RFC - Stargate USDT Cauldron on KAVA
Tl;dr Add a Stargate USDT cauldron on KAVA network.
Cauldrons parameters:
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0.15% Borrow Fee
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0.5 % Liq Fee
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97 % LTV
-
3% Interest
Initial top up of 2m $MIMs, with the possibility of scaling up to 10m depending on volumes and liquidity. Further top ups will require 24 hours voting periods.
Proposed Oracle: Redstone
Introduction
Following the successful launch of Abracadabra Infrastructure on KAVA chain as per AIP #23, the effort to find suitable collateral can now successfully start. One of the first proposals that the DAO should assess is Stargate USDT as collateral.
In the last month, Stargate has successfully launched on KAVA network allowing for single side staking of native USDT tokens in order to farm STG rewards. This successful launch allows for the DAO to deploy a Stargate USDT implementation, similar to the one currently live on other networks.
Risk Assessment
The DAO already accepts stargate USDT as collateral on Mainnet, hence the most important assessment related to this collateral is USDT liquidity on KAVA. After its native launch on KAVA, USDT has been the major stablecoin that has been able to attract liquidity there. Most of its TVL can be seen currently on Curve, where it can also be easily swapped for MIM.
The main concerns related to such a cauldron would probably come on the Oracle side. Unfortunately, Chainlink price feeds are not yet available on KAVA, forcing us to choose another provider.
One of the offered solution right now seems to be Redstone Finance. Redsone seems to be the most reliable option right now.
Hopefully, more providers will come, and more options will be presented for the DAO to choose from in future proposals.
Profitability and Cauldron Parameters
Cauldrons parameters:
-
0.15% Borrow Fee
-
0.5 % Liq Fee
-
97 % LTV
-
3% Interest
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 $SPELL holders.
We expect this limit to be raised fast and smoothly as more usage comes to Kava.
Additionally, the cauldron will allow users to perform leveraged farming on stablecoins, which is a highly requested product by both the Abracadabra and Kava communities.
Technology
The following cauldron would use amended V4 cauldron contracts and would be deployed on Degenbox.
Adding variable interest rate, upgradable oracles, and built-in strategy rebalance functions. A degenbox strategy working similarly to the ones currently live on mainnet will also be deployed.
As mentioned above, my first proposed Oracle solution is using Redstone Finance oracles. In order to be extremely cautious, I would propose to add a backstop safe on the Redstone price feed that would not allow the oracle to price USDT above 1.01$ and below $0.95.
This setup would allow to already deploy the cauldrons, even without Chainlink, while having a failsafe mechanism to avoid incorrect price reporting caused by oracle or manipulation issues.
In case of actual extreme market volatility in the price of USDT, the DAO will be able to update the oracle accordingly without the need of another vote.
This solution is only an initial brainstorming and further oracle options should be proposed and addressed as well, underneath this post.
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.
