Announcing Arcadia, a DeFi-native protocol backed by GFC
We are excited to announce that we’ve raised a pre-seed round led by Global Founders Capital to build infrastructure that solves collateral fragmentation and illiquidity for all types of assets on Ethereum and beyond.
Introduction
In this post, we want to share our story and the reason we decided to build Arcadia Finance.
Thomas and I, both have a long trajectory in DeFi and crypto. I started mining my first Bitcoins on my laptop in 2011 (no, I don’t have those wallets anymore 🎣) and later got rugged in The Dao hack back in 2016. Thomas started as an aspiring ‘trader,’ collecting liquidation emails from BitMEX.
We were always fascinated by the technical complexities of blockchains and quickly fell into the crypto rabbit-hole. Our first collaboration started with triangular (and interexchange) arbitrage bots on centralized exchanges back in 2016. We even moved our bots into the same datacenter as the exchanges. By 2020, we were already running MEV bots. We wrote scripts that allowed us to discover yield farming pools that weren’t yet shown on front-ends but were already receiving emissions. Being the sole farmer in a stake reward pool got us our first MEV kick.
From then on, we were hooked. We decided to focus on niche MEV strategies. Our approach was simple:
- Be the first one to have a bot running.
- Mess around in some gas wars when first competitors show up.
- When the competition gets too tough, move on to the next strategy.
Our bots were running on DEXs, NFT markets and algorithmic stablecoins. Some of the algo stablecoin events we had most fun with as arbitrageurs were Dollar Protocol (GAIA) and Iron Finance (TITAN). For more info on those events, read up here. Unfortunately, even our warnings couldn’t prevent the death-spiral that ensued.
Genesis
Fast forward to late spring of 2021, we had jumped in on the emerging NFT markets and were already running MEV strategies around them. One of our MEV bots ran the first arbitrage between OpenSea and protocols providing exit liquidity for NFTs (NFTX, NFT20, Alpha Buy Wall, etc).
Shortly after, NFTs took off. Trading volumes went from a few millions to the high billions in a matter of months. People were talking about the emergence of a new asset class. But in reality, NFTs were not composable. Beyond speculation, NFTs had no utility. While searching for new MEV strategies, we realized there was no way for users to leverage the capital locked in NFTs.
We decided to dig deeper. And as it turned out, our hunch was right: users were buying NFTs from projects they liked, but had to sell them when looking to mint/buy NFTs from another project. There appeared to be no way to efficiently leverage the capital in NFTs without users giving up ownership in the process. Some protocols were starting to experiment with peer-to-peer NFT lending. But it was not very efficient and it did very little to democratize access to NFT liquidity: users had to appraise the NFT, request a loan against it and then find a counter-party able to accept it. To us, it was clear this was a short-term solution.
We decided to join ETH Online with the idea of making a first proof-of-concept to try to solve what we thought was an important problem. We were convinced that the number of tokenized assets on-chain was going to go up. However, we realized that as more assets came on-chain, liquidity fragmentation was going to go up as well, resulting in higher slippage, lower capacity, and worse price discovery. In short, we viewed liquidity fragmentation as a barrier to wide-spread blockchain adoption.After many conversations, scratch paper drawings, beers, and late nights, Arcadia Finance was born.
Our vision
We believe users should be able to use all their quality assets as collateral, and protocols that require users to deposit collateral should not redundantly build the same collateral pricing and management logic. We envision a future where Arcadia serves as the connecting tissue of DeFi, making composability simple.
Arcadia set out to solve a fundamental problem we faced as MEV searchers that we believe is holding back innovation in the space: there is no on-chain mechanism to price a combination of digital assets under one single unit of account.
Our Solution
We built a new DeFi primitive. User-controlled vaults that enable the on-chain pricing of any combination of different types of assets under a single base currency (e.g. USD or ETH). The vault itself represents a single asset, making it fully composable with other protocols. The vaults are non-custodial and allow its owner to actively manage the collateral contained within the Vault. Any protocol that require users to deposit collateral (issuing credit lines, margin trading, or creating synthetics) can easily build on top of our vaults. They can simply fetch one single value instead of having to create their own pricing strategies, integrate the latest ERC token standard and migrate platform liquidity in the process.
In short, the Vaults are smart contracts that act as composable, on-chain, unified margin accounts and provide individuals, DAOs, and other protocols a way to deposit and manage multiple different assets all at once from a single place. These vaults are NFTs, and thus can be formed into composable 2nd layer products; they are fully composable with existing infrastructure and are straightforward to integrate.
Two key considerations have been made in our approach to creating Arcadia protocol:
First, by separating collateral management from the application logic, Arcadia’s protocol enables active collateral management, allowing users to top up their positions and Arcadia to provide higher LTVs, even for highly volatile assets.
Second, traditional protocol architectures are built around a single asset type. We built Arcadia’s architecture to be asset agnostic. In other words, whereas traditional protocols are limited by the technical differences of asset types together with their risk profiles, Arcadia’s only limit to allow new assets to be used as collateral is their risk profile (based on their volatility and on-chain liquidity). Using this approach, any asset that represents capital will be able to be used as collateral within the broad ecosystem.
To put it simply, before Arcadia, the concept of portfolio/treasury liquidity didn’t exist. Now it does.
To learn more about what we’re building, check out our website and follow us on Twitter. If you’re interested in building with us, please reach out or apply here.
