https://twitter.com/AlphaSerpentis_/status/1479665823522463746
https://twitter.com/opyn_/status/1468765218822098946
Everyone's been talking about Squeeth. Squeeth this, Squeeth that, but still can't wrap your head around what it is? a simple thread
What the heck is a Squeeth? Squeeth (short for squared ETH or ETH²) is an upcoming product developed by
that takes various elements of options, leverage, and perpetual swaps, but eliminates the need for strikes, expirations, rolling, and liquidations for longs.
Okay, what does this mean for me? You don't have to worry about what options to select, rolling over, or liquidations when long. It's a simple process of just buying only one ERC20 token (oSQTH)! In addition, Squeeth tracks squared upside instead of 2x!
What do you mean squared upside (long)? ETH goes up 5x: Squeeth goes up 25x vs 2x leverage going up 10x! ETH falls 50%: Squeeth goes down 75% vs 2x leverage being liquidated!
mportant to note: Squeeth offers pure convexity (ETH² payoff), and has a more favorable payoff than 2x leverage (traders make more when ETH goes up and lose less when ETH goes down). However, Squeeth holders are likely to pay a higher funding rate for exposure to pure convexity
What's the difference between oSQTH and Squeeth? oSQTH (wrapped Squeeth) tracks Squeeth's performance, but takes into account the in-kind funding that longs must pay.
Before funding? In order for liquidations to not occur for longs, longs pay funding on their position to the shorts. The payment is taken out of oSQTH's value via "in-kind funding" so no action is required by the long holder/trader.
(cont) For shorts, their debt is reduced as a result. For longs, the exposure to ETH² declines.
How much is funding? The funding rate may vary depending on market conditions and is essentially the % difference between Squeeth and ETH². Compared to ETH perps, Squeeth holders are likely to pay a higher funding rate for exposure to pure convexity.
What if I want to be short Squeeth? You can mint oSQTH by overcollateralizing with ETH down to a minimum of 150% collateral ratio. You can then use the oSQTH to sell on a DEX to earn premiums or use it to LP on a DEX! As a short, you earn funding if the rate is positive.
How do shorts receive the funding payment? Shorts receive funding from longs when the funding rate is positive. However, the funding doesn't directly go to their collateral or pay off their Squeeth debt, but instead is handled by a global variable called the normalization factor
(cont) For Squeeth sellers, the normalization factor lowers the value of debt owed by the shorts. Shorts can take advantage of this by withdrawing collateral to maintain their initial collateral ratio, minting more Squeeth and selling it, or buying back cheaper Squeeth to close.
Perhaps this was too simple for me, where can I learn some more of the juicy details? You can check out this thread by