Revenue Explanation

The yields of Ascent Yield primarily come from the following sources

Funding Fee

When users mint our aBTC using ETH, we need to hedge against the relative price changes between ETH and BTC to ensure that users' assets do not depreciate due to price fluctuations. Specifically, we short the ETH/BTC trading pair on centralized exchanges to hedge the risk and earn funding fee from the short positions. For more details on the underlying principle, please refer to the "Hedge" section.

Historical data from Binance shows that the funding rate for ETH/BTC has always been positive. The following graph illustrates the annualized returns:

ETH/BTC Funding rate history

Crypto Futures Funding Rate History | Binance FuturesBinance

If the ETH/BTC trading pair is not available on centralized exchanges, we can achieve the same effect by combining two trading pairs. We simply need to short the ETH/USDT trading pair while simultaneously longing the BTC/USDT pair with the same position value. Since the funding rate of ETH/USDT is almost always higher than that of BTC/USDT, we can still earn returns from the funding rates.

ETH/USDT funding rate minus btc/usdt funding rate

The funding rate is a periodic payment between long and short position holders in perpetual futures contracts. It's designed to keep the perpetual contract price aligned with the underlying asset's spot price. When the funding rate is positive, long positions pay short positions. Conversely, when it's negative, short positions pay long positions. This mechanism incentivizes traders to take positions that help converge the contract price with the spot price.

Lido Liquidity staking

Lido is a staking protocol that allows ETH holders to participate directly in ETH node validation, thereby indirectly earning node rewards. An increasing number of exchanges now support trading of stETH (the token received after staking ETH).

This means that when users mint ascentBTC using ETH, we don't let their ETH sit idle. Instead, we invest it in a highly secure and stable staking protocol (Lido). Since exchanges currently don't support using stETH as collateral, we need to use leverage to free up ETH, allowing us to use this portion of ETH as collateral. This enables BTC to also benefit from ETH staking rewards. For more details, please refer to the Positions Management section.

Lido ExtendedDuneAnalytics

Lido's staking rewards significantly exceed our funding rate returns. Therefore, even when we experience certain losses from funding rates, our protocol can still maintain positive overall returns.

BTC Staking rewards

As BTC evolves, some projects are making it possible for native BTC to generate yield, such as Babylon. Currently, our project supports minting ascentBTC using wBTC. In the future, we will also support minting ascentBTC using native BTC, similar to cross-chain functionality. Simultaneously, we will be able to stake BTC in native BTC staking projects like Babylon, thereby earning staking rewards.

Overall, through backtesting, we calculated that the yield could reach 7%.

Note that not everyone will stake their ascentBTC in our project (ascentBTC can be used to participate in other DeFi projects). Therefore, based on the staking ratio, our annual percentage yield (APY) can be even higher. For example, if only 50% of ascentBTC is staked in our yield market, then the yield from our protocol for users would double.