Levana is building a trustless community-controlled platform for creating and maintaining leveraged products on an automatic basis. Built on the Terra blockchain while utilizing a decentralized stablecoin UST, Levana is primed to tackle problems related to the centralization of the current derivative platforms in centralized finance (CeFi) and traditional finance (TradFi). Terra Blockchain already houses many exciting products related to DeFi. After MIRROR for Synthetic assets, ANCHOR for banking, MARS for money markets, Levana is the next exciting project adding another feature – leverage trading.
Levana is so much more than one product. It will offer a variety of products, ranging from financial fields, such as leverage, Perpetual Swaps, American style Options, yield farming and staking, to gaming field using NFTs as an incentive for community engagement through gamifying the platform.
Leverage on CeFi/TradFi
Current derivatives platforms in CeFi and TradFi are centralized, have poor composability, and lack interoperability. Due to the capital being unable to be used in other platforms a high capital inefficiency is present as a core problem. Another related problem is leverage. Centralized exchanges such as Binance provide access to leveraged tokens for a long time with high liquidity. To provide the necessary liquidity for leveraged tokens, Binance (in this specific example, or any CeFi or TradFi in general) must be the leverage provider. In addition, they use floating leverage, which can be anywhere up to 4x, while typically it is between 1.2x to 3x. The exchange algorithm is determining the leverage on real-time data and that’s where it gets shady.
There is a conflict of interest between a user using leveraged tokens and CeFi/TradFi providing it. Whenever the market goes against the CeFi/TradFi, the leverage may decrease, and vice versa. This puts a user at a huge disadvantage as whenever the leveraged token goes against him, it creates more loss compared to profits in times when it goes with the user. A very simple example:
Let’s say a user bought $10,000USD worth of 1BTCDOWN with floating leverage ranging from 1.2x to 3x on a CeFi. The user will be making money if the price of BTC is going down and vice versa. The price of BTC is going down by 3%. Naturally, as the counterpart providing leverage is the CeFi, it is beneficial to use the leverage from the lower bound. For simplicity we will use 1.2x, meaning 1BTCDOWN increased by 3.6% (3x1.2=3.6) making his position worth 10 360$USD. Next, the price of BTC increased by 3%, but this time the algorithm set the leverage on 3x, meaning 1BTCDOWN decreased by 9% (3x3=9) making his position worth 9,427.6$USD. If the leverage would not change and remain 1.2%, the decrease of 3.6% would make his position worth 9,987.04$USD. That’s a huge difference of 559.44$USD!!! If the market goes to the side, the user will be out of money exponentially faster compared to a fixed leveraged product.
Further consideration needs to be added to fees which are in many instances higher if using a centralized product. Typical fees for leveraged tokens are 0.03% daily, making it 10% yearly. Add the fee and the possibility of leverage manipulation together and you will end up with a comparable interest from traditional non-purpose loans, debit card overdraft and even credit cards. This makes us ask, are leveraged tokens groundbreaking? Well, they could be, but not using CeFi/TradFi.
Leveraged Tokens on DeFi
DeFi protocols themselves could be used to create a 2x leverage. It is fairly simple and easy to understand. The following table provides the whole example of the process.
Let’s assume a user wants to double the exposure for a specific crypto asset of his/her choice. The user then sends the crypto asset as collateral to be able to obtain a “loan” from the DeFi protocol. DeFi can give out only a 50% loan of the collateral. This creates the disadvantage of the process repetition of 10x to be able to obtain 2x leverage. All this works only for a 2x leverage! In addition, the other disadvantage is the lack of cumulative overview for margin calls (in this particular case, a margin call occurs when collateral is approaching the 50% threshold) and interests. The huge advantage? No possible manipulation with the amount of leverage.
Two initial methods of creating leverage on Levana protocol
While Levana outlined in their roadmap an introduction of more products providing leveraged exposure to its users, the following two methods are a top priority:
Levana Leveraged Index (LLI) tokens, which work by creating a pool of assets with intended leverage called the Leverage Capsule. This is done by utilizing Mars, an on-chain lending protocol, to automatically add/remove collateral in the leveraged pool of assets in a manner to always represent only 2x leverage. Levana protocol will then mint LLI tokens, which serve as an ownership tool in the Leverage Capsule and will enable trading with them on a native AMM (automated market maker) or 3rd party AMMs. Compared to DeFi manual leveraging, this process is automated making it faster with a higher degree of overview.
Perpetual Tokens. The main difference between the two is the different approaches to generating leverage. As for the moment, Levana did not release detailed mechanics for the Perpetual Swap Tokens, but it is included in their roadmap and the team promised detailed information in the future on their blog. Their vision is to create first a 2x leverage and then eventually provide a basket of leveraged tokens (2x, 5x, 10x). Regarding perpetual, Levana will use Astroport AMM to utilize borrowing. In addition, perpetual tokens will be moveable both on- and off-chain to allow liquidity farming, while their collateral must remain in Levana Protocol.
The leverage provided by Levana has one fundamental difference compared to CeFi/Trad/FI: decentralization. Any leveraged product needs counterparts. In the case there is no counterpart, Levana Architecture is built in a manner to absorb the risk per tranche. Because of its decentralized nature and algorithm design, there is no bias.
The Levana protocol will consist of 4 main components:
Levana DAO (Tranche 3), by staking their Levana tokens, users will be entitled to governance and provide insurance for the protocol. In case of shortfall events, and Tranche 1 and 2 depletion, their funds will be used to cover it. The only difference is that stakers in the Tranche 3 are only responsible for paying out a 30% share of their stakes, while in the other Tranches the responsibility is 100% share of stakes.
DAO Treasury (Tranche 2) focuses on Long-Term sustainability, by funding operational expenses and funding a grants program. Upon a shortfall event, and Tranche 1 depletion, they are the second in line;
Risk Fund (Tranche 1), being in the Tranche 1 makes the Risk Fund first line of defense in any shortfall event;
Markets approved and launched by the Levana DAO.
Because of the risk-sharing nature per the tranches, users staking their Levana Tokens will be also rewarded accordingly. Levana hired Flipside Crypto to do back testing of the system with historical prices of many different types of assets. Based on that analysis, the frequency and scope of rebalancing was optimized.
The main purpose of NFTs will be community engagement through gamifying the platform, allowing branding, and strengthening the emotional attachment of its users. Through gamifying, Levana will engage, educate, and retain its users. The team created an entire world of backstory and lore (A 5 Part back story on Levana) to test the thesis, whether gamifying is a good path to take. Without using any advertisement, the results were astonishing. In a 44h NFT auction, Levana managed to lure 6,300 participants, sell 41,000 NFTs and raise 3.98$USD million. Gamifying worked! While Levana is not the first in the gamified DeFi field, the monthly user base of top DeFi games is remarkable.
The funds from the NFT auction were used to create a trading pool for the first DeFi product, the LLI tokens. In addition, it appears there is much more to the NFT auction.
Levana NFT Meteor Shower
This is the NFT auction itself. The 41,000 NFT created hold 8,888 dragon eggs, in various tiers, and roughly 32,000 meteor dust.
Meteor Cracking opened on the 30th of November 2021 and it revealed whether the owner of the NFT obtained a dragon egg or meteor dost. Both play central roles in the game with meteor dust being used as a consumable in different mechanisms and crafting, to create 8,888 fully equipped dragon riders.
Alchemy can be used by players to utilize meteor dust in creating many different types of items. Items will be available for different factions and the crafting ability of a player will be based on the dust accumulated. The dust is not designed as a scarce resource and will be possible to trade and collect. In the future dust minting or farming will be allowed.
Other features of the game are not directly related to NFTs anymore. Players will be able to choose from various avatars, hatch their dragon eggs, become parts of factions, and participate in quests. While the NFTs were used as an airdrop for the designated number of dragons, it does not limit any new players from joining the game. However, the number of dragons is limited. In the future, other types of companions will be released.
Dragon Egg Nesting
Levana Browser Mini Game
Baby Dragon Customization
Levana Discord Mini Game
Levana Token Airdrop
Levana DAO Launch
Luna 2x Launch
Raising the Dragon Game
Levana’s native LVN Token has a total fixed supply of 500 million, enabling utilities such as building leveraged tokens, staking in various Branches responsible for smooth running of the DeFi as well as limiting and properly managing any shortfall event. In addition, by staking in the Levana Dao (Tranche 3) the user can participate in governance.
Levana protocol is managed by a distributed, decentralized group of contributors across the globe, with 30 full time members and 70 contributors. Incubated by Delphi Labs, the team is composed of various professionals in the crypto space with 30 years of experience in software design / development. Over half of the team has been working on financial products professionally for roughly a decade. The team in general is well versed in crypto, with core team members into the space as early as 2011. They are like-minded individuals, all sharing the vision of creating leveraged assets on Terra.
Levana protocol is the first to bring leveraged trading strategies for the Terra DeFi community. Leveraged products in the CeFi/TradFi are associated with higher risk. The fees are higher and the floating leverage, which combined with the bias of the exchange taking the position of the counterpart, can lead to significantly higher losses compared with fixed leverage. While using any DeFi, users can create a 2x leverage with sending collateral, taking out loans and repeating this process 10x. This is both times consuming and the overall overview of the riskiness of the position is clouded. Levana leveraged tokens to do this process automatically, using Mars protocol, and increase the overview ability of users. Another product of Levana is perpetual tokens. The most interesting feature about them is the user’s ability to send perpetual tokens on- or off-chain to utilize them for liquidity farming. The collateral used to buy perpetual tokens must remain in the Levana ecosystem. Risk management is mitigated on a decentralized basis depending on Branches. Furthermore, Levana is gamifying its platform, to further educate, emotionally attach, retain, and possibly expand its base of users. Their recent NFT auction was the first step of the gamifying process.
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