SECTION 1: APPLICANT INFORMATION
Applicant Name:
Kamel Aouane
Michele Benericetti
Project Name:
Contango.xyz
Project Description:
Contango builds perps by automating a looping strategy, also known as recursive borrowing and lending. This is achieved using the liquidity of spot and money markets. By using several money markets and currencies, Contango is the home of delta-neutral strategies (e.g. long ETHDAI on Aave v3 and short ETHUSDC on Silo).
Team Members and Roles:
Co-founder, business: Kamel
Co-founder, smart contract: ultrasecr.eth
Co-founder, front-end: Egill
Smart contract: Alfredo
Business dev: Mitch
UXUI: Anabel
Project Links:
Website: https://contango.xyz/
Github: GitHub - contango-xyz/core-v2
Discord/Discourse/Community: Contango
Dune dashboard: https://dune.com/contango_xyz/contango-v2
Contact Information
@contango (we used one handle for several individuals to access the application on the forum)
Point of Contact’s TG handle:
kamelaouane
mbenericetti
Twitter:
https://twitter.com/Contango_xyz
Email:
marketing@contango.exchange
Do you acknowledge that your team will be subject to a KYC requirement?
Yes
SECTION 2a: Team and Product Information
Team experience :
- Previously, the founders have worked together at Adaptive, a consulting company building advanced trading technology for both TradFi and crypto. The products they helped to create were: smart route engines, derivative exchanges, trading interfaces. Their most notable work was developing the Eris-X exchange, later acquired by the CBOE.
- The team has successfully shipped Contango v1 in Q4 2022, built on top of Yield protocol fixed rates on Arbitrum, and Contango v2 in Q4 2023.
- The team has shipped its own grant incentives, a.k.a. points, on the 24th of January 2024. Since we launched in Nov 2023, it took us 3 months to reach 16M$ of trading volume and $7M in open interest. Those metrics have gone 2-3x in less than a month since the launch of our point program to reach 43M$ in volume and 18M$ in open interest!
What novelty or innovation does your product bring to Arbitrum?
Contango v2 provides perps by leveraging money markets and spot markets through flashloans. Please refer to this post for a good introduction.
It is innovative because Contango lies in an experienced use of existing infrastructure (spot and lending markets) and technology (flash loans and meta-aggregators) to deliver a trading app with above-par features:
- It leverages the liquidity of DeFi spot and lending markets on Arbitrum 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.
- cPerps 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. Those data are extracted from an academic research with Simtopia, together with the University of Edinburgh, University College London and Contango.xyz.
- By using several money markets and currencies, Contango is the home of delta-neutral strategies (e.g. long ETHDAI on Aave v3 and short ETHUSDC on Silo). Those strategies allow more efficient DeFi markets between different money markets and chains.
The Contango app allows you to compare rates across different money market / chains / instruments:
Which allows delta-neutral strategies, e.g.:
- go long ETHUSDC on Aave v3, for a position size of 30k with 3x leverage, and pay 16% ROE
- go short ETHUSDC.e on Silo , for a position size of 30k with 3x leverage, and receive 88% ROE
- net a 72% ROE!
Is your project composable with other projects on Arbitrum? If so, please explain:
Yes, as mentioned previously, Contango is built on top of money markets and spot markets on Arbitrum. Such as Aave, Lodestar, Silo, Radiant or Paraswap, Uniswap, etc.
Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?
The most notable comparable protocols, in terms of mechanics used to offer leverage through flashloans, are Instadapp and DefiSaver. However, Contango focuses on the perp/trading interface and instrument look-up for delta-neutral strategies.
How do you measure and think about retention internally?
Let’s go through an example to better understand some metrics:
- trader A gets into a leverage position for 10 ETH, the total volume is 10 ETH and the open interest is 10 ETH.
- Trader B gets into a leverage position for 15 ETH, the total volume is now 25 ETH and the open interest is 25 ETH.
- Trader A closes its position, the total volume is 35 ETH but the open interest is now 15 ETH.
You see that the higher the open interest, the longer users stay involved on the platform. The open interest on Contango is the sum of lending positions on the underlying money markets. Hence, a higher open interest means a higher Contango TVL, a higher underlying money market TVL and a higher Arbitrum TVL. The best metric we have to measure stickiness is the open interest or TVL. Currently the open interest is 18M$ on all chains and 5M$ on Arbitrum.
The target KPI on open interest would allow Contango to be in the top 10 of TVL of derivative protocols on Arbitrum (borrows included). Contango is currently ranked 11th.
Relevant usage metrics:
Please note Contango does not have:
- Any LPs
- Any fees at the moment
- Liquidators as liquidations are carried by the underlying money markets.
| Category | Metric | Dune query |
|---|---|---|
| General Metrics | Daily Active Users: A time series metric representing the daily count of unique addresses interacting with the protocol’s contracts. | https://dune.com/queries/3471976/5835388 |
| Daily User Growth: A time series metric representing the daily user growth (in addresses) interacting with the protocol’s contracts. | https://dune.com/queries/3472001/5835436 | |
| Daily Transaction Count: A time series metric representing the daily number of transactions interacting with the protocol’s contracts. | https://dune.com/queries/3294493/5515574 | |
| Perpetuals | Open Interest / TVL: A daily time series measured in USD. Open interest is also a proxy for TVL (borrows included). | https://dune.com/queries/3278071/5515659 |
| Trading Volume: A daily time series, also measured in USD. | https://dune.com/queries/3277131/5485434 | |
| List of Traders: A comprehensive record of individuals or entities that have engaged in trading activities. This list should include trader addresses and the volume of trades executed. | https://dune.com/queries/3274474/5487143 |
Do you agree to remove team-controlled wallets from all milestone metrics AND exclude team-controlled wallets from any incentives included in your plan:
Yes. Please check our list of trades on Dune. You must be well-aware perp protocols play the washtrading war to pump volumes. We are not playing this game.
Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal?
No
SECTION 2b: PROTOCOL DETAILS
Is the protocol native to Arbitrum?
Yes. We first launched on Arbitrum with both Contango v1 and v2. We are now multi-chain.
On what other networks is the protocol deployed?
Arbitrum, Optimism, Mainnet ETH, Polygon, Base, Gnosis.
What date did you deploy on Arbitrum mainnet?
Contango v2 was deployed for the first time on Aug 10 2023 but it went public on November 2023.
Main contract address: ERC1967Proxy | Address 0xa6a147946facac9e0b99824870b36088764f969f | Arbiscan
Transaction ID: Arbitrum Transaction Hash (Txhash) Details | Arbiscan
FYI Contango v1 was deployed on Arbitrum on Aug 31 2022. Transaction ID: Arbitrum Transaction Hash (Txhash) Details | Arbiscan
Do you have a native token?
No, it is planned for Q2 2024. Link to tokenomics docs: Tokenomics - Contango v2
Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run?
No past incentives but current ones.
Current Incentivization: How are you currently incentivizing your protocol?
We are running a point system since the 24th of January 2024 which successfully increased our volume, open interest, number of transactions and unique addresses. Please see our Dune dasboard.
Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program?
No.
Protocol Performance:
Please see our Dune dashboard.
If TVL is used as a proxy for Open Interest, Contango is currently ranked 11th for the TVL of derivative protocols on Arbitrum (borrows included) and number 3 on Optimism (source: Defillama).
Protocol Roadmap:
Q1 2024:
- better tools to compare cPerp rates across money markets, including long/short delta neutral opportunities.
- Simplified tools for correlated asset looping (e.g. wstETHETH)
- Historical rates on money markets.
Q2 2024:
- token launch with specific mechanics (not public)
- cross-margin
Q3/Q4 2024: higher leverage.
Audit History & Security Vendors:
Our code is fully audited by ABDK: core-v2/audit/ABDK_Contango_CoreV2_v_2_0.pdf at main · contango-xyz/core-v2 · GitHub
Please note we do not have LPs and we do not have a bug bounty for the time being.
Security Incidents:
The protocol has never been exploited.
SECTION 3: GRANT INFORMATION
Detail the requested grant size, provide an overview of the budget breakdown, specify the funding and contract addresses, and describe any matching funds if relevant.
Requested Grant Size:
220,000 ARB
Justification for the size of the grant:
Goal
The goal of the grant is to increase our open interest:
- Current open interest of 5M$
- Target open interest of 20M$ (400% growth).
Please note that increasing open interest is a very good proxy to also increase volume but considering open interest allows us to have Sybil + wash trading resistant mechanisms (see section 4).
Incentivization mechanisms
Incentivise APR → less cost / higher APR → more new users → more open interest → more sticky users
Reach of our KPI
To reach our goal, we will use ARB tokens to give:
- An extra APR of 5% on correlated assets
- An extra APR of 20% on non-correlated assets.
This ratio of 20%/5%=4 was chosen to approximately equal the ratio between “safe” leverages, when opening a position, on wstEHETH and ETHUSDC on Aave (12/3=4).
Grant size
We will assume the most optimistic case where the increase in open interest will occur from the start of the program and we assume a constant split of 70%/30% for correlated VS /non-correlated pairs (historical data, see our dashboard). We will pay each week 20M$*70%*5%/52 + 20M$*30%*20%/52 = 36,538$, i.e. 438,462$ for the 12 weeks. At 2$ per ARB token, that’s 18,269 ARB / week, i.e. a total of 219,231ARB for the 12 weeks. This value has been rounded-up to 220,000 ARB.
All computations are available on this spreadsheet Public - ARB <> Contango Grant model - Google Sheets
Grant Matching:
N.A.
Grant Breakdown:
100% of the grant will be distributed weekly, 18,269 ARB / week, to users trading on all available trading pairs on Arbitrum markets: Aave, Silo, Radiant and Lodestar. Each user will receive ARB rewards proportional to the average open interest in the week for correlated and non-correlated pairs.
It should be noted that:
- The average open interest, over a 1 minute interval, will be taken into account to know how much open interest was hold over a 1 week period
- The APR from ARB will be capped to 20% on non-correlated assets and 5% on correlated assets on a given week. If there is any ARB leftover, those tokens will be allocated to next week hence increasing the APRs. This strategy would allow us to have more attractive yields to attract users to our platform to reach our KPI.
Let’s walk through an example to see a weekly distribution. At the end of a week, there are 22M$ in open interest with 75% on correlated pairs and 25% on non-correlated pairs. The price of ARB is 2$. Trader A will receive:
- 268 ARB tokens given its open interest of 565,000$ on correlated assets (assuming the open interest was kept for the full week). The APR is estimated to be 4.94%.
- 617 ARB tokens given its open interest of 325,000$ on correlated assets (assuming the open interest was kept for the full week). The APR is estimated to be 19.74%.
The full detail of this example could be found on this spreadsheet Public - ARB <> Contango Grant model - Google Sheets
If, instead of 18,269 ARB, 16,269 ARB are distributed due the 20%/5% cap then the 2,000 remaining ARB are added to the weekly distribution of the following week. I.e. the following week 20,269 ARB will be distributed. An example is available on Public - ARB <> Contango Grant model - Google Sheets .
If, at the end of the grant program, any ARB are left then the tokens will be returned to the Arbitrum DAO.
Funding Address:
0x672E032290CB20c72CBCaB9721cb530704C6cB12
Funding Address Characteristics:
â…” multisig
Treasury Address:
0x643178CF8AEc063962654CAc256FD1f7fe06ac28
Contract Address:
Several options are available:
- Perform computations off-chain at the end of each week and distribute the ARB tokens to the users. Please note that all information to do the computation/distribution are available on our dune dashboard.
- Deploy an airdrop contract allowing for users to claim their $ARB rewards periodically. This option would require the development and audit of the contract.
The most appropriate option will be discussed with the Arbitrum team.
SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES
Objectives:
The primary objectives are to increase our open interest and consequently our total volume traded. Open interest is our main metric for the stickiness of our users and to avoid any wash-trading on the volume traded (see next question).
We want more people to do delta-neutral strategies. People will come to Contango to farm ARB rewards by doing delta-neutral strategies. But which one? Do you simply go long/short on ETHUSDC but on which money market? People will then look for the best ROE by mixing different money markets and currencies (e.g. go long ETHDAI on Aave v3 and go short ETHUSDC on Silo).
We also want to attract users from other ecosystems to try our perps built on money markets. They will enjoy the deepest liquidity with the fastest and more accurate execution on any L2s.
For those coming from L1s, they will see that the liquidity, transaction fee and transaction speed are very appealing.
But we would like to be more ambitious. We also believe that any trader on CEX would have a strong interest to stick to Contango. cPerps 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 (see our academic paper).
Execution Strategy:
The execution strategy is described above in the “Grant breakdown”. As explained in the next question, open interest is also a good proxy for volume. However we prioritized open interest metrics over volume in our execution to:
- Protect ourselves from washtrading. Increasing volume through wahs trading, by opening and closing positions, will not increase your open interest
- Protect ourselves from sybil attacks. Having 2 positions, instead of 1, will result in the same open interest and hence the same ARB rewards.
What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric?
By incentivizing delta-neutral strategies with ARB rewards, people will learn how to find the best ROEs. No other platforms allow you to have access to so many perps built on many markets with their underlying opportunities. Hence, delta-neutral traders will naturally stay or come-back on Contango.
Also, on the 29th of February 2024, and since being live in November 2023, Contango had a total volume of 43M$ and an open interest of 18M$. On Arbitrum this is 14M$ and 5M$ respectively. That’s a ratio of volume VS open interest of 2.8 but, considering the price action in the past 3 months, let’s consider a ratio of 4. It means that for each 1$ traded, 25 cents remained in open interest. Hence by incentivising open interest, we are also incentivising volume.
This ratio of 4 is very high for a perp venue: once a position is opened, users stick to the platform. However it should be noted that 70% of our open interest comes from correlated assets, e.g. wstETHETH loops, and 30% comes from non-correlated assets, e.g. ETHUSDC. All those metrics could be checked on our Dune dashboard.
Specify the KPIs that will be used to measure success in achieving the grant objectives and designate a source of truth for governance to use to verify accuracy.
Our main KPI is open interest which could be followed on our Dune dashboard.
Grant Timeline and Milestones:
3 milestones in the following timeline:
- After 4 weeks: have 33% of the target of 20M$, i.e. 6.6M$ of open interest for at least 14 days in the past 4 weeks
- After 8 weeks: have 66% of the target of 20M$, i.e. 13.4M$ of open interest for at least 14 days in the past 8 weeks
- After 12 weeks: have 100% of the target of 20M$, i.e. 20M$ of open interest for at least 14 days in the past 12 weeks.
We will know if those KPIs are reached by following our Dune dashboard.
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?
Contango has already traded 14M$ and currently has 5M$ of open interest on Arbitrum. This means that several actors in the Arbitrum ecosystem are collecting fees thanks to Contango:
- The underlying spot markets
- The underlying money markets
- The Arbitrum DAO.
Receiving a grant would mean more fees and more growth for all those actors.
Do you accept the funding of your grant streamed linearly for the duration of your grant proposal, and that the multisig holds the power to halt your stream? [Yes/No]
Yes
SECTION 5: Data and Reporting
Is your team prepared to comply with OBL’s data requirements for the entire life of the program and three months following and then handoff to the Arbitrum DAO?
Yes we are prepared to comply with OBL’s data requirements. Most of the metrics are already on our Dune dashboard. Please note that, on the perpetual metrics:
- The list of liquidity providers are the ones available on the underlying money markets. Hence this information will is not available on our dashboard.
- The funding rate stability will be available through our app directly. Please note we have already done an academic research on the subject.
- The liquidations are performed directly by the underlying money markets hence no information on liquidations are available on our dashboard.
Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard?
Yes. Most of the metrics are already on our Dune dashboard.
Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program?
Yes
Does your team acknowledge that failure to comply with any of the above requests can result in the halting of the program’s funding stream?:
Yes
