Trading CoinFLEX’s Repo Orderbooks

“Nullius in verba”

Since we launched the first centrally traded repo market in both crypto and the traditional financial markets, almost $30 billion USD of volume has been traded, with current daily volumes of over $500m. This is a staggering amount and forms the bedrock of CoinFLEX’s growth of our yield products, flexUSD and AMM+.

flexUSD is an obvious case as it deploys your assets directly into repo order books. For those of you that like to see a youtube version please use this link: CoinFLEX Podcast EP1: flexUSD — A Multi-yield Bearing Stablecoin

AMM+ is not something that you would naturally fit in as a beneficiary or user of repo but repo actually allows a CoinFLEX AMM user to be a single sided liquidity provider. On most swap pools in crypto, you have to add funds on both sides of the pool in order to be a liquidity provider (LP). For example if you are an LP in the ETH/USDC pool on a DEX, you have to add equal amounts of ETH and USDC (in notional terms) into the pool. If you don’t do this, the swap pool trades your assets in the pool to balance you out and this could be extremely costly from a slippage perspective.

On CoinFLEX, when AMMing, you can add single sided liquidity and more:

  • For example you can deposit only LINK as collateral and be a two sided AMM using a small amount of leverage. If you experience losses, our sophisticated collateral management system takes these assets and uses the repo market to borrow dollars in the background.
  • And because we have multiple repo books, you can actually use any collateral we accept to be an AMM in any other Coin. For example, you can deposit ETH and be a DOT AMM.

Both these options and the option to use leverage makes CoinFLEX’s AMM+ one of the most capital efficient AMM’s in crypto.

How is it best to trade repo?

There are two ways of trading in our repo orderbooks and I wanted to summarise the pros and cons of each as they have their own individual advantages and disadvantages.

  1. Mint flexUSD: the flexUSD algorithmic bot deploys the USDC (or BTC, BCH, ETH or over 30 other coins) minted by customers into the various repo order books. It looks to deploy in proportion to the open interest (OI) that’s being delivered in each respective orderbooks. For example, if 50% of the delivering short futures are in the BCH book, it will allocate 50% of its capital to that order book. This is by far the most convenient method to deploy your flex assets as you can deposit and then mint atomically in one click. These deposited assets pay you interest on chain and are freely redeemable every 8 hours (hence it has been called the best liquid current account in the World). Over the last three to four months, flexUSD has been paying around 12% APY and this yield is generated by:

Futures contango markets, where perpetual futures trade above spot markets, so arbitrageurs sell these futures and deliver on CoinFLEX. flexUSD lends these dollars by taking the other side of the repo trade and receives interest for doing so.

Even where futures curves are flat or are in backwardation, AMM+ users assets are being traded into repo by our collateral management engine to generate dollars. So currently, even though there is no contango, flexUSD rates are still yielding 12%.

2. Trade repo yourself in the orderbook: Whilst the flexUSD bot allocates capital to the repo market with the most deliveries, this is not immediate and it may take one to two hourly auction cycles for it to optimise assets. In the meantime, if there are large deliveries in a particular orderbook, you can manual trade and achieve greater APY than the flexUSD bot could achieve in that period by trading that specific repo orderbook by itself.

The downsides of this method of manual trading are:

  • It requires active repo management from yourself and is something you would have to dedicate several hours of each day towards.
  • The perp futures position you get with your repo trade attracts an hourly funding charge and this charge could flip from being in your favour to being an interest charge against you. Again you have to actively monitor your position to guard against this change. FlexUSD does not have this issue as it is constantly delivering and re-bidding and so does not have the risk of paying funding.

Cofounder, CoinFLEX. All opinions my own.