Protocol Revenue Explanation
Last updated
Last updated
A user mints $UTY with a native protocol asset, for example, let’s say Alice mints $1mil worth of $UTY by sending $1mil worth of $AVAX
XSY opens a perpetual short position for $1mil, matching Alice’s mint of $UTY, on a centralized exchange such as Binance or OKX.
On average, XSY is paid every ~8hrs for having the open short position; this is referred to as the “funding rate.”
The funding rate XSY earns is variable, depending on market demand to be long or short the native token.
The end result is Alice has $1mil of $UTY that she can use in a partner protocol, like LFJ and Aave, and XSY has a $1mil delta-neutral position that is neither long nor short that will earn the funding rate on the $1mil position, which ultimately generates revenue for the protocol.