The qi in BENQI, is pronounced “key”, but the qi in QI is pronounced “chi”. With that knowledge, the pun in the headline works.
We just shipped a QI market.
QI is the governance token of Avalanche native liquidity market, BENQI.
By TVL, BENQI is the second biggest native protocol on Avalanche, with a TVL that’s more than 10xed in the last six months.
Now you can get leveraged exposure to QI, in Float Capital, without worrying about getting liquidated or putting down a debt position.
That’s a huge deal.
Users who want to predict QI price movements can open QI long or short positions in Float Capital with 2x leverage.
Say a bull mints a 2x long position, and the price goes up 10%. Under optimal conditions, that bull will get a 20% gain on their position.
In the same vein, if a bear opens a short and the price drops, then the gains will be equally awesome.
But you can get way more advanced than just trying to predict price graphs.
Currently you can supply QI liquidity in BENQI.
But, unlike other supplied tokens, borrowing for QI is disabled.
Instead, your QI is used as liquidity for token buybacks, which in turn help support the price of QI.
It kinda functions like single-sided staking, with you locking in your QI for insane rewards, split between QI and AVAX.
With the existence of a short facility, now degen QI suppliers can go delta neutral.
Delta neutral is a degen trading term. In DeFi, it means removing your exposure to price movements.
In this case it means supplying QI, and opening a proportional short in Float Capital.
Price of QI goes up, short value goes down but QI position goes up.
Price of QI goes down, short value goes up, but QI position goes down.
But the whole time you’re still earning that awesome APY on supplying QI, without worrying about the value of your portfolio.
If you wanna get even more degen, you can use the QI you supply as collateral to borrow more DAI to make more plays in Float Capital.
Just remember to manage the health of your position to avoid liquidation.
Since the market is 2x leveraged, under optimal conditions, you could hedge a full QI supply with a short position in Float only half its size.
Remember that since the exposure in Float Capital ‘floats’, the actual calculation can be a bit more complicated.
To remove the need for liquidations or debt positions, our protocol uses a novel mechanism called floating exposure.
This means that your price exposure ‘floats’ with the balance between the long and short sides of the market.
In a perfectly balanced market both sides have 100% exposure.
As one side accumulates more capital it becomes overbalanced, and the other becomes underbalanced.
When a market becomes overbalanced, to avoid liquidating positions on the other side, its exposure drops linearly from 100%, in line with the imbalance.
To calculate a hedge position, you multiply the exposure in the market by the leverage of the market to get the ‘true exposure’.
At 100% in a 2x leveraged market, a position would have 200% true exposure.
At 50% with 2x leverage, a position would have 100% exposure.
Still not making sense? Don’t stress. Copy this sheet and punch in the numbers.
To incentivize market balance, as the exposure on one side drops, the protocol scales up the incentives on the other side to encourage new positions to balance the market.
There are three incentives that accomplish this:
Yield from both sides of the market gets increasingly sent to the underbalanced side.
A funding rate kicks in, where the overbalanced side pays the underbalanced. This varies in intensity based on the underlying asset and the demand for certain positions.
The aFLT multiplier increases for the underbalanced side, meaning that the share of governance tokens earned from staking is increased.
Float Capital doesn’t have a token yet. In the meantime, our users can earn alphaFLT.
AlphaFLT, or aFLT, is the alpha version of our token. It gets issued to users in the protocol, and scales up with market imbalances to incentivise balance.
You currently can’t trade aFLT, BUT, when we ship the final version of the FLT token we’ll allow you to redeem aFLT for FLT at a really nice rate.
So jump in and stack those bags.
This piece is obviously not financial advice. Any kind of DeFi activity comes with risk, and should only be attempted by serious degens who understand this and know how to navigate it.
To mint a position in our QI market go here.
To learn more about the risks inherent with using Float, read our blog post here.
To understand how the protocol and our magic internet assets work, read our docs.
This piece was written by Campbell Easton.