Neutrl - OTC Arbitrage Stablecoin? What You Need to Know
Ethena for Alts, Tokenized Hedge Fund, & More
Last week, we discussed cap, a stablecoin project that is looking to maximize both on and offchain financial guarantees for depositors. It specifically wants to avoid having DeFi teams serve as fund managers to maximize yield, instead opting to hand off user deposits to established TradFi institutions to generate a return for their cUSD stablecoin. However, this doesn’t mean that there isn’t room left to innovate in the yield-bearing stablecoin space; there are all sorts of strategies that can be pursued to try and generate a risk-adjusted return.
Stablecoins have been one of the top narratives as of late, and with more attention comes more capital. Resolv recently raised a $10M round after finding proven success, while new entrants to the space have also been able to attract investors.
In today’s edition, we’ll discuss Neutrl, which takes the delta-neutral concept introduced by Ethena and applies it to the OTC markets…
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Background on Neutrl
As the name suggests, Neutrl looks to be a delta-neutral stablecoin that simply provides yield based on underlying assets without necessitating exposure to them. The first thing that comes to most people’s minds when they think of delta-neutral stablecoins is probably Ethena’s USDe. Ethena took BTC and ETH, the two most established and liquid coins on the market, and found a way to centrally manage a long/short book for both of these assets, profiting from funding fees on the way up, and the short position gaining value on the way down.
Neutrl aims to expand this core strategy beyond majors, getting into alts. There may be even more opportunity in these nascent markets that are less efficient than majors like $BTC and $ETH, which have been around for over a decade. Neutrl not only takes advantage of funding fees, which could be elevated compared to majors, but also discounts available OTC that cannot really be found in $BTC or $ETH.
OTC discounts could range from 10-25% or more, allowing Neutrl to pick up liquid alts listed on CEXs for a cheaper price. Then, Neutrl shorts these alts, mimicking the Ethena strategy. Because of the initial discount, the protocol is less dependent on funding fees to pass on yield. Similar to $ETH, some of these alts may also have intrinsic staking, which can also increase yield.
Neutrl is designed around the idea that the delta-neutral space has not been properly explored, not available to most market participants. This, combined with the fact that stablecoins today may be more stable but lower-yielding, is what inspired the creation of Neutrl.
Neutrl’s returns are channeled as a return via Neutrl’s native stablecoin, $NUSD. There is also sNUSD, the liquid staked version of $NUSD. Instead of operating a traditional fund and raising from LPs, Neutrl raises a modest amount ($5M) to build out its stablecoin and application. This then enables unlimited deposits from a demographic of users that could be retail, sophisticated individuals, or institutions. In some ways, this approach offers more flexibility.
Some are apprehensive about the idea of using a stablecoin to bootstrap liquidity for a tokenized crypto hedge fund. Some projects, like cap, are built on the premise that this is explicitly where talent in DeFi may not be best suited to operate. Still, the OTC market for selling tokens is only growing as more and more high-valued projects TGE. There will be a lot of opportunity for Neutrl to operate with.
Neutrl is a young project, just exiting stealth mode recently after announcing their $5M raise, led by STIX and Accomplice, with additional participation from Amber Group, Figment Capital, and Susquehanna.
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