Boostrap MIM Tranches - leveraged Convex yield and LP protection
Summary
Idle DAO recently released a new tranches product to let MIM liquidity providers enjoy:
- leverage on Convex APY (20% APY now)
- built-in protection features (11% APY now)
The product provides an alternative gateway to liquidity provision via Curve/Convex and on-top vaults, enabling risk-oriented and risk-averse MIM users to pick their preferred exposure on MIM liquidity provision.
This is a proposal to allocate 1% of the current SPELL emission [11.6m SPELL/week] to bootstrap the Senior Convex PYT - MIM pool, building up solid fundamentals to reach hundreds of million $ in potential liquidity.
Motivation
Until today, the deployment of liquidity was possible via direct deposit into Curve/Convex or on-top protocols (e.g. Yearn).
Users that deploy liquidity into MIM pools can do it using 3 gateways, with different dependencies:
- Curve, with rates between 8% and 18% (according to the veCRV held)
- Convex, with about 20-26% APY
- Yearn, with actually 19% APY
Idle DAO released Convex PYT to unlock two additional gateways to attract liquidity, choosing MIM in the first batch of integrated assets.
PYTs provide two new classes of risk profiles, expanding the Abracadabra ecosystem with those alternative solutions:
- Junior Tranche receives a higher proportion of Convex’s yield but also takes on extra smart contract and protocol risks.
- Senior Tranche receives a smaller portion of the yield generated on MIM3CRV via Convex but carries a higher grade of protection against these risks.
PYT Features
PYTs are epoch-less, which brings limitless product interactions: liquidity providers can deposit and withdraw anytime, with no maturity date or locking period.
Tranche tokens are also fully fungible: they can be integrated into other protocols as yield source or used for additional on-top use cases like stablecoin minting, collateral for loans, leveraged, tokenization of future yields.
Security aspects
A decrease in the value of yield-bearing tokens will trigger a pausing mechanism. Senior Tranches are first in line to be repaid in case of default, while Junior holders have a second lien or no lien at all in case of fund losses.
PYTs have been audited by Consensys Diligence and Certik. The documentation is available here.
Specifications
Currently, a total of 1,161,501,384 SPELL per week is currently emitted (source). 48% of that amount is distributed across liquidity mining and bribe activities.
The allocation of 1% of the weekly issuing [11.6m SPELL] on Convex Senior PYT - MIM pool will empower $250m to receive 10-15% APY on the Senior Tranche, with 30% - 50% APY on the Junior side (addressable Tranches TVL: $500m-800m).
On the Senior side, most of the attention will be on security features, with a focus on attracting loyal liquidity. The removal of incentives will generate a minor APY reduction (e.g. -2% APY), holding product appetibility.
After the bootstrap phase, an eventual outflow of liquidity from Senior Tranches will be translated into organic incentives to deposit there.
Next steps
This post aims to gauge Abracadabra community feedback.
If the community shows to be in line with this proposal, I’d be glad to spin off a Snapshot poll to assess the consensus from SPELL token holders. Next step would be to propose it on-chain and finalize the liquidity deployment.
About Idle
Idle DAO’s objective is to create a product suite for Decentralized Finance (DeFi) that provides yield aggregation, automation, and optimization while allowing to diversify the associated technical and financial risks. We work with integration partners and DAO/institutional treasury managers to simplify their yield experience. Partners don’t need to stitch together disparate protocols or spend months integrating and updating yield functionalities.
One integration, to rule them all – DeFi yields aren’t easy to manage, but Idle makes you feel like they are.
Our core product suite is currently composed of:
- Best-Yield strategy is a lending aggregator that aims to achieve the highest yield for supported digital assets at all times. It does this by programmatically allocating these assets across several lending protocols operating on the Ethereum and Polygon blockchain. The strategy has been battle-tested since mid-2019, and it’s considered one of the most resilient in the entire DeFi space.
- Perpetual Yield Tranches are capital pools that automatically generate and tranche yields and risks based on a range of market-neutral yield strategies, including lending income, trading fees from Automated Market Makers, and protocol incentive farming. Pools are associated to two risk-adjusted products: Senior and Junior Tranches. Depositors into the Junior Tranches receive a higher proportion of system yields but also take on extra smart contract and financial risk. Inversely, the Senior Tranches receive a smaller portion of the system yield but are protected against these risks.
) to increase the chances to get MIM Senior PYT listed.
