Market Neutral Yield ETH (MNYe)
MNYe is native to the Optimism Layer 2 Ethereum rollup.
The Market Neutral Yield ETH (MNYe) token automates a continuous basis trading strategy that returns a high, price-neutral yield to token holders. Built using Set’s integration with Perpetual Protocol on Optimism, MNYe contains a fully-hedged ETH position, with equivalent spot exposure and short exposure via perpetuals. Token holders earn a variable USDC return when the funding rate is positive.
Basis trading, also known as cash and carry arbitrage, is an established strategy for achieving price-neutral yield by arbitraging the difference between an asset price on the spot market and the near-term futures markets. In defi, perpetual swaps – also called perpetuals or perps – can be used in lieu of futures.
First implemented by BitMEX, perpetuals are futures with no settlement date. The yield is derived from a funding payment paid periodically between long and short perpetuals in order to incentivize the peg to the spot price. By convention, when the funding rate is positive, the perpetual market maker makes a payment from the long to the short holders, and vice versa when the funding rate is negative.
MNYe takes simultaneous spot long and short perpetual ETH positions and derives yield from the funding payment to the short position. By taking a fully hedged position, the product has no net asset price exposure. MNYe uses a 1x ETH spot position and a -1x short ETH perpetual settled in USDC. The yield is further enhanced by weekly auto-compounding when the USDC funding balance is positive. The yield is used to maintain a leveraged position between -0.95x and -2x.