Motivation
Liquity is a decentralized borrowing protocol that allows people to draw 0% interest loans (pay out with LUSD) against Ether used as collateral. It is similar to Maker, but its liquidation mechanism is completely different. Liquity’s liquidation mechanism has several keywords: Stability Pool, Redistribution, and Recovery Mode. The Stability Pool is funded by users transferring LUSD into it (called Stability Providers), and is the first line of defense in maintaining system solvency. It achieves that by acting as the source of liquidity to repay debt from liquidated Troves—ensuring that the total LUSD supply always remains backed. When any Trove is liquidated, an amount of LUSD corresponding to the remaining debt of the Trove is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the Trove is transferred to the Stability Pool. Over time Stability Providers lose a pro-rata share of their LUSD deposits, while gaining a pro-rata share of the liquidated collateral. However, because Troves are likely to be liquidated at just below 110% collateral ratios, it is expected that Stability Providers will receive a greater dollar-value of collateral relative to the debt they pay off. In addition to obtaining the net income of liquidation, Stability Providers can also receive LQTY token rewards issued by the system. LQTY captures the fee revenue that is generated by the system and incentivizes early adopters.
A strategy leveraging the Stability Pool mechanism mentioned above, will reward us a profitable return. The main idea is to borrow LUSD from Liquity Protocol with ETH as collateral, and then deposit those LUSD into the stability pool to obtain liquidation income. The ETH gained from the stability pool, and the LQTY rewarded by the system then can be added to the trove and generate more LUSD to the stability pool. During the time, we should continuously monitor the collateral ratio of our trove, to make sure it is safe and profit-maximum. Below is the spec.
Specification
- ETH as Collateral
- Deposit ETH and open a trove with 300% collateral ratio to borrow LUSD
- Stake LUSD to Stability Pool to gain Liquidation income and farm LQTY
- Redeem ETH
- Withdrawal LUSD from Stability Pool, payback the trove so that after withdrawing ETH, CR maintains at 300%
- Withdrawal corresponding percentage of ETH
- The strategy should monitor our trove’s CR every time ETH is mortgaged or redeemed,
- If collateral ratio is smaller than 250%, withdrawal LUSD from stability pool and repay the debt to rebalance CR back to 300%
- If collateral ratio is larger than 320%, generate more LUSD from the trove and stake to Stability Pool and bring CR back to 300%
- The above 250%, 320% and 300% can be adjusted
- Harvest
- Deposit the ETH obtained in the stability pool into the trove
- Swap the rewarded LQTY into ETH and deposit the ETH into the trove
Security note
We have implemented an initial version and submitted it to the Celer team for review. In the meanwhile, doing the test now. If approved, we will work with Celer team to get a third-party audit for this strategy at a later date.
What we are asking in return
Nothing, we have been paying attention to the Celer project from the very beginning of the creation of Celer, and we are happy to see the success of Celer. We would like to contribute first before asking anything from the community.
Sentiment Check
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