Introducing Levana Protocol

The release of a protocol brings a new gift. A gift that opens up unimaginable possibilities. A gift that once released, cannot be taken back.

• Mirror Protocol brought the gift of “mirrored assets”.
• Anchor Protocol brought the gift of a “high and stable yield”.
• Mars Protocol will bring the gift of a “money market”.

Levana Protocol will follow suit by bringing the gift of “leverage”.

The name Levana is an acronym for “Leverage any Asset”. We aim to serve as the hub in the Terra ecosystem for anyone to create leveraged products. Being one of the few projects currently being incubated by Delphi Labs, Levana will work closely with Mars Protocol to make this happen.

The first product Levana will launch with is the Levana Leverage Index (LLI) token. These tokens will enable anyone to easily get a leverage position to any asset Levana offers.

Levana Leverage Index (LLI) Tokens

Levana Leverage Index (LLI) tokens work by first creating a pool of assets with the intended leverage. LLI tokens are then minted via the Levana protocol which represents ownership in the leveraged pool of assets. Users will then be able to acquire these tokens through various Terra AMMs such as Astroport, TerraSwap, and Loop Finance.

This will be as simple as swapping LUNA to a LUNA 2x-LLI token.

In the next section, we will be diving deeper into the process Levana goes through to generate leverage and how LLI tokens are made.

Generating Leverage

Levana will generate leverage through the use of The Leverage Capsule, which is a mechanism designed to simplify and automate the entire process. The specific steps in which The Leverage Capsule goes through are listed below:

• Step 1: LUNA is deposited into Mars Protocol in exchange for maLUNA.
• Step 2: maLUNA will enable the ability to borrow UST which is then used to buy LUNA on DEXs.
• Step 3: This process is repeated until it reaches a preset leverage level (e.g. 2x LUNA).

If the leverage level is too high, The Leverage Capsule will de-lever by reversing the process.

For example:

A LUNA 2x-LLI token will target to provide a 2x price exposure to LUNA.

• LUNA 2x Pool of Assets = $1,000,000
• LUNA 2x-LLI token = 100,000 tokens
• Price of LUNA 2x-LLI token = $10 per token

Auto-Rebalancing

Similar to other collateralized lending platforms, the process of borrowing UST from Mars will incur the risk of liquidation. Levana plans to mitigate this risk by introducing an auto-rebalancing mechanism that will drastically reduce the risk of one happening.

Instead of users needing to manually manage their liquidation ratio, the system will offer public incentives for rebalancing. Anyone can initiate a rebalancing to decrease the leverage and improve The Leverage Capsule’s health factor.

A high health factor means the capsule has a low risk of liquidation, a low health factor means the capsule has a high risk of liquidation.

How much leverage can be generated?

There are several factors that will determine the maximum amount of leverage that can be generated by The Leverage Capsule. But because the specifics of Mars’s contracts are yet to be determined by Mars, we must have some level of speculation at this stage. At this time we assume that Mars will enable a 50% LTV ratio, but this may increase over time, thus increasing the leverage we generate.

Note that in this example, instead of borrowing UST and buying LUNA as shown in the previous graphic, we are simply borrowing LUNA. Both methods essentially have the same effect.

Here is an example assuming the following variables:

Why is leverage important?

Leverage is one of the most important tools for market participants, as it allows them to have exposure to an asset without paying the full price. With leverage, a whole world of possibilities opens up, making the entire market more robust.

Here is an example based on our previous pool of assets worth $1M of LUNA. If the price of LUNA doubles from $10 to $20, a leveraged position can generate greater upside through extended exposure to LUNA.

Example:

If the price of LUNA doubles…

By leveraging 2x, the initial $1M UST purchase resulted in $3M UST instead of $2M UST.

This means holding LUNA would have resulted in a 100% profit, but holding the LUNA2x-LLI token would have resulted in a 200% profit. It’s important to note that due to protocol fees to Levana and borrowing fees to Mars, profits might actually be slightly less than 200%.

While LLI tokens might be the first way of generating leverage on Levana, future ways of generating leverage will include perpetual swaps and options.

Follow Our Journey

The release of this article will begin Levana’s journey to launch. In the following weeks, we will be releasing more information about Levana. Follow us on Twitter and join our Telegram to stay updated.

More Info:

Twitter: https://twitter.com/Levana_protocol

Telegram: http://t.me/levanaprotocol

Levana Lore (1/4): https://medium.com/levana-protocol/levana-lore-part-1-of-4-8dde4b3f40bf

Podcast with TerraBites: https://youtu.be/NibjsuGfd1c

Until next time…