With a time bound price lock mechanism for two like assets, Clip markets enables capital allocators to hedge platform risk that previously was not possible.
Overview:
The AMM is the keystone of decentralized finance today, driving the vast majority of liquidity on-chain. However, current AMM design only allows for markets based around the current price of a particular asset pair.
Clip markets introduces a layer on top of the spot price market, permitting a user to lock the spot price for a designated period of time. Effectively enabling a user to pay an up front fee to retain the option to make a trade at a price point that the market may have deviated from. This introduction of a time variable when associated to two or more like assets enables what we believe to be a powerful risk mitigation market.
Real world examples:
Stable Coins - Stake UST on Anchor without exposing yourself to UST risk.
By locking a price between UST and USDC, a user can deploy UST but retain exposure to USDC
Bridged assets - Borrow against WBTC and spread your bridge risk across two bridging protocols
By locking a price between WBTC and RENBTC, a user can reduce their bridge exposure from a single point of failure
We imagine that as protocols seek to gain adoption of their assets in the broader market, the most effective method of “bootstrapping trust” is to enable users to engage with the asset but without retaining the exposure. Mature capital allocators will often stay away from markets and assets that have not yet been entirely “battle tested” but with a clip market, protocols can enable a risk reduced means of engaging with their asset or protocol.
Demand for opening Clip positions
The demand side of the marketplace is relatively straight forward. It comes from users seeking yield in assets that they do not yet fully trust and by extension need a means of risk mitigation before pursuing the strategy. It could also come from protocols that hold liabilities in an asset but seek to deploy a strategy denominated in another asset. (think holding USDC but deploying MAI)
Supply for Clip positions
The supply side of the market we believe will initially be bootstrapped by the protocols themselves and eventually gain funding from users that seek additional yield. We imagine that the most effective solution to incentivize liquidity is the enabling of users to deposit yield baring LP tokens. For example, rather than depositing USDC users can deposit aUSDC from aave. This way the user earns the Aave yields in addition to the Clip fees. As market perceived risk of the asset reduces, we imagine Clip fees to reduce and the percentage of the Clip market funded by the protocol to reduce accordingly.
Supply Liquidity- Users can provide single side liquidity to the Clip market in exchange for an LP token. When a user supplies liquidity, they will earn $CLP.
Withdraw Liquidity- Users can remove their liquidity at any time. If a user withdraws the asset they deposited, they will incur a $CLP fee. If a user withdraws the asset the clip is executed against, there will be no fee.
Clip Mint - Mint an NFT that entitles you to a swap at a locked in price for a specific size for a period of time. Can be minted by a speculator seeking to sell options, but we expect users who are seeking to hedge their risk will most often be the ones to mint directly.
Option Exercise - Exercise the option to swap the asset pair at the price and size agreed upon in the NFT.
Clip Farm - When a user executes their Clip, the asset used to execute the clip will be held in the pool. For example if a user has a Clip to swap UST for USDC and choses to execute the Clip, the pool will now have UST instead of USDC. To incentivize users to restock the USDC, a user can deposit USDC in exchange for the UST and farm $CLP.
LP Token (ERC20) - This token represents your share of assets in the pool. It can be redeemed for the proportionate makeup of the pool at no fee or one specific asset after incurring swap fees.
CLIP Tokens (ERC721) - This token represents a locked price of two assets for a particular size for a period of time. A user can mint this token as their hedge or to speculate on the market. The cost to mint is determined by an average of the rate voted on by liquidity providers.
$CLP Governance Token (ERC20) - This token will be emitted for preforming actions on the platform. It entitles you to voting power on the DAO to change the live option minting fee (options premium) as well as list new markets.
Liquidity Providers
The liquidity providers are the suppliers of the market. We imagine initially that these users will be the protocol foundations themselves seeking to to bootstrap trust into their asset. Over time we imagine users who believe in the project and are seeking additional yields will make their way into the pool. To expedite this process we are considering enabling protocols to subsidize the rate with their protocol tokens as a later feature.
Minters
Minters are expected to be mature capital allocators that otherwise would not deploy into a strategy as the risk of the change in asset denomination prevents them from doing so. We imagine institutions and large crypto deployers to leverage Clip with a focus on long term capital. That said, over time we might find that arbitrage seekers find that they can use Clip as a meaningful tool to speculate on short term price movements.
Farmers
Farmers are essential to the ecosystem to ensure that the pool that Clips can be minted against remains balanced to the “risk off” asset. Clip farmers effectively are depositing the “risk off” asset in exchange for the “executed” asset and earning $CLP in exchange. We imagine that the $CLP farmers will be somewhat akin to users who liquidate on lending protocols. The number of executed clips will likely be concentrated to certain market events, and not constant.
The $CLP token is a governance token used to determine the options minting premium price and token emission weighting. Our intention with the $CLP token is to create the basis of a protocol that is governed by those that are using the platform for its intended purpose. However, the token alone is not the source of direct voting authority. Rather, by leveraging the Voting Escrow model, popularized by Curve, the $CLP token is able to derive its voting authority.
Users that lock their $CLP are eligible to derive veCLPL. 4 years is the longest lock period, meaning 208 week periods. For each additional week the user choses to lock their $CLP for, they are entitled to more veCLP up to 208 periods. So for example if someone locks 1 $CLP for 2 years they are entitled to .5 veCLP that can be used to vote on the options premium cost per pool and the $CLP emissions per pool.
We intend to distribute tokens to users and potential users of the protocol. We ideally will not need to raise capital at an egregious valuation like many protocols seem to do as our intent is to enable this ecosystem to compound over time without the mounting pressure of large token holders seeking an exit. This is our philosophy backing our mental model for token distribution. This section is entirely up for change, but our philosophy is not.
$CLP Fees
When a user seeks to withdraw their LP tokens from the pool, they will incur a $CLP fee. The $CLP fee should be less than or equal to the $CLP that the LP received when they deposited into the pool in the first place. When a user pays the $CLP fee, the $CLP will be burnt. It is our assumption that through this mechanism we can fairly distribute $CLP to users of the platform, create a mechanism that maintains a balance of supply as well as enable users to have an earned supply of $CLP that they can lock as veCLP.