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Details of AC's latest product, StableCredit

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Could StableCredit USD become the next "liquidity black hole"?

Original title: "AC StableCredit"

Source: Knight-errant Zhang, uncertain thinking

Back in August, AC introduced the concept of StableCredit, which I wrote in the articleYFI's star seaAfter a brief introduction, this AC post shows that the idea which has been brewing for more than 4 months will be formally implemented.

To put it simply, StableCredit is a comprehensive application agreement between deposit and loan and AMM based on the design of mortgage-backed stability currency. The idea of StableCredit is to borrow from ARCx and issue bonds for all mortgage products.

Here's an example:

Users will mortgage their houses worth 1 million yuan to YFI, and YFI will give users a stable currency loan amount of 1 million yuan. The stabilisation loan line could be used to lend out other assets, such as a car. At the same time, the agreement gives users a share of the proceeds from the sale of the house (LP). As the value of the house rises, the user's credit limit can also fluctuate upwards.

This pattern is similar to Uniswap+Maker. To make an analogy with the current scenario, the user saves ETH into Uniswap to make a market, and at the same time, Uniswap will give you a sum of money to spend.

AC's article will be further interpreted as follows:

The basic concept

At the beginning of the article, AC introduced several basic concepts, including:

Mortgage stabilisation currency (scrip debt), typical of Mr Maker's DAI

Loan agreements, typically Aave, Compound

Automatic market Maker (AMM), which typically represents Uniswap and Sushi

Unilateral AMM, typical representatives: DoDo, CoFiX

Utilization, which can be understood as mortgage rate or liquidation line, is the core data of the loan agreement

So we can talk about utilization alone, AC says when utilization is 0 percent, borrow 1DAI is 1DAI, there's no premium. When the utilization rate is 90%, the cost of borrowing 1DAI is greater than 1DAI, that is, borrowing 1DAI May actually get 0.98DAI, with a premium.

This phenomenon can be clearly explained by AMM. When DAI and debt 1:1 are added to the 50:50 AMM pool, the more demand for debt, the higher the transaction slippage point, which explains the existence of the premium.

Stable currency credit

StableCredit is an agreement that combines coinage debt stabilisation, lending, AMM and unilateral AMM to create a fully decentralized lending agreement.

A user can provide any asset and create a coinable credit called StableCredit USD (it can also support EUR, JPY, and so on).

The specific creation process is as follows:

Provide a certain amount of USDC

Call the USDC price predictor to determine the dollar value of a USDC

The agreement struck StableCredit USD with a corresponding DOLLAR value

Reduce the USDC and StableCredit USD to 50:

A ratio of 50 is provided to AMM

The protocol calculates system utilization up to 75%

The USDC utilization provided (or maximum 75%) is calculated in StableCredit USD

At this point, the StableCredit USD received by the user is the "loan credit". It can be used to borrow against other assets secured by AMM. So if another user offers LINK as collateral, you can borrow LINK by "selling" the credit. When you want to pay off your debt, you can sell LINK back to StableCredit USD, pay off the debt, and then receive your USDC.

The actual case

Here are some concrete examples to illustrate this process:

User A provides 1000DAI for borrowing:

1. Store 1000DAI in StableCredit agreement

2. System call predictive machine query DAI value 1020USD

3. The system casts 1020 USD

4. The system adds 1000DAI and 1020USD of User A to AMM

5. The utilization rate calculated by the system (dynamically changing according to the global mortgage situation) is as high as 75%

6. The system provides user A with A 75% credit line, namely 1020*0.75=765 StableCredit USD

At this point, user A provides 1000DAI and gets 765 StableCredit USD.

User B provides two ETH for borrowing:

1. Store 2ETH in StableCredit protocol

2. The system calls the predictive machine to query the ETH worth 1400USD

3. The system casts 1400 USD pieces

4. The system adds 2ETH and 1400USD of user B to AMM

5. The utilization rate calculated by the system (dynamically changing according to the global mortgage situation) is as high as 75%

6. The system provides 75% credit to User B, namely 1400*0.75=1050 StableCredit USD

At this point user B provides 2ETH and gets 1050 StableCredit USD.

Similarly, user C provided 1 WBTC and got 26,000 StableCredit USD; User D provides 1 YFI, gets 23,000 StableCredit USD, etc...

At this point, there are multiple AMM pools of borrowing and lending in the system:

DAI:StableCredit USD

ETH:StableCredit USD

YFI:StableCredit USD

WBTC:StableCredit USD

Other types of users added to the pool of mortgage assets

User A wanted to lend one ETH, so he offered 525 StableCredit USD to AMM and got one ETH. When the user wanted to lend 500DAI, he offered 510 StableCredit USD to AMM and got 500DAI.

When they want to redeem the principal, they need to repay the loan and they can withdraw the principal from THE LP. When the principal is withdrawn, the system burns the corresponding amount of StableCredit USD. For example, when user A redeems1000DAI, the system will call the price of the prediction machine. Assuming that the price is still 1020USD, the agreement will burn StableCredit USD in corresponding quantity to ensure the balance of the entire loan asset.

The process of redeeming and burning StableCredit USD was not mentioned in the AC article. It is my personal guess and judgment. It is mainly based on the design of EMN at that time, which is also the creation of credit and destruction credit. Unfortunately, the project was not continued due to the use of hackers at that time.

The advantage of StableCredit

The design of StableCredit takes full advantage of the characteristics of coinized debt, loan and AMM, and has many advantages compared with the existence of AMM and loan agreement alone:

First of all, the system's lending rate is actually automatically balanced according to the demand, the user needs to borrow more assets, when the repayment will pay higher interest. The principle is that more assets are required, and more are sold in AMM, and users will pay more StableCredit USD when they repay the loan to buy corresponding assets.

StableCredit USD is similar to the ETH of Uniswap and is the intermediary for all pool transactions of AMM. This allows the credit to enjoy transaction fees and indirectly enables the asset provider to charge interest. That is, the transaction fees and transaction slippage premiums paid by the debit and credit users are indirectly provided to the token providers.

If the user only provides scrip and does not make a loan, the loan premium of the whole system will be accumulated all the time, and the deposit income will be realized.

This approach also allows for the graceful maximisation of lending, such as agreements such as AAVE that liquidate a user's mortgage once it reaches a red line. The StableCredit model has little risk of liquidation, only a relative overall system risk of utilization.

For example:

User A gets 765 StableCredit USD for 1000DAI deposited. After that, he used it all for lending ETH. According to the previous cases, he calculated that he could borrow 765/700=1.09 ETH (due to the actual existence of slip points, etc., the number would be biased).

Suppose after a month, the ETH price rises to 1000 and the user pays back 1.09 ETH and gets 1.09*1000=1090 StableCredit USD. At this time, the user should repay 765 StableCredit USD and redeem 1000DAI.

After the above process, we found that the user initially mortgaging 1000DAI and obtained 75% purchasing power. Then he bought ETH and enjoyed the ETH price increase dividend. When he closed the position, he eventually recovered 1000DAI principal and left a balance of 1090-765=325 USD.

However, in fact, my case is a little too ideal. In a real system operation environment, due to the existence of arbitrageur, StableCredit USD and the exchange rate of various assets would be adjusted in real time through AMM transaction, so it is impossible to exchange in the original proportion in the mortgage and redemption process.

Some of the above content is purely my personal conjecture based on piecing together some bits and pieces of information. The specific operation mode of StableCredit needs to be verified in detail after the system is officially launched.

But it is not hard to imagine that such a design would definitely unleash more purchasing power and absorb more liquidity.

Write in the last

As I said in the previous article, the design of StableCredit was a very critical piece in the whole YFI ship, and it provided an interface for the entire financial empire to absorb liquidity, which could eventually develop into a liquidity black hole.

Step by step, the vision of forever is being fulfilled, with massive deposits and smart wealth management services superimposed on it.

In short, YFI's vision is to "maximise revenue".

The original intention of AC is summed up in a sentence, "to obtain continuous security, stability and convenience to maximize profits".