gauge risks. Responses to these questions are quantified on a three-point scale : -1, 0, or +1. The final score for a network is then calculated using a formula that aggregates these weighted scores for each category.

3.2. Evaluating Nodes

a. Network nodes – Governance

Weight : 2 (important)
Weighted score range : Min -8, Max +8
Example : Symbiotic operators running nodes for the network

b. Network nodes – Software

Weight : 2 (important)
Weighted score range : Min -12, Max +6

Network examples : Cosmos SDK validators, Layerzero DVN nodes, oracles, sequencers

c. Network nodes – Communication

Weight : 2 (important)
Weighted score range : Min -8, Max +4
Example : Communication of node operators and network developers

3.3. Evaluating Middleware

a. Middleware – Governance

Weight : 3 (very important)
Weighted score range : Min -9, Max +6
Example : Privileged access to the Middleware

b. Middleware – Software

Weight : 3 (very important)
Weighted score range : Min -12, Max +9
Example : SimpleMiddleware [3] in Stubchain

c. Middleware – Communication

Weight : 1 (less important)
Weighted score range : Min -3, Max +3
Example : Communication of Middleware developers

3.4. Evaluating Resolver

a. Resolver – Governance

Weight : 2 (important)
Weighted score range : Min -8, Max +8
Example : Governance of a resolver committee

b. Resolvers – Software

Weight : 1 (less important)
Weighted score range : Min -3, Max +3
Resolver examples : Aragon, UMA, Kleros, Reality.eth

c. Resolvers – Communication

Weight : 2 (important)
Weighted score range : Min -8, Max +2
Examples : Communication of the member of the resolver committee

Our current checklist is far from complete or final. We plan to actively add, enhance, or remove eligibility criterias as Symbiotic networks go live and we learn more about their design and operation.

3.5. Rating and eligibility thresholds

We first compute eligibility thresholds for each component (nodes, middleware, resolvers) and each element (governance, software, communication) based on our scoring system. A negative score (< 0) for any of the 6 eligibility thresholds automatically results in the impossibility to provide economic security to the network given its current stage, regardless of its final scoring.

As a Symbiotic curator looking to perform risk management for restakers, we use the eligibility threshold of the final score to classify networks into 3 groups: (Tier-1, Tier-2, and Tier-3). This allows us to seek for an optimal allocation to determine the optimal risk-adjusted return amongst networks for restakers.

4. Case Study: Stubchain

Using our methodology, we evaluate a Symbiotic network developed by the Symbiotic team, called Stubchain. Stubchain extends the Cosmos SDK such that shared economic security provided by Symbiotic secures the chain.

4.1. Assumptions

We make the following assumptions for the missing parts in Stubchain’s current state.

Slashing mechanism: VetoSlasher with a 1-week veto window
Resolver: A resolver committee with a moderate level of governance
Operators: 10 operators from the Symbiotic cohort 1 with balanced shared security
Owner of Middleware: A multisig account constituted of well-known node operators

4.2. Stubchain scoring

Stubchain scores well on governance (83%), but less so on software (67%) and communication (75%). The positive governance score stems from our assumption of moderate to decentralized governance of Stubchain. The lower software score is mainly due to the ongoing development of the network, with code audits in progress but not yet completed. Communication overall is scored rather low since the network is still in testnet and currently undergoing rapid changes.

Stubchain scores moderately on resolver (75%), rather well on nodes (82%), and moderate on Middleware (71%). The resolver score stems from our assumption of a resolver committee with moderate governance. Although nodes are still being actively developed and tested, extending the battle-tested Cosmos SDK helped with getting higher scoring. Relatively speaking, middleware requires more testing and audits.

We rate Stubchain as a tier-2 network given its final score (+27) and its eligibility threshold (76%). Overall, we find the slashing risk on Stubchain to be moderate, should we factor in our assumptions stated in Section 4.1. We do not identify any design factors intended to be overly aggressive towards slashing. We anticipate the scores for nodes and middleware dedicated to Stubchain to improve as the network’s implementation solidifies, audits finalized, and nodes running in production. For mainnet, we expect more structured and planned communication, which should also increase the scores for communication.

4.5. Evaluation notes

Our main concern is in the governance and implementation of the admin account that has privileges in the Middleware. In the extreme case where the admin account is an EOA owned by a sole owner, unjustified slashing events can occur anytime to the dedicated vault. When evaluating Networks built with Stubchain, we will closely examine and monitor how the admin account is designed, implemented, and governed.

Stubchain mentions the potential slashing triggered by inactivity of nodes. This is also a concern, but to a lesser extent. This risk can be mitigated by working with operators that have a proven record of reliability. Additionally, we may require the use of replicated remote signing technologies for Cosmos SDK such as Horcrux [5], which enables a validator to remain active despite failures of some of the replicas.

5. Discussion

We discuss several directions in which our methodology can evolve, gathering feedback from Networks projects, protocols, operators, restakers, and ongoing deployment on the Holesky [6] environment. We discuss a risk methodology for evaluating & selecting Networks, optimizing collateral diversification across LRTs taking into account the reliability of each participant.

5.1. Applying the methodology in production

Applying the methodology in production requires coordination between curators, operators, and Networks. First, we will apply our methodology, starting with the LRTs distributed by Mellow Finance [7] and Amphor applications [8]. Second, we plan to increase the number of collaborations with node operators with effective communication and interest in Symbiotic restaking.

Third, we will work closely with network developers from Cohort 1 to collect information required for evaluating its middleware, slashing mechanism, delegators, and shared security needs.

Ultimately, we will curate Symbiotic LRT vaults using the FullRestakeDelegator parameter to opt-in across node operators and whitelisted Networks and will ensure the maintenance of collateral allocation, following a strict diversification methodology.

Network Explorer (testnet) – Vault curation dashboard

5.2. Optimizing allocation across Networks

Although our current methodology enables us to score and rate Symbiotic Networks from the perspective of slashing risk, it falls short in optimizing the exact allocation of collaterals across multiple Networks. To address this problem, we plan to introduce a rebalancing methodology to optimize risk-adjusted returns through eligibility thresholds, coupled with an analytical approach to quantify potential yield generation from whitelisted Networks.

We will consider the network’s utilization rate from an activity/security ratio perspective, the network’s potential scalability, the Networks’ yield distribution mechanism, its reward types, the underlying yield-bearing assets used, and more. An exciting future work would be an automated rebalancing of shared security supported by a real-time monitoring system.

5.3. Software libraries for building Networks

We anticipate that a large number of Symbiotic network developers will use a software library for building Symbiotic Networks. Without a software library, developers would need to develop a new distributed system from scratch, which is significantly time-consuming, costly, and risky. Libraries such as Stubchain (Cosmos SDK), Layer Zero DVN (bridges), and Othentic [9] could be seen as robust candidates for this matter. In terms of data availability needs, HyveDA tends to develop a validation service specifically for the Symbiotic environment.

In applying our evaluation, we can take a two-level approach where we first evaluate the software library, and then evaluate specific Networks that are built on top of the software library. This would allow us to scale the evaluation over different Symbiotic Networks using the same standards and facilitate onboarding by node delegators and vault curators.

6. Conclusion

We have presented our methodology to evaluate slashing risks of Symbiotic Networks. Our approach is opinionated and wants to be practical for the Symbiotic ecosystem. We attempt to analyze risk vectors on networks from the software, communication, and governance perspective among the different entities responsible for a Network’s viability. We are making our research public in the hope of contributing to a decentralized, transparent and secured restaking environment on Symbiotic.

7. Acknowledgments

We thank MEV Capital and NodeInfra teams for their time on this article. Felix L. [10] from Symbiotic and Nick S. [11] from Mellow for reviewing drafts and providing insightful feedback. We also thank network projects, such as HyveDA, Primev, Stubchain, Ojo, Marlin, and others, for their valuable information on Validation services.

8. About MEV Capital and Nodeinfra

MEV Capital [12] is an EU-based investment management firm exclusively focused on DeFi, assessing risks on assets and applications deployed across EVM chains since 2021. MEV Capital is part of the first Symbiotic curator cohort, and has been one of the main economic security providers for validation services.

Nodeinfra [13] is a Korea-based node operator and part of the first Symbiotic operator cohort. The founder of Nodeinfra discovered two consensus bugs in Geth. One of these bugs led to the Ethereum hard fork on November 11, 2020. At the time, it was considered Ethereum’s most significant challenge since the DAO fork in 2016.

9. References

[1] Stubchain – github.com/symbioticfi/cosmos-sdk

[2] Middleware – github.com/symbioticfi/cosmos-sdk/tree/main/middleware

[3] SimpleMiddleware – github.com/symbioticfi/cosmos-sdk/blob/main/middleware/src/SimpleMiddleware.sol

[4] Aragon – aragon.org

[5] Horcrux – github.com/strangelove-ventures/horcrux

[6] Holesky – core/src/contracts/slasher/VetoSlasher.sol at tests · symbioticfi/core · GitHub

[7] Mellow – app.mellow.finance/vaults

[8] Amphor – app.amphor.io/earn

[9] Othentic – othentic.gitbook.io/main/introduction/use-cases

[10] Felix L. – x.com/FelixLts

[11] Nick S. – x.com/s0xn1ck

[12] MEV Capital – x.com/MEVCapital

[13] Node Infra – x.com/nodeinfra

10. Entities cluster (testnet October – November 2024)

Press releases

Institutional Investors Are Farming LRT points For Yield

MEV Capital says liquid restaking offers market-neutral ETH yields and additional point incentives.

Find the original article on Defiant.io

Liquid restaking is not just for degens. Institutional investors are also getting in on the trade.

Gytis Trilikauskis, COO of MEV Capital, said his fund initially focused on liquidity provision, arbitrage, and MEV-based strategies, but has recently pivoted to capitalize on the booming liquid restaking token (LRT) sector.

Trilikauskis noted that MEV Capital wasn’t interested in restaking until Liquid Restaking Tokens (LRTs) gave rise to new opportunities for yield generation through DeFi composability, noting that his clients expect “at least a double-digit yield.”

Professional investors are seeking to take advantage of the yield that’s generated from liquid restaking, plus the potential airdrops many of these applications are expected to do, said Trilikauskis. It’s a sign institutions are weighing that the yield from one of the fastest growing sectors in crypto is worth the potential risk that comes from taking multiple layers of protocol and smart contracts risks.

MEV Capital, which launched in late 2020, mobilizes $160 million in assets under management on behalf of institutional clients including crypto funds, high-net-worth individuals, DAOs, and other web3 projects commanding sizable treasuries.

“What we focus on is generating more Ethereum for our clients… We just want to preserve the principle that the clients are giving us and then we want to generate them some yield.”

MEV Capital moves into liquid restaking

EigenLayer, the pioneering restaking protocol, allows users to earn additional yields on top Ethereum staking rewards by also securing third-party Actively Validated Services (AVSs) at the same time EigenLayer users can either deposit liquid staking tokens (LSTs) into its capped pools or provide natively staked Ether without limit.

Liquid restaking builds on this by offering users exposure to native restaking, with depositors receiving tokens representing their restaked position. Said LRTs can then be used in DeFi protocols to generate even more yield, or traded to bypass restaking withdrawal delays. Deposits also earn “points” — which are expected to qualify holders for future airdrops from EigenLayer and LRT providers in the future.

Trilikauskis noted that MEV Capital isn’t viewing the tokens earned through points campaigns as a long-term hodl.

“I think that we are going to liquidate significant size for sure,” he said. “We are not taking on market risk with these tokens that we farm or get dropped.”

However, Trilikauskis added that the firm will communicate with its clients to establish a “middle path” should individual clients wish to maintain exposure to native tokens airdropped by either EigenLayer or LRT providers in the future.

Trilikauskis estimates MEV Capital is among the top 10 most-active liquid restakers on the three largest LST protocols — EtherFi, Kelp DAO, and Renzo Finance, in addition to holding some smaller positions on Puffer Finance. He noted that the firm is not interested in using every possible LRT protocol, acknowledging that many DeFi protocols can expose users to significant risk.

“We try to focus on what we think are going to be the industry leaders,” Trilikauskis said.

Trilikauskis said MEV Capital is actively providing liquidity for LRTs on decentralized exchanges in addition to using Pendle, a yield tokenization platform. The team is also exploring yield optimization protocols built on top of both DEXes and Pendle to generate additional returns

“Right now, since there’s a lot of hype, and there’s a lot of narrative forming around [LRTs], protocols are actively pushing integrations that would allow you to put those LRTs in DeFi,” Trilikauskis said. “It’s getting to the point where you can say you can really see DeFi’s composability at its best, and where it can lead.” While Trilikauskis acknowledged the risks associated with restaking, he noted that several projects are working to mitigate the exacerbated slashing risks associated with EigenLayer should third-party AVSs misbehave.

“You’ll be able to preemptively withdraw your stake if these protocols start doing some nasty shit that is not confined within the ruleset,” he said. “Of course, there’s a lot of risk, but you can see how these protocols can stack on one another.”

Looking beyond LRTs

Looking ahead, Trilikauskis said MEV Capital will closely monitor the growth of EigenLayer’s AVS ecosystem for opportunity, but will also be willing to exit the sector should delta-neutral strategies no longer present themselves.

“It might still be interesting to [continue restaking on EigenLayer] and keep our LRT exposure,” he said. “But if there’s going to be more opportunities on liquid staking derivatives or ETH-based assets that are not related to EigenLayer, we will go where the opportunity is… Once EigenLayer launches, once the cat is out of the bag, then we’ll need to see how the cat looks. That’s always the case with asset management, you try to find the best risk-adjusted opportunity and go there. At this moment, it looks like EigenLayer is a clear winner.”

Find the original article on The Defiant.

Press releases

DeFi points farming reshaping investment landscape

Find the original publication at Blockworks.com

As a DeFi-focused hedge fund, MEV Capital has grown comfortable with moving funds around on-chain in pursuit of higher returns, a strategy known as yield farming.

But in the last few months, the firm has added a new trick to its arsenal: Accruing points, or rewards for interacting with a protocol that may lead to payouts in a future token, on behalf of clients.

MEV Capital is farming these points especially in order to gain exposure to EigenLayer and a raft of other Ethereum restaking projects offering off-chain points to on-chain users. It’s a testament to renewed animal spirits in crypto and the excitement surrounding restaking that hedge funds like MEV Capital are now acquiring participation tallies for clients.

It all points to restaking

EigenLayer is a restaking protocol that allows the staked ether securing the Ethereum blockchain to be restaked, or used to secure other Ethereum-based blockchains and services. Liquid restaking tokens (LRTs), like ether.fi’s eETH or similar offerings from KelpDAO and Renzo, create a tokenized version of restaked ether that can be used in DeFi applications.

EigenLayer currently rewards users with points for restaking their ether, and several LRT protocols have points systems for users of the tokens.

Pendle Finance, a DeFi platform that offers tokenized versions of an asset’s APY dubbed yield tokens, has become popular for accruing points.

Through Pendle and its yield tokens, points farmers can use an LRT to earn EigenLayer points and points from the LRT protocols simultaneously. These yield tokens give investors leveraged exposure to EigenLayer and LRT points, as they’re essentially buying the rights to the points accrual from holders of Pendle’s principal tokens.

Points have been a very effective tool for bringing assets to the restaking sector. EigenLayer’s total value locked (TVL) was roughly $250 million on Dec. 18, according to DeFiLlama. That figure is over $9 billion today.

Uncertain returns

Some funds are sitting out the points mania, but there’s still money to be made from the sidelines.

Valentin Mihov, who co-founded the DeFi investment fund Finexify, told Blockworks that the fund has been using Pendle to gain elevated ether yield caused by points speculation.

Pendle’s fixed-yield products have a higher APY when the implied yield, or the market’s future estimate for yield, goes up.

Mihov said that while the points-induced higher APY is “quite nice,” his firm finds points farming too risky because the future value of the IOUs is still mostly unclear.

In some cases, points farming can be quite lucrative. When Solana-based liquid staking protocol Jito executed a points-based airdrop in December, for example, one researcher remarked that moving $40-worth in tokens around on-chain could have netted a user $10,000 in JTO tokens.

As a result, points are trading in anticipation of future airdrops. Roughly $2.7 million-worth of EigenLayer points have changed hands on the website Whales Market for an average price of around $0.18. A Messari researcher tried his hand at finding an estimate and guessed LRT points to be worth roughly $0.14 apiece.

Points farming is ‘more art than science’

Since points live off-chain, how they’ll convert to token allocations can be opaque — sometimes to the disadvantage of bigger investors.

A partner at a crypto-native investment firm told Blockworks that points are meant to bootstrap community interest in crypto projects so the tokenomic structure usually favors smaller allocations.

“The way the points typically convert [is] such that larger points farmers are usually rewarded less than smaller people, so it’s not worth putting the capital at risk in a native protocol for a very low payoff,” they said.

Chase Mayeux, managing partner at investment firm Coral, said figuring out returns on points is more “art than science.” Coral is accumulating points on EigenLayer and a number of other DeFi protocols, Mayeux said.

“There are secondary markets for points (Whale Market / Pendle), but ultimately, we are trying to accrue either tokens or points on protocols that we think will appreciate in price. Generally, you won’t know until months or years down the line whether you were correct in your theses,” Mayeux said in a Telegram message.

Clients of these investment firms may not understand the ins and outs of points farming, but points’ potential upside still tends to be attractive. MEV Capital general partner

Laurent Bourquin gave the upshot of a hypothetical conversation with a client about points farming:

“‘Do we make more money? Yes, no?’

‘Yes.’

Boom then it’s good.”

Find the original article on Blockworks.com

Press releases

Settling first on-chain ETH ‘Autocallable’ with Marex and Ribbon Finance

The on-chain execution of structured products promises transparency to investors and eliminates counterparty risks.

Crypto trading firms are teaming up with traditional market players to trade onchain structured products amid a U.S. regulatory push to oversee the industry.

Digital assets manager MEV Capital and London-based financial services provider Marex have executed an “autocallable” tied to Ether (ETH) through a smart contract built by the leading decentralized derivatives platform Ribbon Finance, now rebranded as Aevo.

“We are thrilled to provide the smart contract for the first fully on-chain autocallable trade, which represents a significant milestone for both Ribbon Finance and the structured products industry at large,” Jeremy Obadia, Head of Structured Derivatives at Ribbon Finance, told CoinDesk. “Encoding complex payoffs on-chain not only removes the counterparty risk but also allows for a trustless and automated trade lifecycle.”

An autocallable is a structured note that allows investors to earn contingent interest, usually at an above-market rate, if the underlying asset closes at or above a specific level on periodic observation dates. It can be redeemed early and often offers contingent downside protection when held to maturity.

MEV purchased the two-week ether autocallable denominated in the dollar-pegged stablecoin USDC, with a barrier at 85% of the initial price, autocall trigger at 100% and guaranteed coupon of 0.5% per week (annualized 26%). Marex acted as a hedging agent.

How it works: If, after one week, the ether spot price is above the initial price at the time of the trade, the trade terminates early, with the buyer receiving the initial investment plus the 0.5% coupon. If, on expiry, ether trades 15% lower from the initial price, the buyer stands protected, receiving the principal in full along with the coupon. However, if the 85% protection barrier is breached (ether drops over 15%), the buyer takes the loss, which is compensated by coupons to some extent.

“On-chain deployment of exotic options such as autocallables would allow us to enhance several of our market-neutral strategies while staying on Ethereum – a public blockchain we are familiar with,” Laurent Bourquin, Managing Partner at MEV Capital, said.

Marex, MEV and Ribbon eliminated the so-called counterparty risk by locking the maximum payout and collateral in a secured and audited smart contract.

“Bringing Autocallables on-chain and leveraging smart contract features make these products more transparent for investors, allowing instant settlement, seamless lifecycle and removing issuer credit risk. The blockchain technology will change the way products are transacted,” Harry Benchimol, Co-Head of Derivatives Engine at Marex Solutions, said.

Read the full article on Coindesk.

Press releases

MEV Capital launches DeFi hedge fund looking to deploy $130M

MEV Capital Management Launches DeFi hedge fund looking to deploy 130M$ on Ethereum chain and L2s.

MEV Capital Management Ltd. is launching a new digital asset hedge fund registered “MEV Capital Stablecoin High-Yield Fund,” with a novel approach towards asset custody and transparency. The Fund interacts with Decentralized Finance protocols while employing derivatives for hedging solutions to achieve market neutrality.

Unlike traditional open-ended funds, MEV’s new venture provides clients with real-time access to investment monitory tools and daily P&L for full transparency. Funds will be deployed on the Ethereum public network, using the highest security standards for smart contracts whitelisting process, on-chain transaction monitoring, and multi-signature management.

Laurent Bourquin, Managing Partner at MEV Capital Management, declared, “our objective is to give investors access to advanced market-neutral DeFi strategies while being fully transparent and compliant with regulatory and accounting standards.”

“[…] The investment approach focuses on liquidity provision, market-making activities, and arbitrage on Tier1 dollar-pegged assets.”

The fund is registered with the Cayman Islands Monetary Authority (CIMA), and audited by a CIMA-approved auditor.

The fund has opened its subscription this month for the USDC-denominated strategy, targeting an AuM of 130M$ through 2023. Additionally, MEV Capital Management Ltd is looking to open a High-Yield Fund for ETH-denominated strategy later this year and extend their activities towards other Layer 2s over time.

For further financial information, please contact: management@mevcapital.com

For Press Release & External Communication, please contact: contact@mevcapital.com

Press releases

MEV Capital Solves Impermanent Loss in DeFi

Decentralized finance-focused asset manager MEV Capital hedges losses related to DEX liquidity provision with short-maturity options contracts.

MEV Capital, a decentralized finance-focused digital asset manager, has launched an options-based strategy to prevent on-chain liquidity providers from suffering impermanent loss – the negative outcome instigated by asset price divergences within liquidity pools.

MEV’s Impermanent Loss-Hedge Liquidity Provider strategy (IL-hedge LP), allows on-chain liquidity providers to capture trading fees without being exposed to the downside risk of their open positions.

The IL-hedge LP, which is live on UniSwap v3, combines a tight-range LP position in a liquidity pool with a package of options – with the same underlying assets and maturity date – to hedge the potential downside while LPs accrue fees from the liquidity position.

“We are excited to add this strategy to our offering. The IL-hedge LP generates competitive returns and offers limited system risk by only dealing with a few smart contract layers of UniSwap and the selected most liquid asset pairs, which we consider top tier,” said MEV Capital Co-founder and Investment Manager Laurent Bourquin.

Orbit Markets, the options structurer MEV Capital working with on IL-hedge LP, issues a contract that hedges the principal value of the LP position for a specified duration of time, typically one or two weeks.

At maturity, the options contract is settled over-the-counter with either MEV Capital covering the balance if the LP position has increased in value or the options desk settling the difference with MEV Capital if the LP position is worth less than the hedged amount.

According to research on Uniswap (v3) liquidity pools published by Bancor & Topaze Blue, approximately half (49.5%) of liquidity providers generated negative returns due to the price divergence of two assets constituting the liquidity pool and low frequency of LP rebalancing, also referred to impermanent loss.

“This particular strategy requires active interaction with OTC derivatives providers for digital assets, as the on-chain liquidity for exotic products is nonexistent for now,” Bourquin said. “However, that’s likely to change. On-chain swap contracts should become available in the following couple of years as traditional financial institutions enter the market en-masse and start reproducing investment products in the DeFi environment in size.”

Besides IL-hedged LP, MEV Capital is bridging the gap between traditional finance and DeFi by offering sophisticated digital asset instruments to institutional investors via segregated managed accounts, covered stablecoin notes, and IL-hedged LP offerings.

Press releases

MEV Capital Partners with Marex Solutions

London, the UK – MEV Capital, a leading digital asset manager specializing in capturing value in the DeFi markets, and Marex Solutions, a renowned commodity broker and provider of OTC hedging solutions, announced their partnership to innovate and create new digital asset products.

With MEV Capital’s proficiency in DeFi and Marex’s established reputation in the commodity markets, this collaboration is poised to pioneer novel and exciting opportunities for clients looking to diversify their portfolios and capitalize on the cryptocurrency industry.

Harry Benchimol, Co-Head of Derivatives Engine at Marex Solutions, said, “We are thrilled to partner with MEV Capital and leverage their unique insight and market-neutral strategies in the DeFi space to provide a valuable offering to our clients. Manufacturing innovative derivatives with MEV Capital’s expertise will allow both parties to create new products combining the best centralized and decentralized finance.”

MEV Capital has been a prominent player in the DeFi space, specializing in on-chain yield strategies such as liquidity provision, statistical arbitrage, and carry trading. Their extensive experience and expertise in the DeFi market bring valuable insight and perspective to the partnership with Marex.

The first financial instrument the two companies will collaborate on is a fixed-term DeFi-linked note on stablecoins. This structured product, a first-of-its-kind, will allow professional investors to benefit from the growth of cryptocurrencies while retaining a stable, national currency-linked exposure.

Laurent Bourquin, Managing Partner of MEV Capital, said, “Our collaboration with Marex is a real leap forward for the institutionalization of DeFi. It will facilitate its access and anchor the positioning of digital assets as a new asset class for years to come.”

MEV Capital has been successfully executing on-chain yield strategies for clients for over two years and is in the final stages of opening a dedicated DeFi market-neutral investment fund in the Cayman Islands.

About Marex Solutions:

Marex Solutions is a leading commodity broker and provider of OTC hedging solutions. With a reputation for staying ahead of the rapidly changing financial landscape, Marex continues to offer innovative products and services to its clients.

About MEV Capital:

MEV Capital is a digital asset manager specializing in extracting value from DeFi markets. The company’s expertise in DeFi and on-chain yield strategies make it a valuable partner for clients looking to diversify their portfolios and benefit from the growth of the digital asset space.

Press releases

Positive Returns During Crypto Winter

MEV Capital, Lithuania-based digital asset management and Web3 data intelligence company with more than $25 million in Assets under management, has outperformed most of its peers and brought positive returns to investors amid one of the most significant sell-offs in the crypto market seen in recent years.

The trend-agnostic crypto hedge fund is implementing market-neutral strategies to generate stable yield returns mainly through liquidity provision, statistical arbitrage, and on-chain loan liquidations on a set of decentralized applications.

During the highly volatile period when the crypto market suffered significant sell-offs induced by the contagion effect from the liquidations of over-leveraged crypto entities, MEV Capital was able to secure a high single-digit return over the same period. From May to July this year, MEV Capital applied conservative trading strategies to safeguard investor capital in the DeFi market. As a result, the digital asset manager succeeded in outperforming most crypto trading firms that suffered drawdowns in the same period.

“Our mandate for the last quarter was to protect clients’ capital first during this chaotic time, while yield generation took a secondary role. However, we were happy about our ability to achieve positive returns for the said period,” says Laurent Bourquin, General Partner and Chief Investment Officer of MEV Capital.

“The yields we are able to generate are directly linked to the activity in the crypto-market, which is naturally lower when the macroeconomic conditions are tight, but tends to come with large order flows and volatility spikes, generating other types of opportunities.”

MEV Capital has been running a set of blockchain-based strategies mainly exposed to stablecoins since 2021. It primarily targets crypto-native entities, HNIs, and institutional investors for DeFi exposure and tailor-made advisory. MEV Capital’s client list includes ex-hedge fund managers, digital asset investment firms, family offices, and a financial product structurer with $4 Billion in sales volume in 2021.

The next phase for MEV Capital is the expansion and rapid growth. Besides capital allocation and yield strategies, the company is heavily focused on MEV research & development efforts aimed at maintaining a competitive edge and solidifying its market position by focusing on proprietary infrastructure to interact with decentralized networks.

“Highest quality asset management in DeFi is inseparable from having in-house trading systems coupled with geo-distributed integrations to ensure the lowest latency and just-in-time order completion. Designing the strategies, fetching the required data, and automating executions in a decentralized environment is incredibly complex. Only a handful of companies can do that at a profitable scale.

Even though DeFi has been around for just a few years, the competition in MEV activities is already fierce. We had to move from standard strategies to focus more on long-tail events and cross-chain cases, where trades are not as crowded,” added Laurent Bourquin.

Currently, the company is preparing for its Seed round in the autumn of 2022. MEV Capital was founded in 2021 by Laurent Bourquin and Gytis Trilikauskis.

Press releases

DeFi event recap (video)

You could do it swaggering like famous investor Peter Thiel, who coined the term “financial gerontocracy” while speaking about the global banks at the recent conference “Bitcoin’2022”. You could call names. Or you could give a hand for support. It seems that our community is of that latter kind.

MEV Capital hosted the conference “Decentralized finance during geopolitical uncertainty” at Rockit in Vilnius, Lithuania. Our partners Gytis and Laurent talked about the infrastructure, development, and products in the DeFi market. M.Sviderskė, CMO at Lossless, covered the intriguing topic of security in DeFi.

And the keynote speaker Feyo Sickinghe, Fund Manager at Target Global delivered his insights on common pitfalls for Web3 entrepreneurs. All these and some other topics have been disentangled during the final discussion “Bridging the gap between traditional and decentralized finance” moderated by R. Saribekian from Synergy Finance.

Building bridges, indeed. More meetups like this are on the agenda.

If you were not there or did not have the opportunity to watch the live stream – not a problem, the video recording is available any time on Youtube for your convenience.

Press releases

First regulated DeFi Investment fund enters Europe

Lithuania’s first Decentralized Finance (DeFi) Investment Fund – MEV Capital Stablecoin Enhanced Yield Fund – will invest in crypto assets.

Lighthouse Asset Management has launched Lithuania’s first Decentralized Finance (DeFi) Investment Fund – the MEV Capital Stablecoin Enhanced Yield Fund. The Fund, whose units are available only to professional investors, has a target size of USD 50 million.

The new fund focuses on the blockchain technology-based decentralized finance market, and the stablecoins used in that market have been chosen as one of the fund’s main investment vehicles.

“The creation of this fund is a noteworthy event, reflecting changes in the traditional financial and the crypto markets, which are gradually finding more points of convergence. Decentralized Finance is a kind of fusion of those two worlds, taking advantage of the benefits of both: DeFi protocols utilize stablecoins to apply traditional investment strategies and techniques. The major difference is that blockchain transactions are immutable and settled in a permissionless way without reliance on any financial intermediary. This Fund clearly stands out in our portfolio of funds both for its investment strategy and its management approach,” says Šarūnas Butkus, the Chairman of the Board at Lighthouse Asset Management.

The tools needed to monitor and analyze the Decentralized Finance market have been provided to the fund management company by the DeFi & Web3 research and development firm MEV Capital.

“Decentralized Finance combines the experience of the traditional financial system with digital innovations, so it’s no wonder that in just a few years DeFi’s Total Value Locked (TVL) has reached USD 200 billion. We are the only company in Lithuania developing analytics tools for the decentralized finance market. Blockchain technology enables investors to track many indicators in real-time, meaning that huge amounts of data must be processed every second. Our company helps sort and organize that information, so all that our clients have to do is make decisions. We hope that partnership with Lighthouse Asset Management will enable us to understand investors’ needs even better and expand our basket of products,” says MEV Capital Investment Manager Laurent Bourquin.

In managing investments, the MEV Capital Stablecoin Enhanced Yield Fund uses techniques of liquidity provision, price arbitrage, carry trading (where a low-interest-rate currency is converted into a currency with a higher return), and on-chain loan liquidations.

The Fund plans by 2024 to fully form its portfolio, with a value of USD 50 million.

The Fund formally began operations in September, when its rules were approved by the Bank of Lithuania’s Financial Services and Market Supervision Department. Legal and technological arrangements for the Fund took several months.

In addition to this Fund, Lighthouse Asset Management manages two others whose strategies focus on real estate, digital innovations, high-tech projects, and start-ups.

The potential of Decentralized Finance

The term Decentralized Finance (DeFi) refers to financing programmes carried out by means of smart contracts on a blockchain. DeFi allows borrowing and lending operations and trading in financial derivatives, insurance, and assets. It differs from the traditional financial market in that all operations are performed by the two parties to the transaction, without the involvement of any intermediary (bank or other financial or credit institution).

While DeFi protocols use a variety of cryptocurrencies, a large part of which is settled in stablecoins – cryptocurrencies which are pegged to some other currency, such as the US dollar.

As stablecoins are directly tied to another currency, in the long run their value is less volatile. The total size of the stablecoin market is currently more than USD 100 billion.

The MEV Capital Stablecoin Enhanced Yield Fund in brief:

Intended only for professional investors
Invests in stablecoins: ALUSD, BUSD, DAI, FRAX, GUSD, LUSD, MIM, OUSD, SUSD, TUSD, USDC, USDN, USDP, USDT, YUSD, SEUR, EURS, EURT, JEUR, RAI & etc.
Has a 2% annual management fee and a 20% performance fee
Targets an internal rate of return of 20%
Managed by Lighthouse Asset Management
Audited by Moore Mackonis, UAB

About Lighthouse Asset Management

Lighthouse Asset Management is the first licensed investment management company in Western Lithuania. The main investment directions of the funds it manages are real estate, digital innovations, high-tech projects and start-ups, and other businesses that create real value for the environment, society, and the economy. Its funds’ operations are audited annually and are licensed and supervised by the Bank of Lithuania.

About MEV Capital

MEV Capital is the first Decentralized Finance market research and development company in Lithuania. It develops tools for real-time DeFi market data analysis and intelligence, web3 integrations, and proprietary trading algorithms for operations in both centralized and decentralized crypto trading exchanges. The company’s own financial and blockchain analysts continually monitor the development of Decentralized Finance services and apply that know-how to enhance MEV Capital’s investment strategies.

For more information contact:

Aistė Veberaitė
Project Manager at Publicum Financial Communications
Tel. +370 616 98510
Email a.veberaite@publicum.lt