A Letter from the Founder of Shield丨2023
Many web3 builders has taken a rollercoaster ride last year. Web3/crypto has transitioned from a time in which everyone believed in the area, with capital and entrepreneurs streaming in, to a steady collapse of fundamental belief accompanied by a succession of black swan events.
I’ve witnessed many major hedge funds and capital management platforms are in difficulty;
I’ve witnessed significant retracement or even negative DPI from crypto funds that almost stop writing cheques;
I’ve witnessed the ebbing of community users, even the official Twitters of top public chains can’t get together 100 Space listeners;
I’ve witnessed many startup teams have been disbanded, whether or not they were affected by the collapse of FTX;
I’ve witnessed many teams abandon their main business and start investing while deferring product development indefinitely.
The entire industry is paralyzed by a lack of innovation and insufficient demand. No sand can be spared from an era’s raging torrent. However, if you go all the way to the front line of a vertical, you will discover that regardless of the historical context, wars or plagues, progress is made through continuous attempts. As these minor advancements reach a certain threshold, it will thrive with vigor when the macro begins to warm up. Both the history of human evolution and technological progress have followed the same patterns in the past centuries. In the crypto industry, the best examples are Uniswap and Opensea.
As VC funds and research institutions fail to map out new innovations and opportunities in a logical top-down manner, real opportunities will emerge in the hands of craftsmen who have long practiced on the front lines.
Shield has been experimenting for two years.
- Explored five different types of products
- Docked with 10 or more exchanges
- Connected with 16 top hedge funds, also known as option market makers
- Pitched 40 or more venture capitalists
- Contacted over 200 projects
- Reached over 100,000 crypto users
We recognized the real need for individual market subjects as well as the challenges they face. After uncovering these facts, it has never been clearer to us how to construct a classic DeFi derivatives protocol. Shield DAO’s core members will continue to build in three directions with high growth potential in order to deliver three meaningful decentralized protocols to the crypto space. (Considering the compatibility of tokenomics, it is possible that the protocol will be split in the future and there will be a 1:1 mapping for SLD)
1 Staking Vault — Structured product protocol based on POS staking and other risk-free returns
Structured products are a huge market in TradFi, worth tens of trillions of dollars. The most popular category is structured products based on national bonds, such as T-bills, offering risk-free rate of return. Prior to the next major upgrade of Ethereum, the crypto market lacked a subject with a risk-free rate of return that could carry a large amount of capital. In March 2023, this significant Lego brick will be born.
Image Source: https://newsletter.stakingrewards.com/p/mapping-the-ethereum-staking-ecosystem, edited by Shield
Shield Staking Vault is building a new layer on top of the liquid staking protocols. Shield Staking Vault aims to assist users in determining the best staking strategy under current market conditions, including POS staking protocols and liquid mining protocols, and amplifying staking yields through selected option trading strategies. Based on the team’s more than ten years of experience in exotic option trading and five years of experience in crypto, the wedding cake strategy is chosen.
According to our experience with the Ethereum market over the last two years, Shield Staking Vault has a probability of increasing user mining yields by 50%-100% annualized when compared to stable POS mining rewards of around 4.6% APY at the time. As a result of this significant increase, Shield Staking Vault will be a better choice for most retail users.
In addition to Shield’s token stimulus plan for staking users, Shield Staking Vault will win the largest bonus in a higher dimension in the LSD (Liquid Staking Derivatives) war, after the Ethereum Shanghai upgrade. In one fell swoop, the Ethereum POS mining aggregation protocols will rise to the top of the food chain. A protocol’s revenue is expected to rank among the top ten in the DeFi world.
※Lido is currently ranked second after Ethereum
2 Earning Vault — decentralized option vault issuance and trading protocol
It is widely accepted that the creation of DEXes solves the problem of on-chain token spot trading, and lending protocols provide a solution for on-chain leveraged trading, making them the top two go-to liquidity pools for projects. Shield Earning Vault aspires to be the third liquidity pool by offering an organic and sustainable way to earn yields. Rather than token subsidies, Shield Earning Vault provides option fees as token incentives by automated option selling strategy.
Shield Earning Vault will be like this in its final form.
- Projects or token holders add liquidity to liquidity pools in order to launch option vaults.
- Token holders stake tokens and sell call options.
- The automated market maker algorithm will mitigate the risks associated with liquidity pools.
- Vaults settle on expiry and liquidate with the clearing of option fees.
- The next epoch begins.
The protocol’s revenue will be used to repurchase and burn SLD tokens, thereby promoting protocol decentralization.
3 Perpetual Options — Decentralized perpetual options trading protocol
One obvious fact is that for those assets with primary liquidity on DEX, there is no DeFi protocol that can assist token holders in leverage trading, either long or short, in order to make a profit. This is primarily because margin trading tools, such as perpetual contracts, are easily manipulated, and tend to result in traders liquidating their positions and failing to provide a fair trading market for such assets.
And Shield perpetual option will potentially be one of the best solutions to this problem.
1- There is no risk of liquidation
2- It is risky and expensive to manipulate price arbitrage by keeping the arbitrage price unchanged at settlement.
3- The liquidity pool can automatically hedge risks in DEX, and will remain safe even in unilateral market conditions.
4- The Shield perpetual option supports trading denominated in tokens, with significantly more space for short-selling profit than the perpetual contract.
As mentioned, when the Altcoin hype returns, we will add more trading pairs, enabling the Shield perpetual option to re-enter the fast lane.
Fellow Shielders, never have we ever forgotten our original goal or ambition of constructing the Uniswap for the decentralized derivatives market. We’ll see you in 2023.
Jan 1st, 2023, in London