🌅 Welcome!

Welcome! After yesterday’s Bellatrix upgrade, Ethereum is finally ready for the Merge, scheduled to happen some time between September 13-15th (according to Vitalik himself).

As the Merge approaches, Coinbase Staked ETH continues to trade below peg, while Aave pauses lending ETH to new borrowers. DBS, Singapore’s biggest bank, is diving deeper into crypto despite the bear market and a next-gen options AMM has caught the eye of our Research division.

This is the Delphi Daily. Let’s dive in.

🚨 In Case You Missed It

DBS, Singapore’s biggest bank, plans to grow its crypto business despite the bear market by expanding access to its DBS Digital Exchange to 300k clients.
Russia is working with several countries to create a clearing platform for cross-border settlements in stablecoins.
Terence Schofield, CTO at Pantera Capital, and John Jonson, Head of Capital Formation, resign from the firm. Since May, Pantera Capital’s COO and legal counsel have also left, alongside a finance manager.
21.co, parent company of ETP issuer 21Shares, announces a $25M fundraising round at $2B valuation, led by investment firm Marshall Wace.
Aave temporarily pauses lending ETH to new borrowers to mitigate protocol-wide risks arising from the Merge.

📊 Coinbase Staked ETH Depegs Further As The Merge Approaches

Coinbase Staked ETH traded at a price of 0.91 ETH per token, indicating a discount of almost 10%. The token traded at a price of 0.97 ETH per token when it was initially launched on August 25th.
Coinbase Staked ETH or cbETH is a liquid staking derivative that represents ETH staked through Coinbase. This ERC-20 token allows users to transfer or trade staked ETH, which would otherwise be locked until a future upgrade to Ethereum.
The 10% discount to ETH may indicate that users are accounting for risks arising from staking ETH with a centralized entity. This can include the potential risk of being slashed, if Coinbase begins censoring transactions at the protocol level.
Alternatively, this can also indicate that users are selling liquid staking derivatives to accumulate spot ETH and maximize the amount of any airdropped token from a potential proof-of-work hard fork.
Discounts among pegged assets can also persist due to low liquidity. However, the cbETH/ETH pool on Curve has $1.5 million of liquidity with almost 50-50 split among the two tokens, indicating no issues with liquidity.
Other popular alternatives to cbETH that are also trading at a discount include stETH from Lido trading at 0.96 ETH per token, and aETHc from Ankr trading at 0.93 ETH per token. On the other hand, rETH from RocketPool is trading without any discount at 1.02 ETH per token.

⚡ Lyra: A Next Generation Options AMM

When it comes to crypto options, Deribit reigns supreme. As is the case with all centralized crypto platforms, DeFi teams are trying to build competitors that remove the market’s reliance on centralized infrastructure.
However, despite an abundance of progress and product market fit in other DeFi sub-sectors, options growth has been largely underwhelming to date.

The main options AMMs include Lyra, Premia, Hegic, and Dopex. A full breakdown can be seen above, but each protocol has a select few defining characteristics.
- Hegic was the first options AMM, allowing traders to select any strike price. Hegic had many problems, from its manually updated implied volatility oracle to high prices and rekt LPs. Hegic Hardcore, its newest release, has pivoted to offering split liquidity pools for calls and puts, as well as providing easy access to one-click options strategies.
- Premia is a promising AMM offering American options with competitive prices. Premia computes implied volatility off-chain and relays it via Chainlink oracles. However, it suffers from capital inefficiency with its single-sided vaults for each asset, thus fragmenting liquidity. It has twice as many vaults per asset as Lyra but half the utility – traders can only buy, not sell, options.
- Dopex is a hybrid AMM and DOV. It uses a Black Scholes AMM to price options, but functions similarly to Ribbon, allowing users to deposit into vaults to underwrite options at their desired strike price. Dopex is the ‘other’ way to sell an option on-chain, but it is more clunky than Lyra. Dopex is doing interesting work with Atlantic options.
- Lyra offers a near-complete options trading experience without the off-chain concessions of its peers. Novel delta and vega hedging features protect LPs. Dynamic fees can sometimes heavily penalize users selling options back to the AMM, boosting the value proposition of Premia’s American options and sell-back feature.
For more on DeFi options, Delphi members can read our Delphi Pro report here.

🐣 Notable Tweets

How Lending Protocols Are Approaching The Merge

If you are borrowing ETH ahead of the Merge, you might want to read this.

With just a few days to go we can see more clearly what DAOs are doing to prepare and how it impacts lenders and borrowers.

— Michael Bentley (@euler_mab) Sep 6, 2022

Introduction to Fluidity

Getting torn apart deciding between staking on your favourite dApps to earn #RealYield and opening Long/Short positions on a DEX to profit from price movements?

What if it’s possible to get the best of both worlds now?
Enter @fluiditymoney

🧵(1/19)

— FarmerTuHao (♒,♒) (@FarmerTuHao) Sep 6, 2022