Grant Application: The Implied Impermanent Loss and Implied LVR

[lorenzoshoenleber]

Project Abstract

The project aims to develop a forward-looking, option-implied risk measure for liquidity providers in decentralized exchanges (DEXs). Using option price data, we construct real-time indicators for impermanent loss and loss-versus-rebalancing (LVR), allowing LPs to better understand and manage their exposure. The implementation will leverage Substrate to provide decentralized and transparent risk analytics, with the long-term goal of improving the efficiency and resilience of DeFi market-making.

Grant level

• Level 1: Up to $10,000, 2 approvals
• Level 2: Up to $30,000, 3 approvals
• Level 3: Unlimited, 5 approvals (for >$100k: Web3 Foundation Council approval)

Application Checklist

• The application template has been copied and aptly renamed (project_name.md).
• I have read the application guidelines.
• Payment details have been provided (Polkadot AssetHub (USDC & DOT) address in the application and bank details via email, if applicable).
• I understand that an agreed upon percentage of each milestone will be paid in vested DOT, to the Polkadot address listed in the application.
• I am aware that, in order to receive a grant, I (and the entity I represent) have to successfully complete a KYC/KYB check.
• The software delivered for this grant will be released under an open-source license specified in the application.
• The initial PR contains only one commit (squash and force-push if needed).
• The grant will only be announced once the first milestone has been accepted (see the announcement guidelines).
• I prefer the discussion of this application to take place in a private Element/Matrix channel. My username is: @_______:matrix.org (change the homeserver if you use a different one)

[github-actions]

CLA Assistant Lite bot All contributors have signed the CLA ✍️ ✅

[lorenzoshoenleber]

I have read and hereby sign the Contributor License Agreement.

[semuelle]

Hi @lorenzoshoenleber, thank you for the application.

The application is currently missing the lists of deliverables for the milestones. Please refer to the application template for details. Also, please keep in mind that we prefer reusable open source deliverables.

[lorenzoshoenleber]

Hi @semuelle,
Thanks for the feedback! I've made the requested changes.
Let me know if anything else is needed.

[semuelle]

Thanks for the update, @lorenzoshoenleber. To be honest, I think this is a proposal that should be discussed and carried by the community, so I think the treasury might be a better fit. You could also try reaching out to the DeFi tooling bounty and/or Velocity Labs (both link on our Funding & Support page).

That being said, I will share your proposal with the rest of the committee, who might have other opinions/questions.

[lorenzoshoenleber]

Thanks for your response, @semuelle.
We will look into the suggested options and are available for any further questions.
Thanks again.

[PieWol]

After internal discussions it became apparent that all members of the grants committee share Sebastian's view. Sadly we don't think that this project is a good fit for the current grants program. We wish you all the best for your future endeavors and hope that you can raise funds through other routes, e.g. any of the alternatives that Sebastian already suggested.

Thanks again for all the effort you put into the application! Let us know if you have any questions.