The Real Yield Asset (RYA) Release Phases
GM to the Hydro Ninjas. Today, we wish to share the details of our Real Yield Assets (RYA). Below is an outline of how these structured products will be built. Let’s dive in!
The Structuring of Real Yield Assets in Hydro Protocol
Objective: The primary objective of Real Yield Asset is to expose users to an index of diversified sources of yields generated within and outside of the Injective Ecosystem by combining attractive CWA and RWA assets.
The RYA will be structured and delivered in 3 separate phases, each leveraging on the previous phases’ deliverables. Below is an outline of the three phases:
Phase 1: Creating Restakable Liquidity Pool Tokens
In the current DeFi model, the only utility option for LP tokens is to provide liquidity across an orderbook particularly on an decentralized exchange. Hydro looks to provide an alternative for LP providers to keep their LP provision rewards while maintain the integrity of liquidity on the exchange, paving the way of explosive growth in yield generation and liquidity provision.
LRP : Enter the ‘Restakable Liquidity Pool Tokens’
The first phase of RYA structuring is the collection and creation of restakable liquidity tokens. During this phase, users can mint LPs (mostly by combining two separate assets into one), staking it with Hydro Protocol to mint the LRPn (n denoted as a number).
Essentially, a user has created an LST out of their LP for maximum optimization.
Now a user has the ability to receive rewards for liquidity provision on their binded LP token, while having the LRPn to optimize across the LSDFi ecosystem.
Hydro Protocol will then offer a farm that will allow users to receive additional rewards on top of their generated rewards from the LP providers on Mito Finance’s vaults. This will incentivize users to stake their LRPs, allowing the LRP ecosystem to grow organically. The LRPs now become the fundamental core asset of the RYA structure.
Initially, Hydro will create 4 LRPs from Mito’s largest and mainstream vaults. Additional LRPs thereafter can be created through HDRO governance from community voting.
Dynamically-adjusted Reward Incentives
In the current DeFi system, many reward emissions deploy a share-adjusted reward scheme, whereby early LP providers are unfairly penalized as the LP grows.
In the LP pools that are generated through the LRPs, Hydro Protocol will adopt a new “dynamically adjusted reward scheme” where rewards will be adjusted according to the size of the LPs. So the deeper the LP becomes, the more rewards will be given to the users.
Now LP providers maintain their reward rates, and are incentivized to deepen the liquidity.
Phase 2: Combining Restakeable Liquidity Pool Tokens
The second phase of the RYA structure will be to take the LRPs generated from Phase 1 and combine it with a stable asset to mitigate risk volatility. In this context, the hINJ which is a constant 1:1 peg to the INJ, will be primarily used as the base asset.
Now a user combines <LRPn> & <hINJ> to create the LRPn-hINJ LP, relabelled to LLP, and entitled to rewards from the multi-asset underlying.
As one can see, the RYA is intentionally designed to bring optimized yield across the ecosystem. Inherent in its structure, it pursues the radical middle of providing high yield while also safeguarding risk from volatility.
Phase 3 : Structuring the LRPs as a RYA component factor
The hINJ LST is by far the most dominant LST within the Injective Network, and continues to hold that position as highlighted below. We believe that with the introduction of RYA’s the hINJ role within the LSDFi ecosystem will propel Hydro to greater dominance in the future.
The RYA can now be structured in multiple themes or risk profiles.
The first iteration of the RYA will be tranched on yield-generation profiles so that users can structure their exposure according to their own risk appetite.
A sample of structured tranche grades, and sample components:
- High Yield Assets : LRP or LLPs
- Mid Yield Assets: xHDRO, hINJ, JNI and INJ
- Risk-Free Hedging Assets: Stablecoin pairs and/or RWA assets
We believe that High Yield Assets will play a significant role in capturing yield optimization especially in a bull market. Conversely, the Risk-free asset tranche will support a preferred hedge strategy during a bear market condition. The risk-free asset tranche will be a combination of stablecoin yield and HDRO rewards, or RWA backed assets for a safer exposure.
In Conclusion
The RYA is well under way to debut. Accordingly, the first phase of gathering a greater momentum of LRPs will be coming summer of 2024. The LSDFi Ecosystem on Injective just became deeper.
