Posted by: Nunchi Research Team
Abstract:
Traditional DeFi carry trades (e.g., delta-neutral basis harvesting, yield arbitrage) are characterized by profound capital and operational inefficiencies due to venue fragmentation. This post outlines Nunchi’s architectural approach to solving this problem by isolating discrete risk factors (NAV basis, IL, funding rates, variable yield) into distinct, tradable perpetual instruments within a unified margin system. We then present our internal R&D path for modeling and enabling the next generation of on-chain strategies that these primitives make possible.
1. The Nunchi Approach: Synthetic Replication of Multi-Leg Strategies
Our protocol is architected to allow for the synthetic replication of complex exposures. Instead of executing a spot-vs-perp trade across two platforms, a trader can construct the desired exposure within a single, portfolio-margined account.
- Example: A “pure fee farming” strategy on a Uniswap v3 LP position can be constructed by holding the LP token as collateral while simultaneously shorting the NAV-Basis Perpetual and the IL-Perpetual, and going long the 24-Hour Fee-APR Perpetual. All legs are margined as a unified portfolio.
2. Internal Research & Development Agenda
The introduction of these composable primitives is the starting point for our current research cycle. Our efforts are now focused on formally modeling and enabling more sophisticated on-chain strategies. We welcome discussion and collaboration on these topics.
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(A) Modeling and Instrument Design for Advanced Strategies: We are actively engaged in quantitative research to model the mechanics of relative-value strategies, including term structure (curve) trades and volatility arbitrage.
- Next Steps & Discussion Point: We will be publishing technical specifications for new instruments, such as Rate Curve Perpetuals. We are seeking feedback from quantitative trading firms on these designs to ensure they meet professional needs. The findings will directly inform the correlation parameters (ρ) of our portfolio margining system.
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(B) Enabling the Structured Product Ecosystem: We aim for Nunchi to be the base layer for on-chain, risk-managed yield products.
- Next Steps & Discussion Point: We are developing robust SDKs and APIs and prototyping proof-of-concept strategy vaults as reference implementations. We are interested in collaborating with protocols that wish to build novel, automated yield products on top of our infrastructure.
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(C) Analyzing Second-Order Effects on Liquidity Dynamics: A core research question is how market microstructure will evolve when LPs have access to perfect hedging tools for IL and NAV risk.
- Next Steps & Discussion Point: We are employing agent-based simulations to model LP behavior. Our primary focus is to determine if access to efficient hedges leads to structurally tighter spreads and deeper liquidity. The results will be used to refine the strategies of our own Automated Bin Manager (ABM). We invite other researchers in this field to share their findings.