DeFi • MEV Capital

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.