Disclosure: DeFi Dad shared he does hold the KWENTA token and was a seed investor in Polynomial. This is neither a recommendation nor endorsement to buy KWENTA or any token mentioned. This tutorial is for informational purposes only and should not be the basis for any investment decisions.
Three weeks ago on April 19th, Synthetix launched their Perps Optimism Trading Incentives program. As one of the earliest DeFi protocols to pioneer derivatives trading on-chain and to make the leap to L2 with Optimism, this program is designed to encourage new trading activity for Synthetix Perps. It allocates OP rewards to traders across these Synthetix Perps trading frontends, according to the fees paid by traders.
We’re currently in Week 3 of the 20-week OP rewards program.
- 100k OP rewards were distributed to traders during Week 1.
- 100k OP rewards were distributed to traders during Week 2.
- This week, starting May 3rd, another 100k OP rewards will be distributed.
- Then, starting May 10th for 17 weeks, 300k OP will be rewarded weekly.
Given we’ve previously covered Kwenta perps trading, it’s worth noting Kwenta is offering an additional 30k OP in rewards for Kwenta traders through the completion of this program, as well as additional KWENTA token rewards according to this recent Mirror post.
Today, I’ll demonstrate how I might start earning a portion of the 130k OP + 449 KWENTA rewards this week by trading, as well as 330k OP + KWENTA rewards starting next week. The estimated total APY is 93% at the time of this writing, where 5% is based on OP/KWENTA rewards and 88% from the ETH positive funding rate paying shorts.
*It is possible to earn a similar share of OP rewards and a similar yield from a positive funding rate across other Synthetix perps dApps like Polynomial, but I’ll focus on Kwenta given the bonus OP and KWENTA rewards.
Earn Up to 93% APY with Synthetix Perps on Kwenta
Before we get started, please be aware of these risks.
- Smart contract risk in Synthetix and Kwenta
- Systemic risk in DeFi composability
- Stablecoins such as sUSD are capable of de-pegging
- Front-end spoof attack on the Kwenta dApp
- Liquidation if I open a short position or trade with leverage on Kwenta
Here’s how I get started!
- First, let’s level-set with the idea that I want to remain delta neutral and capture the OP + KWENTA rewards through a basis trading strategy, while getting paid by a potentially positive funding rate. Funding can be likened to an interest payment in that it represents a percentage of your position size, after taking into account the impact of leverage, that is paid or received at regular intervals.
For the basis trade, I would hold equivalent long and short positions that equate to 0 net exposure, while earning the OP + KWENTA rewards, and payment from longs due to a positive funding rate in the ETH/USD perps market on Kwenta/Synthetix.
- In this example, I will open a long and short position in ETH/USD simultaneously. I’ll plan to open a 1x ETH short position on Kwenta while holding a spot long position in ETH.
Let’s also assume I already have sUSD (the stablecoin of Synthetix) on Optimism L2. If not, I can use a bridge aggregator like Bungee to bridge sUSD from Ethereum Mainnet.
With…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
