AIP #31 - Add a MIM/USDT Curve LP token Cauldron on Kava

Governance Proposals Voted Proposals
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AIP #31 - Add a MIM/USDT Curve LP token cauldron on Kava

TL;DR: Add a new market using MIM/USDT curve LP tokens as collateral on Kava.

Cauldrons parameters:

Initial Interest: 3%

Borrow Fee: 0.15%

LTV: 97%

Liquidation Fee: 0.5%

Proposed Oracle: Redstone

Initial top up of 5m $MIMs, with the possibility of scaling up to 10m depending on volumes and liquidity. Further top ups will require 24 hours voting periods.

Introduction

The following proposal is to deploy our first Kava cauldron. The proposed collateral asset is MIM/USDT Curve LP tokens.

The following pool is comprised of MIM and USDT, 2 native Kava assets, and is currently one of the highest yield Curve assets on Kava, sitting at 13% APY, but looking at an increase in that as soon as end of this week.

Risk Assessment

MIM is a deeply liquid stablecoin, and native USDT on Kava will mean an influx of liquidity for this given asset.

Deep Tether liquidity on other chains will allow liquidators to easily liquidate positions on Kava, and offload USDT both on chain (directly Kava or ETH mainnet) and off chain (CEXs).

Liquidity conditions and dynamics will be similar to the cauldron already approved by the DAO for MIM3pool assets, the proposal and liquidity assessment can be found here.

Profitability

Assuming a 5m $MIM yearly top up, and a 3% interest, the following cauldron would produce roughly 150k MIM in profits, over a one year time frame for the protocol and $SPELL holders.

We expect this limit to be raised fast and smoothly as more usage comes to Kava.

Additionally, the cauldron will allow users to perform leveraged farming on stablecoins, which is a highly requested product by both the Abracadabra and Kava communities.

Technology

The following cauldron would use amended V4 cauldron contracts and would be deployed on Degenbox on Kava.

Adding variable interest rate, upgradable oracles, and built-in strategy rebalance functions.

Voting

The current proposal will remain as an AIP for 72 hours, and will then be moved to snapshot. Snapshot voting starts Sunday 1/10/23.

Given the following proposal is related to adding a new collateral, the snapshot voting period will be set to 48 hours. Snapshot voting can be found here.

Voting has passed.

1 Like
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This cauldron does not meet profitability quotas previously discussed

1 Like
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Liquidity on kava is not incentivised through spell emissions

2 Likes
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I don’t view it as “isolated liquidity”. If Kava incentives are for a discounted interest rate - that’s one conversation. But the price per MIM has been targeted around 7-7.5% as a standard

1 Like
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I would not advise this RFC. Here are a few reasons:

  1. This would effectively be backing MIM with MIM as MIM is going to make up a large portion of the LP

  2. This RFC, with a borrow rate of 0% seems designed to incentivize MIM / USDT liquidity on a new chain without using token emissions but instead using risk to the protocol. This seems to be designed so that liquidity can be looped and amplify the liquidity on KAVA. This works great until you get a depeg of MIM or USDT and it triggers liquidations. Because now you are liquidating LPs into a pool made of (presumably) mostly LPs that are being held by the protocol as collateral which would then create a cascade of bad debt as MIM drops in price as it is liquidated into less and less liquidity on KAVA.

  3. Offering leverage on a new chain is inherently risky and allowing that leverage to be taken with 0% borrow fee means that you are getting no money up front for the risk that is being taken on a perpetual loan on a chain that does not have a proven track record of uptime.

1 Like
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Borrow rate is set at 3% , not 0%. The incentives to the pool are coming from a Kava grant , of which is fairly substantial , so we can expect to draw liqudiity , the anticipated effects

A) liquidity moves to kava curve
B) new USDt moves to kava
C) MIM from eth navigates to kava
D) eth pool improves in health

Risks

  1. new chain
  2. MIM volatility as MIM is backed by a fraction of MIM , levered debt
1 Like
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Borrow Fee is 0% so you get nothing off the bat. The INTEREST RATE is 3% so any returns are dependent on people repaying their loans.

The fact that there is a Kava grant and what the terms of that grant would be relevant to evaluating whether this proposal is an acceptable level of risk.

I still don’t like the idea of backing MIM with more MIM. Seems to me levered debt is just a nicer way of saying not-fully-backed CDP. . .

The reason the ETH pool is out of balance is because more people are selling MIM and buying to repay. Interest rates should be raised until we get the pool more balanced. Playing shell games by moving the liquidity around to other chains doesn’t address the primary issue.

1 Like
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Lets come up with alternative parameters that could move this RFC forward. Borrow rate at 3% might be too low.

1 Like
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sounds like an awesome idea!!! and its a good idea to keep building with Curve… when would it be the best time to implement?

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6% with 0 mint fee

or

3.0 % w/ 1.0% mint fee

****Emphasis on not expanding past 5M until pool health improves.

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I would align this proposal with the Stargate USDT proposal in terms of parameters to incentives TVL growth and take part in KAVA rise rewards.

  • 0.15% Borrow Fee
  • 0.5 % Liq Fee
  • 97 % LTV
  • 3% Interest