RFC - Add a $CRV Cauldron
TL;DR: Add a new market using $CRV as collateral. Cauldrons parameters:
- Interest: 18%
- Borrow Fee: 0%
- MCR: 75%
- Liquidation Fee: 10%
- Initial top up of 10m $MIMs, with the possibility of scaling up to 30m depending on volumes and liquidity.
Introduction
Abracadabra has been an ardent supporter of the Curve ecosystem, accepting naked CRV as collateral is a valuable addition to the cauldron lineup.
Given recent developments in the DeFi ecosystem, showcases strong borrow demand that is unmet by other protocols. Abracadabra is in a unique position to issue loans against CRV and benefit from interest rates.
Risk Assessment
The Curve protocol is one of the most decentralised protocols across all of DeFi space. CRV tokens not only have deep liquidity, but are listed on a variety of DEXs and CEXs. This will allow third party liquidators to easily liquidate in the event that borrow positions fall below their minimum collateral ratios.
Liquidity analysis suggests that selling 1m worth of $CRV tokens in the current market conditions would create a slippage of approximately ~3%.
By applying a conservative MCR (i.e 75%) and a large liquidation fee (10%), a buffer to safely liquidate positions is created. Reducing the risk of bad debt for the protocol, even in situations of extreme volatility.
Cauldron top ups start at $10M $MIM while monitoring risk metrics and backing of MIM. Due to the current health $MIM-3pool the protocol can venture into new markets, like CRV and obtain a significant amount of fees.
The interest rate is in line with other isolated lending markets and competitive enough to capture significant market share of CRV holders.
Profitability
With the given parameters, and an initial top up of 10m dollars, this cauldron generates approximately 1.8m $MIM over a one year time frame for the protocol and $SPELL holders.
This CRV cauldron would generate significant fees for the protocol.
Depending on CRV liquidity, CRV trading volume, and circulating MIM, the cauldron top ups can be ramped up over time.
Technology
The following cauldron would use V4 cauldron contracts and would be deployed on Degenbox. Adding variable interest rate, upgradable oracles, and built-in strategy rebalance functions (in case a degenbox strategy were to be proposed on top of it).
CRV Chainlink oracle for this price feed can be found here.
This proposal has passed with an absolute majority.
I do love the new UI, but have to tell you I miss the way the V1 UI would show you the current yield % of the collateral in question and calculate the yield resulting from a leverage position. I fear we went so far towards making the UI simple that we lost one of the “killer features” of the V1 UI, which was the ability to “shop” for yield and make leverage choices based upon projected Health Factor and resulting Position APY. Now users see very few choices unless they already hold a broad portfolio of assets in their wallet and don’t see the yield they are missing unless they do research / figure out how to find the old V1 UI. Could be a case of simplification reduced incentivization?