Hi everyone, Barrett here, I will be detailing an incentive program proposal using $SRM that will be managed by Cypher. We are excited about the open discussion and look forward to continuing to push the Serum ecosystem and community forward!
Cypher is a derivatives engine built on top of Serum’s CLOB and the AOB. Through traders’ cross-collateralized margin accounts, Cypher utilizes Serum’s AOB architecture and permissioned markets functionality to provide users the ability to trade dated futures. The protocol will also open up support for spot trading via Serum’s markets next month to provide more opportunities for market makers and traders to customize market exposure and better manage risk.
In addition, Cypher has built vaulted, a vault protocol that composes with both Cypher and Serum. Soon to be released in our V3 upgrade this quarter, Vaulted is a structured products vertical that will offer automated vaults such as leveraged tokens, basis trading, arbitrage, and interest rate products.
- A new paradigm for account architecture, supporting unlimited markets
- A single margin account will enable trading on up to 552 markets, both spot and derivatives, with 553 forms of collateral (addition of USDC), and full fees paid back to Serum
- Automated strategies and structured product vaults via vaulted
Cypher has recently open sourced its CPI crate and market making clients/bots (ts & rust). Cypher will soon open source vaulted to demonstrate the ease of composability on Cypher and Serum. As volume on Cypher and its ecosystem of products increases, more fees will accrue back to Serum and its token holders.
The purpose of this grant is to increase usage/volume of Cypher’s dated futures markets and structured product vaults. Distribution would be split across all of markets tradable on Cypher as well as the structured product vaults. Rewards will be issued for maker volume on Cypher’s futures markets, boosting liquidity and volume, resulting in greater fee revenue for both Serum and Cypher. Cypher will be boosting yields for structured product vaults, since these are taker orders and would not benefit from maker volume rewards. However, wash-trading prevention mechanisms will be employed to ensure takers do not abuse the rewards. With the product line expansion of both spot markets and vaults on Cypher V3, Serum will benefit from fee collection on all of Cypher’s products. In addition, the Serum grant will incentivize innovative composability with Cypher, enabling other projects and their users to benefit from the incentive program.
Because Cypher will move to support the AOB for V3 derivatives markets, technically, no fees will accrue to Serum on Cypher’s futures markets. However, Cypher will setup its own dedicated fee (1.5 bps) that will accrue back to Serum. All spot markets will pay full fees to Serum.
While Cypher is relatively new to mainnet and does not currently have the volume of other derivatives protocols, this grant will drive adoption of Cypher’s ecosystem of products, ultimately increasing the fee revenue paid back to Serum.
Cypher is proposing a grant of 2M $SRM that would be distributed over 20 weeks. Epochs for the reward distribution will occur every two weeks, with an additional lockup of two weeks before the beneficiary of the rewards will be able to liquidate. The longer duration of the liquidity incentive program is intended to provide more sustainable protocol growth and greater user retention. Both the duration and the lockups can help prevent mass $SRM token unlocks and the associated negative price impact.
In order to scale Cypher’s derivative products, the Serum grant is necessary to incentivize liquidity and protocol interaction. Since spot markets on Cypher benefit from the unified liquidity of Serum, this grant will solely focus on building sustainable trading volume on both the futures markets and vault products on Cypher, which in turn, will accrue fees back to Serum.