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Spell launch

WHOOSH we just shipped a SPELL magic internet asset.

Users on Avalanche can get 2x leveraged long and short exposure to the price of SPELL, without needing to hold the underlying asset.

The best part?

Now SPELL holders and members of the frog nation can strategically use SPELL shorts to hedge out risk, reduce losses and even remove price exposure.

That’s huge.

Long and short with a single transaction#

Float’s mechanism allows you to mint a long or short position with a single transaction.

Longs win when SPELL goes up. Shorts win when SPELL goes down.

We don’t require capital inefficient debt positions, and we NEVER liquidate users.

Since our SPELL market has 2x leverage, price exposure is doubled. Under perfect conditions a 50% market gain would result in a 100% upwards movement for a long position.

If you want to try and call prices, you can use open a long or short, and even shift between positions with a single transaction.

A bot in our JOE market did this and turned $400 into $13,000 in a month. Lmao.

But the real value comes from easy shorts.

SPELL holders stacking big bags may be concerned about price volatility, but be resisting sell pressure. You may even be staking SPELL, and collecting a tasty share of the repayments on MIM loans.

You can use this short facility to reduce, or completely remove your price exposure.

Say you’re staking $1,000 worth of SPELL. With our 2x leveraged market, under optimal conditions, you could hedge that out with a $500 short in Float, while still stacking that APY.

It’s safer, risk averse, and extremely capital efficient.

You could ride out a nasty dip with a delta neutral short, then open a 2x long when the SPELL market looks booolish again.

The degen’s guide to delta neutral SPELL#

Delta neutral is an advanced trading term. Here it means removing your exposure to price movements.

Basically offsetting long exposure, like staking SPELL, with equivalent short exposure in Float DAO.

Price goes up? Value of long goes up.

Price goes down? Value of short goes up.

At the same time, the APY earned on your staked SPELL will continue to accrue, as will the rewards earned on your Float short.

Full disclosure: there are risks to maintaining this strategy. In addition to the smart contract and market risks that face protocols, your exposure in Float DAO ‘floats’, and to stay delta neutral you’ll need to manage it.

Here’s how.

Understanding floating exposure#

To remove the need for liquidations or debt positions, we use 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 ‘current exposure’.

At 100% in a 2x leveraged market, a position would have 200% ‘current exposure’.

At 50% with 2x leverage, a position would have 100% ‘current exposure’.

Still not making sense? Copy this sheet and punch in the numbers.

To incentivize market balance and the best possible exposure, 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 alpha governance tokens earned from staking is increased.

Stacking alphaFLT#

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 SPELL 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.

If you want to meet the team behind Float Capital, claim your gem role, or hang out, come to our Discord.

This piece was written by Campbell Easton.