General Thoughts

"Diversification is the only free lunch"

A lot of DeFi is zero-sum; value and yield are created by either directly taking from other users or inflating away the value of outstanding tokens held.

The crux of this protocol doesn't deviate from this in that the yield for the liquidators is at the expense of the borrower's excess collateral that is seized. However, one element of value is created above this seizing of collateral - the better diversification offered by a negatively correlated asset.

We have all heard that diversification is good - but in order to effectively diversify, you must have assets that are not significantly correlated with each other. One airline doesn't as effectively diversify a portfolio holding another airline as it would a portfolio holding an energy company.

Lately, we've seen correlations across asset classes go up. Even bonds went down with equities in 2022. Cryptocurrencies themselves also have started to track the NASDAQ quite closely. Globally unifying factors like interest rates and the money supply have tied assets together.

Sodium and its mechanically uncorrelated liquidation pool offer diversification outside of this.

Natural Feedback Loops

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