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What is Cardinal?

Cardinal supports two products:

  • The Carry Perp
  • The Perpetual Negative Rate Hedge

The Carry Perp is a Carry Perpetual. Cardinal bases it on a borrow loop spread: a user lends a starting asset, borrows a yield-bearing one, and loops that trade to multiply the difference between the yield and borrow rate.

The Carry Perp is synthetic. It settles against an LP pool doing the underlying spread at a larger size.

The Perpetual Negative Rate Hedge is a perpetual right to yield below a strike of 0% carry rate. The buyer has a right to yield earned by LPs from the same borrow loop, where LP yield is market dependent. It is funded by a streaming premium the buyer preloads into a gas tank.

Cardinal will launch with two borrow loop spread markets:

  • wstETH<>WETH
  • sUSDe<>USDT

LPs deposit capital into a shared pool. Cardinal manages that pool by running the underlying borrow loop spread on Aave V3 on their behalf. LPs are auto-opted-in to being the counterparty to The Carry Perp trades and back The Perpetual Negative Rate Hedge through the same pool.

Cardinal protocol architecture

Products​

The Carry Perp​

Users use The Carry Perp to get more leverage than a natural construction of the borrow loop spread allows for.

Carry scales with leverage. Positive and negative carry rates impact margin at rates proportional to the leveraged yield.

The Perpetual Negative Rate Hedge​

Users specify a notional size and a coverage leverage L, from 1x to 10x.

The buyer preloads a gas tank. Each hour, the gross premium is the actuarially-fair cost of the coverage held — expected negative-carry claims × (1 + premium_load) / 0.90 — which scales with the coverage leverage L and is charged continuously. premium_load is LP-net after the 90/10 LP/treasury split. When the gas tank cannot cover the premium, the position lapses.

LP-Book Pool​

LP capacity is measured in the notional size of user trades. A user who deposits 1 ETH for a 1000x leveraged position takes up 1000 ETH of pool capacity until their position closes.

If LP-Book Pool health degrades, Cardinal automatically deleverages the LP-managed borrow loop to reduce exposure.

LP-Book Pool health can degrade through:

  • Aave health factor falling too low
  • pool NAV dropping more than 10% peak-to-trough