[Reya Network] LTIPP Application - FINAL

SECTION 1: Applicant Information

Applicant Name: Simon Jones

Project Name: Reya

Project Description:

Reya Network is a high-performance trading-optimized EVM rollup that leverages Abitrum Orbit. By specifically optimizing for trading we move beyond technical improvements only and also integrate financial logic to improve capital efficiency and liquidity, which is embedded into the Network itself and accessible by any exchange operating on the Network. Reya Exchange - the first exchange to be built on Reya Network - is a new breed of exchange, leveraging the Network to combine the best in off-chain speed, throughput and user experience, with on-chain execution, clearing and settlement. It will be instrumental in bootstrapping the liquidity and unlocking the powerful network effects in Reya Network’s design.

Team Members and Roles:

We’re a big team, so below we only outline some of the key people at Reya Labs:

  • Simon Jones (CEO & Co-Founder) - 3x founder, 1x exit and prev. founder of Voltz Protocol
  • Artur Begyan (CTO & Co-Founder) - prev. Quant (BAML) and ML engineer (Amazon) also prev. founder of Voltz Protocol
  • Mark Jennings (COO) - prev. COO of Kraken Europe
  • Karl Turner (Head of BD) - prev. Global Head of Institutional Sales @ crypto .com
  • Artur Artur de Araujo (Head of Quant) - PhD in Maths. MIT & Porto; prev. researcher at Arfima Trading

Project Links:

Point of Contact: 0xSimon

Point of Contact’s TG handle: simonjones2

Twitter: https://twitter.com/0xSimonJones

Email: hello@reya.xyz

Do you acknowledge that your team will be subject to a KYC requirement?: Yes

SECTION 2a: Team and Product Information

Provide details on your team’s past and current experience. Any details relating to past projects, recent achievements and any past experience utilizing incentives. Additionally, please provide further details on the state of your product, audience segments, and how you expect incentives to impact the product’s long-term growth and sustainability.

Team experience (Any relevant experience that may be useful in evaluating ability to ship, or execution with grant incentives. Please provide references knowledgeable about past work, where relevant. If you wish to do so privately, indicate that:

The Reya Labs team has an amazing blend of experience across DeFi and CeFi, alongside a track record of successfully building startups and running incentive programs. For example - a large part of the Reya Labs team was involved in creating Voltz Protocol, the world’s first interest-rate-swap DEX, which grew to >$30bn of notional traded in c.12 months. That design was >3000x more capital efficient than other rate mechanisms, a focus that has come across to Reya where trading can be up to 350% more capital efficient and passive LPing can be up to 600% more capital efficient. The team sunset Voltz to focus on Reya, a 1000x bigger idea. Since the main ‘competition’ for Reya Exchange, which will be built on Reya Network, are the CeFi entities, it’s worth highlighting the CeFi experience in the team - with Mark Jennings (prev. COO of Kraken Europe) and Karl Turner (prev. Global Head of Institutional Sales at Crypto.com) having recently been hired.

From an incentive perspective specifically, we have already designed an incentive program for Reya when it goes live. This has been deliberately designed so ‘partner tokens’ can be issued through that mechanism too, as there are multiple partners required to create Reya Network. We have substantial experience in the team to ensure the design accelerates the adoption and long-term success of the project - as an example, it is worth highlighting the soul-bound-token initiative done with Voltz Protocol. Not only was this highly-innovative as an incentives design it also helped support the growth of the project, building a large base of users and trading volume for a new instrument in the space.

What novelty or innovation does your product bring to Arbitrum?

Reya Network leverages the Arbitrum Orbit stack and brings the following advantages to Arbitrum:

  1. Reya Network leverages chain modularity by creating a trading specialized rollup: From a certain point of view (though this is by no means the only point of view), Reya Network is an internalization of Sei into the Arbitrum ecosystem. While generic chains have their space, the modular chain paradigm means that specific components can be specialized and optimized to match and compete with Web2 centralized systems. This will be a boon for innovation generally, but especially for attracting trading activity.

  2. Further accelerate new DeFi projects within the Arbitrum ecosystem: Reya Network is a completely novel design and an exciting innovation to come to the Arbitrum Ecosystem. A successful launch of Reya not only helps Arbitrum in the short term - with more liquidity, trading volume and users coming into the ecosystem - but it also provides a network that will attract more DeFi innovation in the future. i.e. a successful Reya has a compounding impact on Arbitrum ecosystem growth, by attracting even more DeFi innovation. Reya is specifically focused in DeFi trading activity, which means it directly tackles liquidity and capital efficiency.

    • It introduces a novel concept of a Liquidity Network, in which exchanges share liquidity through common financial logic;

    • It introduces cross-margining and levered passive LPing for the first time on chain, making trading up to 350% more capital efficient and passive LPing up to 600% more efficient.

    • The 350% increased capital efficiency for relative value ETH/BTC trading is explained in this medium post

    • The increased 600% capital efficiency for LPs comes from simulations of the passive pool mechanism using Synthetix’s orderflow April-December 2023. It finds that using ETH isolated, the Reya’s mechanism results in >65% APR, compared with Synthetix’ actual 12% APR (which includes SNX inflation); a fundamental factor is that Reya’s mechanism enables safe LP leveraging (at 5x in the simulation). Additional capital efficiency comes from cross-margining effects, also absent from other on-chain passive liquidity mechanisms.

    • When other exchanges build on Reya Network the liquidity across those exchanges becomes ‘interconnected’, removing fragmentation across venues. This design makes it highly attractive for new DeFi projects to build on Reya Network - since they instantly have access to deep liquidity. With Reya Network leveraging the Arbitrum Orbit stack, growth of Reya will further solidify Artbitrum’s position as the home of DeFi.

  3. Bring CeFi users to Arbitrum: Reya Exchange (one of many exchanges that can be built on Reya Network) is designed to compete with CeFi venues. The ultimate objective for Reya Exchange is to bring the 99% of global derivative volume that still goes through centralized venues on-chain. By supporting Reya’s growth, Arbitrum has the opportunity to help accelerate this transition, in-turn helping bring a whole spectrum of users on-chain for the first time.

  4. Bring CeFi venues to Arbitrum: If Reya Network achieves its objectives then it will become the clearing and settlement layer for multiple exchanges. This includes CeFi entities where, through its performance, on-chain clearing and risk mechanisms and liquidity aggregation, it will become a powerful vehicle for attracting CeFi venues onto DeFi rails. In some respects this is the next iteration of a Base or 1X - only the other way round, where we’re attracting CeFi venues onto DeFi rails. In a clear contrast to these chains, Reya has on-chain clearing and risk mechanisms, meaning that it would imply a paradigm shift in making CeFi more like DeFi, and not just moving their execution on chain.

Is your project composable with other projects on Arbitrum? If so, please explain:

Reya Network, which leverages the Arbitrum Orbit stack, is designed to be composable. In fact, one of the core USPs of the network is that the financial logic required to support trading is incorporated into the network design. This means when other exchanges join the network, liquidity on those exchanges becomes interconnected - removing liquidity fragmentation and supporting market depth. This deliberate focus on optimizing for trading will make Reya Network extremely attractive for new (and existing) DEXs to build on, further solidifying Arbitrum’s position as the home of DeFi.

Do you have any comparable protocols within the Arbitrum ecosystem or other blockchains?

No - Reya Network is completely unique. However, to the extent it’s helpful to have comparisons to better understand the value proposition, we consistently get compared to Synthetix at one end and Sei at the other.

How do you measure and think about retention internally? (metrics, target KPIs)

We build user cohorts and measure weekly retention per cohort.

Relevant usage metrics - please provide a list of all respective metrics as well as all metrics in the general section:

Daily Active Users: n/a right now, but will be available soon.

Daily User Growth: n/a right now, but will be available soon.

Daily Transaction Count: n/a right now, but will be available soon.

Daily Protocol Fee: n/a right now, but will be available soon.

Daily Transaction Fee: n/a right now, but will be available soon.

Daily ARB Expenditure and User Claims: n/a

Incentivized User List & Gini: n/a

TVL: n/a right now, but will be available soon.

Trading Volume: n/a right now, but will be available soon.

Open Interest: n/a right now, but will be available soon.

List of Traders: n/a right now, but will be available soon.

List of Liquidity Providers: n/a right now, but will be available soon.

Trader Net P&L Improvement: n/a right now, but will be available soon.

Funding Rate Stability: n/a right now, but will be available soon.

Liquidations: n/a right now, but will be available soon.

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

Did you utilize a grants consultant or other third party not named as a grantee to draft this proposal? If so, please disclose the details of that arrangement here, including conflicts of interest (Note: this does NOT disqualify an applicant):

No

SECTION 2b: PROTOCOL DETAILS

Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.

Is the protocol native to Arbitrum?:

Yes, there will only be one Reya Network and it will be built leveraging Arbitrum Orbit.

On what other networks is the protocol deployed?:

None - it will only be deployed using Arbitrum Orbit.

What date did you deploy on Arbitrum mainnet?:

Mainnet was deployed on the 2nd March 2024.

Do you have a native token?:

Yes it will have a native token, but the token generation event hasn’t happened yet.

Past Incentivization: What liquidity mining/incentive programs, if any, have you previously run? Please share results and dashboards, as applicable?

n/a given Reya is a new project.

Current Incentivization: How are you currently incentivizing your protocol?

Whilst not open to the public yet, Reya has built in liquidity and trading incentives through fee sharing: 60% of fees generated by its passive liquidity pool are allocated to the LPs; and a further 20% are shared with exchanges rerouting trading volume through Reya.

There is also an incentives program planned for launch. This incentives program has been designed to incorporate ‘partner tokens’, as there are many partners required to launch a new network, alongside future REYA tokens. With ARB incentives within this, it would significantly boost the growth, and long-term trajectory, of the network. In turn, this would help bring more DeFi innovation into the Arbitrum ecosystem as teams look to build on the interconnected liquidity available within Reya Network.

Have you received a grant from the DAO, Foundation, or any Arbitrum ecosystem related program?

No.

Protocol Performance:

n/a as not currently open to the public, but will be shortly.

Protocol Roadmap:

  • Q1: Mainnet Launch (complete), but not yet open to public
  • Q2: Mainnet opened to public, which will be for perps only. Spot markets launched later in quarter.
  • Q3: Launch of final rUSD mechanism (a yield-bearing stable coin) & opening of Reya Network for other exchanges.

Audit History & Security Vendors:

ABDK are finalizing an audit report right now.

Security Incidents:

None.

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: 700,000 ARB

Justification for the size of the grant:

What incentives does the protocol require?

The purpose of the grant is to help accelerate the adoption and bootstrapping of Reya Network and Reya Exchange. During this phase the key objective is to build liquidity, trading volume and user numbers. By building liquidity first, this creates great trading conditions. From that point incentives will be used to create the flywheel effect whereby deep liquidity improves trading conditions, which attracts trading volume, and trading volume attracts more liquidity. To achieve this flywheel the incentive model will apply momentum on both sides of the cycle.

In addition to these two main targets, the program will also target engagement activities in an accessory manner, as a way of increasing awareness.

How will the incentives be distributed?

The incentives program includes two components:

  • The airdrop of tokens from a variety of partners, distributed pro rata according to a unified measure of activity, Experience.
  • An on-chain component, Ranks, which will gamify the program by minting NFTs to certify key activity levels. Additionally, it will be instrumental in qualifying users for participation in on-chain decentralized governance of the Network in advance of a governance token, incentivizing deep user engagement and retention, as exemplified by the experience with Voltz Protocol.

Experience will be distributed according to a time-based methodology to both LPs for providing liquidity, and traders, for sustainable Network activity.

  • On the liquidity side, the model targets a minimum return on capital by determining a rate of Experience accrual over total value deposited by an LP. Although we have considered a fee-based model, for bootstrapping a TVL based model seems more effective, given the importance of excessive liquidity at the start both for trading conditions, as well as awareness impact.
  • On the trading side, the model targets open interest metrics. Trading incentives need to be carefully designed if they are not to incentivize market manipulation (e.g., wash trading). The program prevents this by accruing experience at a rate over open interest: users will have to maintain open interest through a period of time, which implies holding risk and increasing the costs of possible manipulation; and by gauging the rate carefully with respect to trading fees (i.e., targeting a fee rebate), the model can control the profit side.

It is worth noting that by the leverage nature of perpetual futures, it is unlikely that users will protractedly maintain open interest (which they must to accrue Experience) by just holding positions, but rather by trading while maintaining exposure. This means that while open interest is not a direct measure of revenue generation, it is indirectly correlated with it – while being more robust against manipulation than direct measures.

To increase immediate awareness, the program does include, in an accessory manner, an apportionment for Galxe quests. Though this is very small relative to the trading and liquidity focus above.

Why will they make an impact on distribution?

The incentives will be distributed for the bootstrapping of the passive liquidity pool, which will be initially deployed for ETH and BTC, with cross-margining enabled, as well as a 5x leverage for LPs. Additional markets will be included if conditions allow.

The system has been conceived and calibrated so that:

  • It aims to guarantee a minimum APR to LPs through ARB distribution, TVL targets being associated with the targeted percentage. This would help make up a return on capital while trading activity is ramping up and still generating suboptimal return. Note that exceeding TVL on a given month will tend to dilute the ARB incentives in subsequent months.
  • It is calibrated, on the trading side, so that it will approximately work as a rebate on trading activity. It is only in an approximate sense because fees are generated by trading activity, not open interest. We assume a given rate of conversion of monthly trading activity to open interest.

Note, however, that airdrops will not necessarily coincide with end-of-month, so that these statements are approximations for estimating the size of the grant.

The grant size is computed with reference to the following KPIs:

Target\Month 1-4 weeks 4-8 weeks 8-12 weeks
Pool TVL 20M 35M 50M
Implied Liquidity 100M 175M 250M
Trading 50M 200M 500M

Implied Liquidity is computed by assuming a deployment of the pool’s TVL at 5x leverage; it ignores further capital efficiency effects due to cross-margining. It corresponds to the actual liquidity level available for trading.

To estimate the potential for the pool once it’s fully operational, we ran simulations on the pool’s mechanism using Synthetix’ order flow for April-December 2023. It found that instead of the 12% realized APR in Synthetix, it would have achieved a 65% APR, 10% of which comes from fee sharing.

However, assuming the same conversion of trading volume to trading profits as in the simulation, With the KPIs above the pool would have returns substantially below it potential because of the ramp up in trading:

  • 6% from fee sharing instead of estimated 10% when fully running;
  • 15% in trading profits and funding fees, instead of 55%.

This means that initial LPs, who play a fundamental role in bootstrapping the network, need the incentives to compensate for significantly lower returns while the Network is gaining momentum. Reya Tokens, and various different partner tokens, will be distributed too, not only make up for the difference, but also substantially reward earlier users.

In particular, the ARB distributions are gauged to contribute c.9.7% to these initial returns, because incentives are directly distributed as a yield. This will significantly help bootstrap TVL as trading volume picks up:

Analogously, the trading component of the grant would imply a 9% trading fee rebate for traders. Assuming trading fees of 5bp:

image

Again, other distributions within the same incentives program will supplement the fee rebate, which will greatly reduce the costs of trading (potentially eliminating them) during the first 12 weeks.

Finally, note that the measure system (‘Experience’) works to enforce these two relationships, in the trading case indirectly through open interest.

How will the impact be retained post-incentives?

Achieving an equilibrium level of liquidity unlocks self-sustaining incentives built into the Network.

  • It will sustainably increase the APR of LPs, by creating sticky trading activity;
  • It will generate Network/Protocol revenue, through the generation of trading fees, and make it available for future development or additional incentives programs as needed;
  • It will unlock automatic incentives in the passive pool’s design, namely sharing of fees both with LPs (60%), as well as with any venue rerouting trading volume through the Network (20%). This immediately affects reach and retention.
  • Finally, it will unlock powerful network effects in the design: by introducing a novel idea of liquidity as an open network between venues, liquidity will attract other exchanges and projects that want to tap into it and share it, further attracting network activity. This directly affects all of reach, retention and revenue.

Additionally, the on-chain component of the incentives program introduces a mechanism for decentralized governance even in anticipation of the REYA token. In particular, it will include the qualification for community votes for decisions around protocol development and maintenance. Previous experience with Voltz Protocol shows that this is a powerful user engagement and retention mechanism, having created a dedicated user base that is moving to Reya.

Grant Matching:

The Arbitrum grant will be matched in two ways:

  • By Reya Network itself, at the Token Generation Event, by retrospectively awarding users for their activity. Precise details are still to be determined, and it is difficult to assess a specific amount because the price of the REYA token is unknown (an Arbitrum grant would contribute to increase the price). However, if the KPIs of the grant are achieved, this can outstrip the amount granted.
  • Additionally, the program is designed specifically to integrate a variety of ecosystem partner tokens - meaning ARB incentives are likely to exist as part of a broader package of incentives too (e.g. the Data Availability partner).

Grant Breakdown:

The following are estimations based on internal modeling of the incentives structure and protocol activity during the period.

Incentive Purpose % of Total ARB amount
Liquidity incentives 71% 500k
Trading incentives (incl. awareness based incentives for growth loop) 29% 200k
TOTAL 100% 700k

Funding Address:

Arbitrum One address: 0x8DC15493a8041f059f18ddBA98ee7dcf93b838Ad

Funding Address Characteristics:

2/3 multisig

Treasury Address:

Arbitrum One address: 0x8DC15493a8041f059f18ddBA98ee7dcf93b838Ad

Eth Mainnet address (for the DAO): 0xb527E950fC7c4F581160768f48b3bfA66a7dE1f0

Contract Address:

To confirm whether the grant can be made to a Reya Network address, or to the Arbitrum One address and the Reya DAO can then transfer to Reya Network.

SECTION 4: GRANT OBJECTIVES, EXECUTION AND MILESTONES

Clearly outline the primary objectives of the program and the Key Performance Indicators (KPIs), execution strategy, and milestones used to measure success. This helps reviewers understand what the program aims to achieve and how progress will be assessed.

Objectives:

There are three primary objectives of the grant:

  1. To help accelerate the liquidity that exists within Reya Network’s passive LP pool → specifically, add $50m TVL by the end of the 12 weeks
  2. To help accelerate trading volume on Reya Exchange (note: this has been carefully designed to disincentive wash trading) → specifically, hit >$100m notional trade a week by the end of the 12 weeks
  3. To help accelerate the growth of new users on Reya Network → specifically hit >20k new users by the end of the 12 weeks

By accelerating the growth of these three, Reya Network will then become a highly attractive place for new (or existing) DEXs to build. Plus it will have the market depth required to start bringing CeFi users on-chain, via Reya Exchange. The net impact of this is that it will

  1. Further solidity Artbitrums position as the home of DeFi
  2. Bring a raft of new users on-chain for the first time
  3. Create a Base/1X competitor within the Arbitrum ecosystem - supporting network effects and marketing efforts.

Execution Strategy:

Execution of the incentives program will be imply a series of components:

  • Most Experience will be distributed through activity based activities, namely by offering liquidity or maintaining open interest.
  • An off-chain system, already ready for production, will track relevant user activity activity to automatically credit Experience to users.
  • Users will be able to mint NFTs once they achieve certain activity levels.
  • Some experience can be gained through awareness and retention activities, including Galxe quests.
  • At regular intervals, partner tokens will be airdropped. Particular details will depend on third parties.

What mechanisms within the incentive design will you implement to incentivize “stickiness” whether it be users, liquidity or some other targeted metric?

The incentives target the generation of a virtuous cycle whereby deep liquidity improves trading conditions, and sustainable trading activity locks liquidity in. To make sure this is a self-sustaining cycle, the incentives are time-based. For example, trading incentives are carefully designed not to incentivize market manipulation (e.g., wash trading): experience accrues at a rate over open interest: maintaining open interest through a period of time implies risk, increasing the costs of possible manipulation; and by gauging the rate carefully with respect to trading fees (i.e., targeting a fee rebate), the model controls the profit side.

The sticky trading volumes will then contribute to stickiness of both liquidity and trading. In the first instance by generating returns on capital; but also, it will unlock automatic incentives in the passive pool’s design, namely sharing of fees both with LPs (60%), as well as with any venue rerouting trading volume through the Network (20%).

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.

TVL (specifically in Reya Network’s Passive LP pool): >$50m by the end of the incentive period. At this point, given the capital efficiency of the Reya Network passive LP pool, there will be more liquidity on Reya Network than in any other passive LP pool based DEX. Remember, uniquely, this liquidity is available to any exchange building on Reya Network - which will further help drive new projects to the network and support Arbitrum’s position as the home of DeFi.

Trading Volume: >$100m a week by the end of the incentive period. (note: the incentive mechanism is designed to disincentivize wash trading).

Grant Timeline and Milestones:

The grant would be monitored with monthly milestones. Target APRs for the liquidity pool from ARB incentives would be achieved at the targets (surpassing the targets would reduce the APRs for subsequent months). Target fee rebates would follow from trading volumes (assuming typical conversion levels to open interest).

Target\Month 1-4 weeks 4-8 weeks 8-12 weeks
Pool TVL 20M 35M 50M
Implied Liquidity 100M 175M 250M
Trading 50M 200M 500M
User Numbers 5k 10k 20k
Gross Revenue $25k $100k $250k
Of which distributed to LPs $15k $60k $150k

How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?

The grant would be instrumental in ensuring a successful bootstrapping of Reya Network and its liquidity. As explained at length in Section 1, this would make unique contributions to the Arbitrum ecosystem:

  1. Internalizing a modular, trading specialized rollup;
  2. Fostering DeFi innovation and interoperability;
  3. Introduce a novel Liquidity Network concept, whereby exchanges can reinforce each other’s liquidity rather than fragment it;
  4. Bringing both CeFi users and CeFi venues to Arbitrum, moving them onto DeFi rails including on-chain clearing and risk.

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

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? Are there any special requests/considerations that should be considered?

Yes - we are happy to comply.

Does your team agree to provide bi-weekly program updates on the Arbitrum Forum thread that reference your OBL dashboard?

Yes - we are happy to comply.

First Offense: In the event that a project does not provide a bi-weekly update, they will be reminded by an involved party (council, advisor, or program manager). Upon this reminder, the project is given 72 hours to complete the requirement or their funding will be halted.

Second Offense: Discussion with an involved party (advisor, pm, council member) that will lead to understanding if funds should keep flowing or not.

Third Offense: Funding is halted permanently

Does your team agree to provide a final closeout report not later than two weeks from the ending date of your program? This report should include summaries of work completed, final cost structure, whether any funds were returned, and any lessons the grantee feels came out of this grant. Where applicable, be sure to include final estimates of acquisition costs of any users, developers, or assets onboarded to Arbitrum chains.

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

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Hello @0xSimon ,

Thank you for your application! Your advisor will be Castle Capital @Atomist.

Please join the LTIPP discord and ping your advisor in the general chat so they can create a new channel and start communicating with you.

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@cliffton.eth and @raam - gm sers - this is now a final submission, please can you edit the title from “Draft” to “Final”, I don’t have permission to change it!

Thank you for your help and looking forward to hearing back from the council!!

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Hey there this proposal has been updated to show that it is FINAL. All the best!

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