Suggestion: Offer loans on rLP in cLend


0xTedious November 22, 2022, 11:13pm #1

Suggestion: Offer loans on rLP in cLend.

Main area of impact: Fees and Treasury.

Background and crude introductionary reflection:

This suggestion will have a lot of background information about the DFV and digressions here, so please have patience with me.
I have been holding rLP’s since LSW, and DCA’ed massively ever since.

I have been frustrated that loans have not been added as collateral in cLend, until I mapped out the entire Delta/rLP DFV math in excel and realized that doing so, could very likely severely disrupt the intention of stable yield; please let me explain:

I think the following statement is true:

«The CoreVerse developer’s intention with introducing the 5 million Delta tokens in stable yield is to reward loyal rLP investors for their patience and investment in the Delta part of the CoreVerse.»

With that in mind:

The Delta token at a 10x multiplier is heavily favored in the DFV, so much so that if loans on rLP got offered, whales could take out loans on some of their rLP’s and buy Delta with them, stake at 10x multiplier and heavily skew the distribution of the remaining stable yield.

Let me explain,
1 rLP has 200 in farmingpower (2E+20)
1 Delta at 1x multiplier has 1 in farming power (1E+18), whereas 1 Delta at 10x multiplier has 10 in farming power (1E+19).

Said in another way, to get the same farming power in the DFV that 1 rLP gives, you either need to have 200 Delta at 1x multiplier or 20 Delta at 10x multiplier.

Sure, Delta has the requirement of 10% «weekly» compounded Delta to maintain the multiplier. But this is a) not a weekly requirement, but a biweekly one as you get one week grace period before you get knocked down to a 7x, even though the Delta interface shows 7x in the grace week, you are still earning the full 10x, and b) up until a few weeks ago keeping Delta at 10x was self-sustaining as the stable yield with the then farming power was above 5% in weekly rewards, so you could in theory and practice maintain 10x using the earning from Delta alone.

DFV FarmingPower StableYield
DFV FarmingPower StableYield880×411 102 KB
As you can see, the total farming power at the time of writing equals a weekly interest of 4,690%. Which for two weeks is 9,38%. This leaves 0,62% that you need to «earn» from staking rLPs. If my math is correct, this means you only need to earn 6,2% of your Delta from rLP’s in order to maintain a 10x multiplier.

Or said in another way,
If an investor has 200 rLP tokens, and has them staked, he has 4E+22 in farming power. If loans on rLP are at $100 a piece, and with today’s price of about $0,77 per Delta at Sushiswap, the investor could take out $10,000 in loans on his 100 rLP, and use those $10,000 to buy about 12,935 Delta.

The new farming power of the investor is 1,49E+23 with 100 rLP’s and 12,935 Delta at 10x. The investor has, with this move, added almost a 3x on top of his/hers former farming power and thus his/hers stake in the stable yield.

To add onto this above example, if that investor removed 100 rLP’s from staking and took out a loan on them, they only need to buy 2,000 Delta and stake at 10x and spend the remaining $8,000 on other crypto tokens or a vacation or whatever they want.

In sum, Delta tokens at the current market pricing have an astonishing capacity compared to rLP’s to capture stable yield.

My suggestion is the following: Add rLP as a collateral option in cLend, effectively offering personal loans on rLP’s, following the same structure as CoreDAO where about half of the treasury is made available as personal loan, and the other half is kept in the treasury managed by the DAO.

According to a tweet(1) by 0xdec4f 6th of May 2021, the 6,396 ETH initially transferred to the DFV has been converted to $21,245,419 DAI.

If we do roughly the same 50/50 distribution that CoreDAO did, then that means that $10,622,709 should be added to the DAO-controlled treasury, and $10,622,709 should be made available as personal loans. The tricky question now though, is how much of those $10M should be made available for rLP’s and how much should be made available for Delta. I will make a separate suggestion where I argue why I don’t think CoreVerse should offer loans on Delta tokens.

If we, for the sake of argument for this suggestion, say that loans will only be offered on rLP’s, then with 80,068 rLP’s in circulation, that equals about $132 in loan per rLP. The sheer value of the loan is not the most important, but figuring out if adding rLP as loan collateral is possible at the current time.

With the majority of my CoreVerse holding in rLP’s I am, of course, personally vested and biased towards getting loans on rLP’s, as when the market seems to hit bottom, I would love to be able to personally buy BTC and ETH, as now I have 90% of my entire crypto portfolio in CoreVerse. YOLO. :smiley: I would also love for the loans not to be liquidated until a certain period after the platform has launched to increase my stability in enduring a prolonged crypto bear market.

Initially, way before I did the math and figured that loans on rLP could severely impact stable yield distribution, I had hope that X3 was waiting for the market to bottom and then make loans available for us to shop during the crypto firesale. :smiley:

If the stable yield issue is, in fact, the main reason why loans on rLP have been delayed, then one fix for that could be to before loans on rLP gets activated to increase the remaining weekly reward in Delta up to the remaining stable yield amount of Delta left, and that way distribute it somewhat fairly since there currently are no rLP liquidity left except OTC, and volume for Delta is also somewhat low.

A great member of the community, Dudeman is about to have 1 million CoreDAO liquidated, and I think this is a shame as Dudeman has been a rock-solid positive member of the CoreVerse community for as long as I can remember. He even supplied liquidity on rLP for a while. So for me, it feels a bit harsh that he should get such a high amount liquidated. Sure he has taken out a loan on them and lost out enough on other placements so that he is unable to pay back the accrued interest before it liquidates.

In my opinion, the last few months of crypto have had a near-perfect storm with one black swan event after the other, albeit there wore writings on the wall before both the Luna/UST implosion, 3AC collapsing, and the contagion to the rest of the crypto sphere going forward, it has still been easy to get caught in the downfall.

Enabling loans on rLP’s would give Dudeman and other investors in similar predicaments a better possibility to manage their cLend positions as they can then use part of their rLP’s as collateral.

Another downside with offering loans on rLP is that some of the disgruntled rLP holders use the loans as exit liquidity, but if we consider the proposal of Auction for liquidated tokens that could be beneficial to both the ecosystem and community.