AIP #59 - Add a $ENA cauldron on Arbitrum
Introduction:
Following the successful integration of various tokens in the cauldron lineup, the next proposed addition is $ENA tokens. This would allow Abracadabra to further expand its DeFi offerings, capitalizing on strong borrow demand for $ENA 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.
Cauldron Parameters:
- Interest Rate: 9%
- Borrow Fee: 1%
- Minimum Collateralization Ratio (MCR): 80%
- Liquidation Fee: 6%
Risk Assessment:
$ENA 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 $ENA 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 $ENA cauldron is proposed to be launched on Arbitrum, because of the availability of a chainlink oracle. $ENA is an OFT, so it can be moved between chains easily and quickly.
Profitability:
The $ENA 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 $ENA 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 $ENA 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 $ENA can be freely moved between chains. The $ENA USD feed can be found here.
Conclusion:
This proposal for $ENA 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 $ENA holders while maintaining a secure lending platform.
Next Steps
This proposal will remain as a SAIP to allow the engineering team to assess the feasibility of integrating $ENA as a collateral type. In the meantime, a 72 hours period will commence to signal the DAOs position on the proposal.
Voting can be found here.