Resolv: Experiment to verify the feasibility of Ethena on the chain

After big funds have their own choices, the market for small funds is vacant.

In this round of cycles, both bull and bear markets are busy. VC, KOL and stablecoins are the three major trends. Among them, KOL itself is also an asset that can be tokenized.

And VC's choices are becoming increasingly narrow. They are targeting stablecoins and "simple investment" products to build momentum, and reinvesting in projects that have already issued coins. These are all options with lower risks and certain returns.

On April 16, the on-chain Delta neutral interest-bearing stablecoin (YBS) project Resolv completed a $10 million seed round of financing led by Maven11, which was also its first public financing since its establishment in 2023.

Compared to Ethena's fierce competition, Resolv is relatively low-key, but its innovations are not inferior to any of its peers. In summary, it can be divided into: a more unique revenue model, a more on-chain revenue source, and a more complex token economics.

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Maven11, the lead investor, is located in the Netherlands, and participating funds such as Robot Ventures are mostly American-funded. The three founders of Resolv, Ivan Kozlov, Fedor Chmilevfa, and Tim Shekikhachev, are all science men educated in Russia.

There is reason to suspect that this financing has been completed long ago, but has not been announced to avoid suspicion. Considering that Ethena needs exchange VC support, the YBS project at least needs a sum of working capital to deal with black swan events.

Is it possible on the chain? Ethena thinks it is not possible. Arthur Hayes believes that it is necessary to form an alliance of interests with CEX to consolidate the liquidity of USDe. ENA As a result, it was exchanged to the VCs of various exchanges in exchange for the long-term stability of the protocol by transferring the right to mint coins.

Switch to Resolv. Compared with Ethena's compromising attitude, Resolv as a whole embraces the on-chain ecosystem and is determined to seize the market with a higher rate of return.

More complex token economics

Unlike Ethena's dual-token mechanism of stablecoin + governance token, Resolv actually has three tokens, namely the stablecoin USR, the insurance fund and LP Token RLP, and the governance token $RESOLV.

It should be noted that Resolv's governance token does not play a special role in forming an interest alliance like ENA. Ethena's ENA is actually a proportional representation of AP (authorized issuer). To put it in an extreme way,ENA has little effect on retail investors, but is very necessary for the operation of the Ethena protocol.

Resolv focuses on the dual-yield token system formed by USR and RLP. After users deposit USDC/USDT/ETH, USR can theoretically be minted at a 1:1 ratio, and most of the assets will be stored in on-chain protocols or Hyperliquid to minimize asset losses caused by CEX hedging.

Ingeniously, Resolv designed the RLP token, which is mainly used to cover funds hedged in CEX. In addition, it has a higher rate of return, with USR's annualized rate between 7%-10% and RLP between 20%-30%, but this is only in theory and has not yet reached the expected value.

More on-chain revenue sources

Compared to Ethena, Resolv is more actively embracing the on-chain ecosystem. From the perspective of revenue, YBS is divided into the revenue of interest-bearing assets such as stETH, and CEX contract hedging fees.

On-chain revenue may be higher than CEX hedging, but the outstanding problem is that Hyperliquid's liquidity is obviously not as good as competitors such as Binance. At present, the ratio of Binance and Hyperliquid for hedging contracts is about 7:3, so the value of RLP lies in this.

RLP is a leveraged yield token that maintains a higher yield with less capital. For example, the current RLP TVL is only $63 million, less than 20% of USR, which is suitable for high-risk preference users to participate.

To complain, due to the price trend of ETH, the assumption of most ETH longs paying shorts by YBS is likely to be untrue for a period of time, and the current RLP yield is negative.

A more unique profit model

There is not much difference between USR and USDe. The main reason is that Resolv introduced RLP as an insurance mechanism. Because Resolv cannot completely get rid of the participation of off-chain CEX and USDC at present, Resolv hopes to minimize its negative impact.

In theory, USR will be entirely over-minted by on-chain assets (currently 120%, of which 40% are on-chain assets), and then part of the minted collateral assets will be used for institutional custody and off-chain CEX hedging.

At this point, Resolv's capital efficiency is obviously not as good as Ethena's fully off-chain CEX hedging, and Resolv's RLP needs to "make up" for this part of the income, at least to be on par with Ethena.

YBS Future Outlook

Ethena only opens the door to YBS, but does not mean the end.

The USR yield is between 7% and 10%, and the RLP yield is between 20% and 30%. Then the risk is isolated. For example, 1.2U of ETH and the reserve for minting 1USR are all hedged on the chain and in Hyperliquid, and 0.2U is used to mint RLP and hedged on Binance.

Even if Binance collapses, USR can guarantee rigid redemption. In fact, the theoretical risk exposure of RLP is 8%. The innovation lies in that Ethena completely relies on Perp CEX and capital efficiency and security, which is a step forward.

It can also be understood as taking a step back. In the mechanism of Ethena, as long as CEX does not attack maliciously, there is basically no possibility of a death spiral. In the most extreme case, the Ethena protocol can stabilize the market through negotiations between large users and their own funds. This is exactly the same as when Curve’s founder stabilized the coin price through OTC when it encountered extreme market conditions.

Resolv puts more revenue and funds on the chain, so it will face various impacts of the on-chain combination. Binance may not snipe ENA, but it does not mean that Hyperliquid will be let go. You can refer to the previous article Hyperliquid: 9% Binance, 78% Centralization.

In the final analysis, in a highly competitive environment, it is often impossible to guarantee a balance between security and returns. Resolve was basically launched at the same time as Ethena, but its current TVL and issuance volume are far inferior to Ethena, and the options left for latecomers will only become fewer and fewer.

However, more and more ships will participate in the YBS voyage. In the era of low-interest financial management, the startup cost of the project party will be lower than that of DeFi Summer.

This is counterintuitive. It is usually remembered that in the DeFi Summer era, as long as there is a product prototype, it will attract an influx of funds, but don't forget that the return requirements of Farming are often above 20%, as evidenced by UST, while Ethena's benchmark sUSDE is stable below 5%.

In other words, as long as the APY of newcomers to YBS can exceed 5%, there will be adventurers participating in it, retaining the possibility of opening the flywheel. How to display more and more YBS in front of retail investors who are not aware of the situation is not something that can be done simply by finding KOL promotion and VC endorsement.

Conclusion

The combination of USR and RLP is actually more like a hybrid product of Hyperliquid and Ethena, LP Token + YBS, I call it the Sonic/Berachainization of the YBS ecosystem, all of which want to use more complex mechanism design to surpass existing products.

At the same time, the risk has obviously increased. Any LP Token mechanism will have the dilemma of creating liquidity for the sake of liquidity, and the insurance mechanism of RLP has not been tested by extreme market conditions. However, USDe has experienced depegging.

Depegging is the rite of passage for stablecoins. I hope Resolv can take this step.