Reflect Wins Colosseum’s Radar Hackathon for Solana-Based DeFi Projects
This is a segment from the Lightspeed newsletter.
Colosseum's Radar Hackathon
1,359 projects participated in Colosseum’s Radar hackathon, aimed at Solana-based programs. Judging results were announced recently.
The hackathons, supported by the Solana Foundation and notable blockchain entities, reflect current interests among prospective Solana founders. The previous hackathon was won by ORE, a proof-of-work-like currency on Solana.
DeFi Focus
This hackathon featured numerous DeFi builders. The grand champion was Reflect, a delta-neutral currency protocol that allows tokens to accrue yield without engaging with traditional banking systems.
Reflect resembles Ethena, a “synthetic dollar” protocol that achieved significant market capitalization after its recent launch. Both projects utilize a cash-and-carry trade strategy involving a spot asset and its derivative to hedge exposure, making them delta-neutral as price movements do not impact their value.
In this context, the derivative is a perpetual futures contract that enables Ethena and Reflect to earn yield from the funding rate, which is the fee exchanged between long and short sellers in crypto perpetuals markets.
Reflect also generates yield by allowing users to deposit liquid staking tokens (LSTs) to mint RDC, akin to a yield-bearing stablecoin. Solana LSTs generate rewards distributed by validators, with JitoSOL, the largest Solana LST, currently yielding 8.06% APY.
Staking yield is crucial for Reflect. Delta-neutral protocols must identify yield sources, especially when open interest rates decline, and staking rewards could address this need. Staking yield rates fluctuate based on factors like the total number of stakers and the SOL inflation rate for validators.
Reflect vs. Ethena
Ethena, built on Ethereum, recently expanded its tokens to Solana. Reflect positions itself as a more decentralized alternative. Its team created Reflect six months ago after observing Ethena’s surge in deposits, according to co-founder Nico.
Ethena utilizes large custodians like Copper and Fireblocks for deposits and executes trades on centralized exchanges such as ByBit. Reflect aims to operate entirely on-chain by trading perpetuals on the Solana DeFi platform Drift.
Nico noted that Ethena’s centralized operations can introduce security risks, citing the onboarding of bitcoin collateral as a potential vulnerability related to changes in funding rates.
Reflect plans to integrate with Solana restaking platforms Jito and Solayer to establish a restaked insurance fund, which could mitigate some protocol risk in exchange for revenue sharing.
Future Implications
Reflect was not the only noteworthy submission in the Radar DeFi track. Colosseum co-founder Matty Taylor indicated that the DeFi category was highly competitive, with several startups emerging from Radar expected to significantly promote stablecoin and blockchain adoption.