Margin Pool: Enhanced Liquidity for Margin Trading on SundaeSwap

[GENERAL] Name and surname of main applicant

Daniel Gonzalez

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

Entity (Incorporated)

[GENERAL] Requested funds in ada

300000

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

5

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language.

No

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

We propose a unique DeFi primitive for the Sundae protocol that enables decentralized margin trading, enabling new revenue streams for liquidity providers, and speculation opportunities for traders.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

No

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

Yes

[GENERAL] Please provide here more information on the open source status of your project outputs

Apache License 2.0. The code will be available on GitHub.

[SOLUTION] Please describe your proposed solution.

We propose extending the Sundae v3 protocol with a new type of liquidity pool. This type of liquidity pool will allow users to trade on margin, tapping into the liquidity in the pool itself to satisfy the loan.

The results of the swap will be held in smart-contract escrow, and can be liquidated if the risk of the debt gets too high. However, if the price moves favorably for the user, they can “unwind” the position to pay off the debt to the pool, and pocket the difference.

In return, the user pays an interest rate for the length of time the pool liquidity was borrowed.

For example, someone with 1000 ADA can swap against the ADA/RBERRY pool with 10x leverage, and the pool will calculate the swap as if it were 10,000 ADA. The resulting RBERRY will be held in a smart contract, accruing ADA interest. If the price of RBERRY goes down, the position can be liquidated, resulting in a net of 1000 ADA paid to the liquidity providers. If the price of RBERRY goes up, it can be sold back to the pool, and the user keeps the difference in ADA or RBERRY.

We have built a simple prototype of the solution, which can be found here:

https://margin-poc.vercel.app/

[IMPACT] Please define the positive impact your project will have on the wider Cardano community.

Our solution is a specialized liquidity pool on SundaeSwap, tailored for margin trading. This liquidity pool will:

• Enable trading on leverage for sophisticated market speculators
• Allow efficient price discovery through this leverage trading
• Provide new streams of income for liquidity providers
• Do this all through a decentralized, privacy preserving, and low risk protocol

Impact will be measured by:

• Increased trading volumes and liquidity pool sizes.
• Price efficiency, measured via price-leading indicators with other DEX’s
• Onchain growth metrics on SundaeSwap.
• Community feedback and engagement.

Outputs and opportunities will be shared through:

• Regular project updates on social media and forums.
• Detailed reports and presentations at Cardano community events.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Our team comprises experienced blockchain developers, financial analysts, and security experts with a track record in delivering complex DeFi projects. We have:

• Successfully deployed smart contracts on Cardano.
• Managed substantial crypto funds with rigorous security protocols.

Feasibility will be validated through:

• Prototype testing and audits.
• Community testing phases and feedback loops.

[Project Milestones] What are the key milestones you need to achieve in order to complete your project successfully?

Design and Specification

• Outputs:
• Comprehensive specification, outlining the function and game theory behind the margin pool
• Acceptance Criteria:
• Design document must cover all technical and operational aspects of the Margin Pool.
• Design document must explore the game theory and risk profile for liquidity providers and traders.
• Evidence of Completion:
• Published design document available for community review

Testnet Smart Contracts

• Outputs:
• Closed source smart contracts for the margin pool
• Smart contracts deployed to a testnet
• Acceptance Criteria:
• The smart contracts must be written and support deposit, withdrawal, swap, liquidate, and unwind capabilities.
• These contracts must be deployed to a testnet, with transactions showing them in operation
• Note: No UI is yet built for interacting with them
• Evidence of Completion:
• Smart contract code shared with the catalyst reviewers
• Transactions demonstrating functionality shared with contract reviewers

Public testnet UI

• Outputs:
• A UI to interact with the margin pool
• Feedback and issue reports gathered from beta testers.
• Acceptance Criteria:
• Full operation of the margin pool contracts available to the public through the SundaeSwap UI
• Positive feedback and constructive criticism must be collected from a diverse group of testers
• Evidence of Completion:
• Link to the testnet deployment
• Compiled report of feedback and any changes implemented as a result of beta testing

Full Launch and open source contracts

• Outputs:
• Open source the contracts and the result of the audit.
• Official launch of the Margin Pool on SundaeSwap.
• Acceptance Criteria:
• Contracts are audited and any issues addressed.
• Successful deployment without critical issues.
• Evidence of Completion:
• Announcement of the launch on official channels.
• Link to repository containing open source contracts
• Link to the audit report detailing any issues found and resolved

Completion Report and Video

Outputs:

• Comprehensive project completion report.
• A video showcasing the features and impacts of the Margin Pool, including testimonials from users and liquidity providers.

Acceptance Criteria:

• The report must cover all aspects of the project, including challenges faced and how they were overcome, and key achievements.
• The video must effectively communicate the benefits and functionality of the Margin Pool.

Evidence of Completion:

• Published project report accessible to the community.
• Video published on multiple platforms (e.g., YouTube, Sundae.fi website).

[RESOURCES] Who is in the project team and what are their roles?

• Project Lead: Experienced in blockchain project management.
• Lead Developer: Expert in Cardano smart contracts.
• Financial Analyst: Specialist in DeFi and margin trading.
• Security Expert: Responsible for auditing and security protocols.

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources.

Market Rates

• Development: $120,000
• Project Management: $15,000
• Quality Assurance and Testing: $10,000
• Product Marketing: $10,000
• Total: $155,000

Discounted Catalyst Ask

• Development: $70,000
• Project Management: $5,000
• Quality Assurance and Testing: $10,000
• Product Marketing: $5,000
• Total: $90,000

Using a conservative $0.30 per ADA, this is 300,000 ADA total.

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

This project deploys a new and unique DeFi primitive for the Cardano ecosystem. It provides value for money by:

• Enabling efficient price discovery for the Cardano ecosystem
• New speculation opportunities for sophisticated traders
• New sources of income for liquidity providers
• Potentially attracts new liquidity to the Cardano ecosystem

[IMPORTANT NOTE] The Applicant agrees to Fund Rules and also that data in the submission form and other data provided by the project team during the course of the project will be publicly available.

I Accept