TL;DR: Add a new market using $GMX as collateral. Cauldrons parameters:
Interest: 15%
Borrow Fee: 0.5%
MCR: 60%
Liquidation Fee: 10%
Initial top up of 1m $MIMs, with the possibility of scaling up to 3m depending on volumes and liquidity.
Introduction
Abracadabra has been an ardent supporter of the GMX ecosystem, accepting naked GMX as collateral is a valuable addition to the cauldron lineup, and would further align our DAO with the GMX community.
Risk Assessment
GMX is one of the leading protocols on the Arbitrum landscape, with more than 470k users and more than 170B in trading volume.
The GMX token is deeply liquid, with a main pool on Uniswap with more than 28m in TVL.
Liquidity analysis suggests that selling 1m worth of $GMX tokens in the current market conditions would create a slippage of approximately ~3%, making it an interesting candidate for a cauldron.
By applying a conservative MCR (i.e 60%) and a large liquidation fee (10%), a buffer to safely liquidate positions is created. Reducing the risk of bad debt for the protocol, even in situations of extreme volatility. Additionally, the initial top up of 1m MIM allows the DAO to closely monitor how efficient liquidators are and act accordingly.
Due to the current health $MIM-2pool on Arbitrum the protocol can explore the offering into new markets, like GMX and obtain a significant amount of fees.
The interest rate is in line with other isolated lending markets and competitive enough to capture significant market share of GMX holders.
Interest Rate can be modified by a speedlane AIP, and voting lasting 24 hours.
Profitability
With the given parameters, and an initial top up of 1m MIM, this cauldron generates approximately 150k $MIM over a one year time frame for the protocol and $SPELL holders. The number would scale up accordingly to the amount of MIM deposited into it.
Additionally, this cauldron would expand Abracadabra’s offering on Arbitrum, consolidating its place as the go to place to borrow against Arbitrum native tokens.
Depending on GMX liquidity and trading volume, the cauldron top ups can be ramped up over time, bearing in mind the volatile nature of the token.
Technology
The following cauldron would use V4 cauldron contracts and would be deployed on Degenbox. Adding variable interest rate, upgradable oracles, and built-in strategy rebalance functions (in case a degenbox strategy were to be proposed on top of it).
GMX Chainlink oracle for this price feed can be found here.
Next Steps
The current proposal will remain as an RFC for 48 hours, and will then be moved to voting as AIP #42. Following this, a snapshot vote will soon be put up in order for this proposal to be voted on!