Vanna Finance

Problem:

• While crypto has grown significantly, derivative volumes in DeFi remain low compared to the high volumes in centralized finance (CFI).
• This disparity is due to the lack of adoption among retail traders, which is driven by limited access to liquidity and the absence of user-friendly position management dashboards.
• In the traditional financial world, a significant portion of derivative trading volume is generated by proprietary trading firms. Solution
• Our approach involves connecting two groups: traders who lack liquidity and passive lenders who have liquidity but lack trading expertise.
  • Liquidity Providers: Supply liquidity unilaterally, similar to platforms like AAVE and Compound, and earn passive APY without risking permanent loss.
  • Leverage Takers: Borrow this liquidity with minimal collateral (10x leverage) to use in existing DeFi options/futures protocols and equity markets to execute hedging strategies like Covered Call, short Gamma, etc., enabling more dynamic and flexible trading opportunities.
• By grouping them together, we can leverage the strengths of both parties.
• Additionally, we will provide a trader-friendly position monitoring dashboard to leverage takers to enhance their trading efficiency and decision-making.
• Every action of the trader or liquidity borrower goes through Vanna Finance's predefined rules to maintain protocol solvency.

"Technical Solution"

• We are currently live on Optimism with integration of the Perp protocol and Uniswap.
• Lending: Liquidity providers provide liquidity by calling the lend function, which transfers it to Vanna's pool.
• Trading: Traders who have knowledge of derivative hedging first open a smart account, and all the actions of the traders are done through that smart account.
• Every trader has their own separate smart account, which follows Vanna's predefined rules.
• Traders provide initial margin in the smart account by calling the deposit function.
• After that, they can take composable leverage up to 10x on the initial margin by calling the borrow function.
• With the initial margin + composable leverage, they execute the hedging strategy.
• In the current integration, they use Perp to execute the basis trading strategy.
• Here, all the funds are inside the smart account, and all actions go through the smart account. For holding equity, they can swap on Uniswap.
• After opening the position, they can manage the position through the dashboard.
• To manage this big risk, Vanna has an internal liquidation bot that continuously monitors positions, and if the health factor drops, it gets liquidated.

I built this project using the concept of account abstraction, specifically EIP-4337, which helps create a bridge between lenders and traders, ensuring that all actions are executed securely. We are currently live on Optimism with the integration of the Perp protocol. With this approach, we've achieved up to 1000x leverage and allow users to open undercollateralized loans.