Ajna perps on Contango
Request
Recieving Address: 0xAEe07CFaeA5eaaB0487968AFdcFFceEaCa48851E (if L1 or we can provide a diff one if L2)
AJNA Amount: 190,000 (at current price of $0.08 we estimate this to be around $15,000, but we can update this later to reflect a more precise amount at the ongoing prices).
Applicant and Team Information
Applicant Name: Kamel, Mitch
Email: marketing@contango.exchange
About you and/or the team:
Contango was created in July 2021 at ETH Global (under the name of Vanilla protocol) by three co-founders, Kamel, Ultrasecr.eth and Egill. Originally Contango’s v1 focused on dated futures, while v2 is currently offering perps. The team later expanded by leveraging personal networks.
Previously, the majority of the team has worked together building advanced trading technology for both TradFi and crypto. Clients included: Swissborg, the Chicago Mercantile Exchange, the Chicago Board Option Exchange.
The products we helped create were: smart route engines, derivative exchanges, trading interfaces.
Currently this is our team:
Kamel (business and co-founder) has a background in financial engineering.
Ultrasecr.eth (backend and co-founder) has a background in software engineering.
Egill (frontend and co-founder) has a background in finance and software engineering.
Alfredo (backend) has a background in software engineering.
Anabel (UXUI) has a background in creative design.
Mitch (BD), has a background in economics and sales.
Project Information
1. What is it?
This proposal aims at increasing borrowing activity through leveraged trading by integrating AJNA markets as a liquidity source on Contango.
Contango builds perps by automating a looping strategy on money markets, through flash loans.
Example: when a trader opens a long ETH/USDC position with USDC as margin, Contango gets the remaining USDC from a flash loan, swaps all USDC for ETH on the spot market, then supplies ETH as collateral on a money market, to borrow USDC against it and repay the flash loan. Closing a position means reversing the above steps. Shorts work in a similar fashion, as if they were linear contracts on the opposite pair (USDC/ETH).
Contango is unique because:
- It leverages the liquidity of DeFi spot and lending markets to synthetize perp positions with up to 14x leverage. This aggregates liquidity on-chain instead of fragmenting it.
- With this architecture, there are no LPs to take the other side of each trade. Even the protocol itself doesn’t hold counterparty risk as it simply automates a looping strategy on lending markets.
- Contango perps’ funding rates are cheaper (2x to 3x difference), less volatile (2x to 4x difference), and un-correlated to the funding rates of traditional perps such as Binance or dYdX.
Contango has already built a professional trading interface tapping into several money markets, across major chains. Contango is fully audited and live at app.contango.xyz across 6 chains and 12 money markets, and has settled around $80M in volume and has around $30M in open interest.
More stats available on our Dune.
Interestingly, the design behind Contango is extremely adaptive and scalable, allowing it to integrate new markets really quickly. That being said, each new market integration has go-to market costs that range from dev work to auditing and marketing.
The aim of this proposal is to outline the case for an AJNA grant to cover part of said go-to market costs. We’re aware that, regardless of the grant, the Contango team still has an incentive to integrate AJNA anyways, since it’s TVL is growing and users are asking for this integration across Discord, DeBank and Twitter.
A successful grant proposal will effectively speed up the integration process and bring additional borrowing volumes to AJNA right away. An unsuccessful proposal will simply delay integration to an undetermined date in the future.
2. What problem is being solved, how?
Contango, by design, solves liquidity fragmentation and enables a derivative layer on top of existing defi pillars like AJNA. It aggregates spot and lending markets, allowing traders to take a leverage position on them. It’s pure spot liquidity, with pure leverage from lending markets.
According to our vision, money markets like AJNA are the place to build derivatives on, as they provide three key benefits for users looking to lever up:
- Traders are not exposed to potential insolvency as in protocols where their PnL is offset by liquidity providers (GMX-style). In other words, there are no LPs to take the other side of each trade. Even the protocol itself doesn’t hold counterparty risk as it simply automates a looping strategy on a lending market like AJNA
- Funding rates are expected to be cheaper and less volatile (see this academic research done with Simtopia, together with the University of Edinburgh, University College London and Contango.xyz).
- Given the customizable nature of AJNA in terms of assets and LTV ratios, Contango can list more exotic pairs and have tighter liquidation margins. Effectively, Contango will become the trading UI for users looking to lever up on AJNA assets.
3. How will this project be a source of growth or success for Ajna? Please include a step-by-step summary of how you imagine the completed project will affect Ajna.
By carrying out the steps mentioned in the previous section, Contango is able to synthesize a perp position, where PnL is computed on each block. Also, the equivalent of a standard perp funding fee is called APY and is given by the difference between the cashflow on the lending and borrowing legs, and is settled as PnL when the trader exits the position.
4. What is/are the objective(s)?
The objective of the current grant request is to integrate AJNA as a new money market on Contango. This achieves several goals:
For AJNA:
- it pumps borrowing and lending volumes.
- it brings a professional trading interface to lever up, with proper metrics like liquidation price, maintenance margin, SL/TP, etc.
For Contango:
- it adds another liquidity source.
- it adds a valuable protocol that allows for greater customization in terms of assets and LTVs.
5. What is/are the deliverable(s)?
Integration of a new money market on Contango normally follows these steps:
- Development of the smart contract adapter + audit ($8,000)
At a high level, all integrations are pretty similar, but each has its own specificities that require careful handling and a dedicated audit. We plan to complete the SC work in 3 days and costs approximately $6,000. The rest of the system is already audited by ABDK.
Deliverables: open source but business-licensed SC + audit report (Q2 2024)
- Front end + infra ($5,000)
On the FE side of things, work is required to develop a “view model”, i.e.a standardized interface for rates, liquidity, rewards, etc, plus there’s some work related to collecting/storing/serving chart data (for new pairs), QA, and infra. We expect this to take 5 days of man-power resources on our side and cost approximately $5,000. We can also guarantee that Contango can shoulder infra costs associated with this integration for at least 5 more years.
Deliverables: a beta URL link for internal review, with a fully functioning trading UI for AJNA + a dedicated URL, e.g. ajan.contango.xyz that already pre-filters AJNA’s pairs for its users (Q2 2024)
- Launch + secure initial traction ($1,000)
Contango will launch the integration publicly and market it across its channels and dedicated marketing tools to obtain new leads across AJNA’s existing user base. Based on previous volumes with similar markets, we target to stimulate borrowing volumes for approximately $1M over the first couple of months. However, ongoing rate, liquidity, rewards on AJNA and other markets might affect this estimate as market participants might be incentivized to shift capital to better funding rates or yield opportunities.
Deliverables: live integration + marketing across channels (Q2 or Q3 2024)
- Community feedback ($1,000)
Lastly, soliciting feedback from the AJNA community goes hand in hand with the previous milestone since, as time goes by, more users will be onboarded and eventually asked for feedback. We plan to build a dedicated questionnaire and/or start DeBank chats with users to collect valuable feedback and finetune the integration.
Deliverables: small internal report to Ajna (Q3 2024)
6. What is the timeline for completing the deliverables?
See above.
7. What level of support do you anticipate needing through the duration of the project?
A TG chat with the AJNA devs could help solve any integration issue. Feedback is welcome from both devs and community on the beta link and the final UI.
Ideally, given the nature of the delivarable, we’d love to see Contango listed as an AJNA partner on AJNA’s website. We also expect some co-marketing effort on AJNA’s side to help promote the dedicated AJNA’s trading interface.
8. How often will progress reports be published to the forum?
We plan to give updates for each milestone mentioned above, in that timespan.
9. What are the estimated costs associated with the full completion of this project?
As mentioned above, we estimate costs to be around $15,000.
10. If applicable, How will the project be maintained after completion of the grant?
As mentioned, we can also guarantee that Contango can shoulder infra costs associated with this integration for at least 5 more years.
Additional Information
11. How will you handle a delay in your project timeline?
Delays will be communicated publicly. They’re unlikely to happen given we already integrated 12 money markets before and know the timing of this process. Slight changes to the above mentioned timeline might occur but will also be communicated before commencing the work.
12. How will you handle a scenario where the project can’t be completed due to insufficient funding or other factors?
We’ll likely ask for the missing amount in the next grant cycle.
13. How will you handle a scenario where the project is completed, but significantly under-budget?
We’ve estimated this cost for other integrations and it’s in line with similar applications.
@Delegates feedback is welcome!
Wish we could accommodate more than 10.