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Valspin at EthWarsaw

Valspin is an application that sells insurance contracts and swaps to guarantee fixed yields for sets of validators over fixed periods of time. An entity that owns several validators may desire to have a fixed return or one with a lower yield, hedging away the inherent stochastic rewards. It is quite difficult to get close to the average yield with only a small set of validators, as illustrated in the graph below showing the funds required for an adequate sample at various error margin levels.

Further illustrating the issue, below is a distribution of staking returns for an entity that owns 100 validators over 100 days. Over 10,000 trials, we can see a wide range of returns centered around an average of 41.88 ETH with a standard deviation of 1.65 ETH. The full range covers 36.23 ETH to 48.80 ETH, showing the variability in rewards faced by validator owners, especially those with few validators.

Products

Valspin offers two products for validator owners to hedge away stochastic event risk, a swap contract and an insurance contract. Hedging away stochastic risk with such products is especially attractive to TradFi institutions issuing index products which promise investors an average return and any other entity that has a guaranteed liability at a future point in time and wants to lock in ETH staking yield.

Insurance Contract

Our insurance contract allows a staker to cover any downside stochastic event risk. The staker buys the contract from an investor for a predetermined premium. The investor guarantees a potential payout in a Request Network escrow contract. If the staker's validators underperform the average network return over that time period, the contract sends funds to the staker to cover any losses (subtracting any agreed-upon deductible). The remaining funds are returned to the investor. If the staker's validators outperform the average return by the end of the contract, no funds are transferred.

Swap Contract

Our swap contract allows a counterparty (e.g. an investor) to provide the capital to cover a staking entity's stochastic risk. The staker pays a small fee to the investor. At the end of the swap, a Request Network invoice is sent to the staker if they earned an above-average return, paying the investor the outsized earnings. If the staker earned less than the expected return, the staker submits an invoice to the investor to cover their losses.

Swap contracts can also be filled by other stakers with their own sets of validators as a form of income share agreement (ISA).

Quickstart:

Install python packages (built on Python 3.10.0)

python -m venv venv
source venv/bin/activate
pip install -r requirements.txt

Start flask server

python python/app.py

Start web server

npm i
npm start

Note on front end

The concept moving beyong the MVP would be to further visualize the data being collected from Request and the custom API pulls. Ideally the user would be able to sign in and have full view of the wanted data along with have the ability to operate out of the Dapp as a standalone platform.

The front end was build in house with a custom made theme implemented throughout the project utalizing MUI and NIVO.

Sample Flask endpoints:

Query 30d yield of ETH staking

curl -X GET -H "Content-Type: application/json" http://localhost:5000/get_rate

Calculate value of a swap

curl -X POST -H "Content-Type: application/json" -d '{"days": 100, "vals": 100}' http://localhost:5000/calculate_swap

Calculate value of an insurance contract

curl -X POST -H "Content-Type: application/json" -d '{"days": 100, "vals": 100, "deductible_amount": 1, "deductible_type": "eth"}' http://localhost:5000/calculate_insurance

For some of the modelling work done, see notebooks.html