AIP #58 - Add a $ZRO cauldron on Arbitrum
Introduction:
Following the successful integration of various tokens in the cauldron lineup, the next proposed addition is $ZRO tokens. This would allow Abracadabra to further expand its DeFi offerings, capitalizing on strong borrow demand for $ZRO holders. The proposed terms aim to ensure a safe and profitable lending environment while mitigating risk. Because of Oracle availability, the cauldron is proposed to be launched on Arbitrum.
ZRO cauldron aligns once more Abracadabra and LayerZero, bringing forward Abracadabra as one of the leading apps on the Layer Zero ecosystem.
Cauldron Parameters:
- Interest Rate: 9%
- Borrow Fee: 1%
- Minimum Collateralization Ratio (MCR): 80%
- Liquidation Fee: 6%
Risk Assessment:
$ZRO is expected to have sufficient liquidity across decentralized and centralized exchanges, ensuring that third-party liquidators can manage liquidation events without creating significant slippage.
- Estimated slippage: Selling 1 million worth of $ZRO would lead to ~0.5% slippage under current market conditions.
- The proposal includes setting a conservative Minimum Collateral Ratio (MCR) at 80%, with a liquidation fee of 6%, ensuring a buffer that limits bad debt risk for the protocol during periods of high volatility.
- The $ZRO cauldron is proposed to be launched on Arbitrum, because of the availability of a chainlink oracle. $ZRO is an OFT, so it can be moved between chains easily and quickly.
Profitability:
The $ZRO cauldron will offer a competitive 9% interest rate with a 1% borrow fee, making it attractive for both borrowers and the protocol. With an initial cauldron top-up of $1M MIM, the $ZRO cauldron is projected to generate 10% returns for the protocol over a one-year period, translating into approximately $100k in fees for the protocol and $SPELL holders.
Technology:
The $ZRO cauldron will utilize V4 cauldron contracts, ensuring compatibility with Degenbox. It will integrate variable interest rates, upgradable oracles, and strategy rebalance functions, should a Degenbox strategy be proposed.
A chain link oracle is proposed to be used, deploying the cauldron on Arbitrum as $ZRO can be freely moved between chains. The $ZRO USD feed can be found here.
Conclusion:
This proposal for $ZRO token integration has been carefully designed to ensure profitability, manage risk, and continue Abracadabra’s expansion into new DeFi markets. A strong initial setup with competitive terms will enable the protocol to attract significant interest from $ZRO holders while maintaining a secure lending platform.
Voting
The following proposal is ready to be voted on. Voting will start in 24 hours and can be found here. Voting will be live for 72 hours.
