Leverage and Loss: Handling Highly Volatile Blockchain Trades

24 May 2024

Today I'm speaking with John Brian Carthy, and we'll discuss had his experiences building Levana. Let's get straight into it!

Please tell us your name, what you do and how you got into the blockchain space

My name is John Brian Carthy, Head of Marketing and Socials at Levana. Back in 2020, I bought my first sats after many years of looking on with curiosity and never looked back! Everything took off from there and I went down a path of learning and exploration, writing, doing interviews and making videos. All this led to now, where my conviction in the importance of decentralisation is strong and I’m immersed in the space from my work with Levana and Helios Staking.

What inspired the creation of Levana under the Delphi Labs program, and how does it differentiate it from other projects launched under the same initiative?

Delphi Labs initially incubated multiple projects on Terra such as Mars, Astroport and indeed, Levana, before the crash. After the crash each project deployed on multiple chains on Cosmos.

What makes Levana different is simple. Levana saw an opportunity to create a platform that firstly allowed people to leverage trade using their native assets such as BTC, ETH, and INJ as collateral, allowing more passive exposure to the upside potential of crypto while still being able to trade.

Secondly, people can take those assets and provide liquidity to markets on Levana, essentially earning acting as the counter-liquidity to traders - and profiting from the statistical unprofitability of traders, earning in their asset of choice.

Levana wants to create a self-sustaining trading ecosystem where the community can benefit at every level. These two opportunities are unique in the DeFi space and set Levana apart from other projects.

Could you detail your platform's specific trading options for commodities such as gold, the Chinese yuan, the euro, the British pound, and silver?

Levana offers Crypto, Commodities and Forex markets. People can use some of their favorite crypto assets such as BTC, ETH, INJ and more as collateral, along with stablecoins, to trade a wide range of markets including Bitcoin, Ethereum, Gold, Silver, Euro and the Chinese Yuan.

Levana is also the only platform that allows users to leverage trade liquid staking tokens, allowing them to benefit from a triple-compounding effect of accumulating staking rewards, benefitting from price increases of the underlying asset, and earning more of the asset itself through providing liquidity or leverage trading.

What challenges did Levana face in integrating these commodities into a DeFi context, and how were they overcome?

The biggest challenge in integrating commodities into Levana was obtaining accurate and trustless price feeds for things like Gold and Silver.

Levana wanted to create a protocol that could support any asset, so the key challenge was to speedily and reliably integrate smart contract-compatible price feeds for real-world assets (RWA).

Pyth’s Oracle allows Levana to integrate hundreds of smart contract-compatible price feeds into the platform, which is pivotal to these integrations. The support of other partners and the work of Levana’s outstanding team have also been integral, and continue to be.

Levana allows users to profit from other traders' fees or losses, much like "being the house" in a casino. How does this feature work, and what has been the user response?

With other platforms the only way to make money is by trading, trading is statistically unprofitable for most, but not all. Levana allows users to ‘be the house’ and provide liquidity for traders to trade against as LPs. Users can simply passively benefit from the statistical probability that most traders will lose money.

The more people that come and trade, the more Levana LPs earn. Rather uniquely, markets on Levana are collateralised in a wide range of assets. Therefore there are a wide range of assets available to deposit and earn in that asset itself. For example, users can deposit INJ into the LP on Levana’s INJ/USD market and earn all their rewards in INJ, maintaining a greater exposure to the asset with greater upside potential.

Could you describe the mechanism behind turning non-working crypto assets into working assets through collateralized markets?

Let’s take Bitcoin, for example. At its core, it’s a non-working asset, but DeFi changes that dynamic.

On Levana, you can deposit wrapped BTC into our heavily audited contracts and put it to work. You then get paid LP fees from providing the counter-collateral to traders positions, and fortunately for LPs, most traders lose. We do the same for Liquid Staking Tokens, native tokens, and offer a more dynamic way to put the asset to work to earn significant yield than for staking and spot trading.

Levana offers 30x leverage on trades with native tokens. What measures are in place to manage the risks associated with high leverage?

Levana takes a robust and comprehensive approach to launching new markets, with certain criteria that need to be met. These criteria ensure minimal risk of spot price manipulation by having minimum thresholds for trading volume and liquidity. The protocol is carefully designed to minimize risk to users and ensure the integrity of the markets and assets listed on Levana.

How do you maintain a zero insolvency risk, and what does this mean for users’ profit and loss (PnL) security?

When traders open positions on Levana, either the platform sets a max gain, or the user sets a manual TP point. Once there is no more counter-collateral to pay the theoretical maximum trade winnings open on the market, no more positions can be opened. So in essence, Levana always has enough liquidity to pay the maximum gain of every open position.

Following the collapse of the Terra blockchain, Levana had to pivot significantly. What were the major changes, and how have they impacted the platform’s strategy?

On Terra, Levana had broader applications, including a Leverage ETF, Options Trading, NFTs, GameFi, and Perps. After the crash, the team was cut down, and Levana's core focus switched to delivering a novel new perps platform.

I wasn't with the team at that moment, but I would say the major challenge has been rebuilding the community. A lot of our core community was significantly affected by those events and departed. It’s definitely been a challenge, but the team has never stopped building, and now it’s time to find the new wave of community members.

Levana are proud to have had the resourcefulness and ingenuity to come out the other side of these challenges, having seen other promising projects shut down because of the turmoil.

The vision and roadmap had to pivot and we have brought and continue to work hard to bring Levana to a new audience on Cosmos, with whom it’s values and the opportunity it presents resonates. This is reflected by the numbers with over $2.5bn of trading volume and over $3m of rewards distributed to Levana’s LPs.

How has Levana integrated with other platforms like Osmosis, Sei, and Injective, and what has been the impact of these integrations on your user base and liquidity?

It made sense to choose these chains because they offer a robust tech stack to build upon in terms of cost, speed, and user experience. The respective foundations offered great support to us and enhanced platform activity, so the integrations have been nothing but positive.

The expansion and growth to new chains is aligned with Levana’s mission of empowering users to leverage any asset, as it means the platform can integrate the native assets from the respective chains.

The expansion and integration of new chains are also aligned with Levana's overall growth in terms of users and trading volume. More expansion is planned in terms of integrating new ecosystems into Levana, so keep an eye out for that!

How do you anticipate the market for these trading options evolving in the coming years?

I can only see the demand for DeFi and by extension, the trading options Levana offer growing, especially as the digital asset market matures, and trust and credibility of both the assets and the on-chain opportunities it presents are widely established with education, awareness and integration. Advances like account abstraction are going to play a huge role in onboarding new users to blockchain, allowing them to maintain self-custody, while simultaneously allowing them to circumnavigate the complexity of it. People will be using blockchain without knowing what blockchain is.

How might upcoming regulatory changes affect leverage trading practices?

Levana are hopeful that more regulatory clarity will emerge in the near future and we are optimistic that the value of decentralized technologies can bring forward to society as a whole will be recognised by those who have the power to create an environment for DeFi to grow and thrive. Levana will remain agile and continue taking all the appropriate steps to comply with regulations as they emerge and become clear.