The Next Wave of Arbitrum DeFi is Coming: 5 Main Projects to keep an Eye On | by Francesco Galati | Jan, 2023

Arbitrum is the most active and exciting community to be at the moment! Aside from TVL growth, the level of innovation and the vibes of Arbitrum are immaculate.

The majority of Arbitrum success can be attributed to GMX, the revolutionary perpetual DEX — accounting for 38% of TVL.

Driving on the initial success of GMX and leveraging the speed and low transaction fees there are a lot of projects building….

This short piece helps you stay ahead of what’s happening by providing an overview of 5 exciting projects who are either releasing their testnet or launching their tokens soon.

Having a functioning perpetual exchange, Arbitrum now needs to complement its ecosystem with several other pillars, including Lending platforms, native DEXes, and further building blocks for DeFi.

1. VELA Exchange (by @Cryptoalpharian)

Crypto Volatility Index (CVI) is a decentralized VIX that enables you to hedge or protect yourself from volatility. I have already written a short introduction to CVI last week.

The vision of CVI has been to introduce to crypto markets not only an index but a full-fledged ecosystem of volatility trading products. Such as the Volatility tokens, which allow taking a tokenized position (long volatility) in the form of an ERC20 token.

CVI Index is a “market fear index” for crypto. It tracks the 30-day implied volatility of $BTC and $ETH. The range of the index is between 0 and 200 and is produced by using Black-Scholes option pricing model.

CVI sources data off-chain, using Chainlink External Adapters. External Adapters connect smart contracts with Chainlink nodes. The smart contracts can dictate to the nodes what tasks have to be carried out and at what time intervals.

Users can take advantage of CVI 2 main features:

1. CVI Platform AMM: allowing users to trade the index directly and hedge the market volatility.
2. Volatility Tokens: allowing users to trade volatility. Their unique technology enables these tokens to trade on different DEXes and CEXes without de-pegging to their respective indices. This makes CVI more accessible to other protocols.

Volatility Tokens have 3 features:

1. Peg to the Index: if a token depegs, arbitrageurs can take the opportunity and ultimately restore the peg.

2. Hedge and exposure to index: a way to hedge as ETFs do with VIX.

3. Elastic supply: everyday at 00:00 UTC the tokens are rebased or their supply is adjusted to maintain the peg and protect it from time decay and the actions of arbitrageurs.

Theta Vault

The latest innovation of CVI is the creation of their Theta Vault, a liquidity pool that protects Volatility Tokens from time decay and is the only way to add or remove liquidity on CVI AMM. The liquidity is used as collateral to mint or burn Volatility Tokens and to move them on DEXs.

1. The vault is the only gateway for adding and removing liquidity from the CVI AMM
2. It utilizes liquidity by depositing it as collateral to the CVI AMM vis-a-vis minting/burning volatility tokens and placing them on DEXs
3. As the vault owns both the AMM liquidity and the DEX liquidity, it is the sole beneficiary of time decay fees, and thus has no exposure to Theta for the DEX liquidity. This can allow the volatility tokens’ DEX liquidity to scale up.

$GOVI Token is the governance token of the protocol, distributed initially to initial Coti users, as shown:

As mentioned by @ChadCaff, CVI will benefit from some upcoming catalysts:

1. $GOVI tokenomics will be switching to an escrowed model esGOVI
2. Theta vault for a Concentrated Liquidity DEX + PoL (Proof of Liquidity)
3. UCVOL: Ultra CVOL with leverage

Gamma is an Oracle Free decentralized platform for volatility trading and commission-free token trading.

GammaSwap is a protocol for going long gamma through constant function market makers (CFMMs) such as Uniswap, Sushiswap, Balancer, etc.

GammaSwap enables users to purchase not just long straddles but also expose themselves to payoff functions — similar to call-and-put options.

This opens up a whole new world of investment opportunities for users and allows them to diversify their portfolios in ways that were previously not possible.

Being a DEX, Gammaswap allows feeless trading.

OxDanr on Twitter explains it perfectly:

Liquidity providers will provide liquidity to CFMMs just as they currently do with the distinction that they’ll provide it through GammaSwap. That is, LPs will send their tokens to GammaSwap which will deposit them into a CFMM (e.g. Uniswap, Pancakeswap, etc.) in exchange for LP tokens.

These LP tokens from other CFMMs, however, will not be provided to the liquidity provider shorting Gamma. Instead, they will remain in GammaSwap. GammaSwap will issue its own GammaSwap liquidity pool tokens, identical to the liquidity pool tokens in CFMMs such as Uniswap issue (e.g. ERC-20 tokens), that represent a liquidity provider’s stake in the CFMM’s liquidity pool.

Why would users choose GammaSwap?

The incentive to provide liquidity on GammaSwap is that you will earn a boosted yield from your LP positions. The only additional risk is the additional smart contract risk that the LP incurs for using GammaSwap, which can be mitigated through audits and bug bounties.

GammaSwap included interest rate in their profit equation:
Profit = Trading fees — IL + Interest rate

The interest rate is determined be the fees paid by the long gamma side. As a result, yield is always be greater than the underlying AMM i.e. Uniswap.

The long gamma position enables users to:

1. Trade on volatility of any token pair;
2. Create hedging strategies (i.e. against rug pull or IL).

Flywheel has recently done a great episode with a Gammaswap Dev, where they explain everything about the platform.

The network is currently in Testnet.

Users can try using GammaSwap: provide (short gamma) / borrow (long gamma) liquidity, i n order to explore how you can make profit from “Impermanent Gains”.

FactorDAO is a decentralized asset manager and treasury management platform, launching their token $FCTR on Arbitrum in February.

I have written a short piece about them last week:

FactorDAO aims to be a single hub to connect markets directly to its participants and make it easy to access any digital asset class, thanks to its modular asset management framework.

How does FactorDAO provide value?

The Asset / Treasury management market will be a $16 trillion dollar market in 2030 and is still highly illiquid. Building the infrastructure to onboard institutional liquidity and tokenize illiquid assets is a one-of-a-kind opportunity.

The current investment solutions are:

1. Centralized: most asset markets are #centralized, and deeply regulated, thus non-flexible and not able to accommodate different investment needs.

2. Information asymmetry: most of them are not transparent and often rely on information asymmetry between different market participants (and low transparency)

3. Tokenization of assets can provide great benefits such as the ability to fractionize assets, allowing smaller tier investors to benefit from what would otherwise be unsustainable investments, contributing to the democratization of these investment vehicles.

4. All these roadblocks and intricacies make for a very complex User Experience, filled with technical and informational inefficiencies. This makes such an investment category elitist and not open to the majority of investors who eventually give up, faced with the complex journey and high ticket necessary for this market.

It’s very hard for most of them to find the right investment for their treasury. As such, most DAOs are restricted in the way they can capitalize on their treasuries and assets.

To solve this problem, FactorDAO proposes:

1. Modular and customizable infrastructure for digital asset management.

2. Flexibility and permissionless vault creation allowing full customization and strategy deployment.

3. Permissioned vaults that can give specific rights and can act as a bridge between traditional finance and Defi> increasing liquidity and streamlining compliance.

Last but not least, the features provided by FactorDAO contribute to democratize access to asset and treasury management in a decentralized manner, contributing to creating scalable liquidity and adoption across markets.

Dice is an on-chain casino where users can gamble using $DICE, the native currency. $DICE is burned or minted based on deflationary gambling mechanisms: when you roll dice, it burns them; if you lose, they are burned from the supply, if you win, double is minted.

An interesting feature introduced by DICE is Polystaking: where users are able to create a pool on $DICE and become the house. There will be whitelisted bluechip assets $BTC, $ETH, $GMX, $USDC or you can create a non-whitelisted pool using any coin.