arcUSD
Last updated
Last updated
Arcana distributes the yield generated from delta-neutral strategies through arcUSD, a rebasing token soft-pegged to the dollar. The yield is distributed to arcUSD holders in the form of daily rebases, increasing their balance each period. On top of the rebases, arcUSD can be deployed in DeFi to unlock additional reward composability.
arcUSD is designed for the optimal user experience and maximum flexibility in use.
Rebasing yield accrues directly to the user's wallet
No staking or lock-ups required to earn yield, sell anytime
Permissionless and cross-chain
As Arcana will mainly employ the bitcoin cash and carry trade, BTC will always form the core of Arcana’s backing due to its liquidity and market size. Though, the backing assets portfolio may also increasingly include high-capitalization tokens such as ETH and SOL, by employing other delta-neutral strategies like Liquidity Pool Hedging.
Arcana uses the derivatives markets of its backing assets to hedge positions and generate part of the yield distributed through arcUSD. The value of arcUSD is insulated from significant impacts by market volatility of the underlying assets. Yield is captured through delta-neutral strategies, meaning that value of arcUSD remains constant regardless of any change in the spot price of the backing assets.
BTC represents the biggest share of arcUSD backing since the BTC derivatives market is the biggest with ~$20B of open interest, and growing. Open interest represents the total number of outstanding derivative contracts for an asset that have not been settled. Open interest keeps track of every open position in a particular contract rather than tracking the total volume traded.
When new arcUSD is minted, Arcana buys the backing assets and uses them as collateral (margin) to open a short position in the derivatives market; it's important that there’s enough liquidity and historical data to ensure the safety and efficiency of those positions. Consequently, while the portfolio may grow to include a variety of assets, BTC will continue to represent the largest share.
Any holder of arcUSD accrues the yield generated from delta-neutral strategies, whether they mint it on the Arcana app or they acquire it on the secondary market. Yield is distributed right in holders’ wallets as daily rebases, effectively growing their arcUSD balance.
There’s no staking or locking mechanism involved. arcUSD holders automatically access yield generated by the protocol by simply holding the token in their wallet.
arcUSD can also be deployed across DeFi applications that support rebasing tokens to unlock a new layer of DeFi yields, as explained in detail in the section “Liquidity Flywheel.”
Arcana's yield distribution includes several layers:
Collateral Yield: Represents the gross returns on the diverse portfolio of backing assets. This metric is not directly visible on the protocol dashboard as it is not adjusted for deductions including the insurance fund, protocol fees, and others (refer to the section “Tokenomics” for an updated breakdown).
Protocol Yield: Calculated when the rebase function is called, this figure is adjusted for any smoothing and deductions for the insurance fund, protocol fees, and other revenue shares. If 0% of arcUSD were in the PTa point vault, this would also be the arcUSD yield.
arcUSD Yield: This reflects the actual amount rebased to arcUSD holders, indicating the leveraged Protocol Yield based on user opt-outs from collecting points through PTa.
Learn more about arcUSD yield distribution and APY calculation.
For more information about how the yield is actually generated, refer to the section Delta-neutral Yield Strategies.
KYC’d users can mint and redeem arcUSD on the Arcana app unlocking a new opportunity for them to participate in the peg arbitrage mechanism realizing profits when such a trade can be performed.
Users can mint arcUSD with USDC, a rebasing dollar-pegged stablecoin backed by short-duration US Treasuries.
When the redeem function is used, users will get back USDC. There’s a 7-day cooldown period when users want to redeem their tokens back, instead of swapping on secondary markets. This cooldown period allows the protocol to responsibly unwind the trade and return the collateral assets to users.
For more information about the minting & redeeming process, refer to the section “Mint & Redeem”.
arcUSD is a true cross-chain token as it’s deployed as an Omnichain Fungible Token (OFT), following the LayerZero OFT Standard, which allows arcUSD to be transferred across multiple blockchains without asset wrapping or middlechains.
The OFT standard works by burning tokens on the source chain whenever an omnichain transfer is initiated, sending a message via the LayerZero protocol and delivering a function call to the destination contract to mint the same number of tokens burned, creating a unified supply across all networks LayerZero supports.
