Title:
Implement Leverage Function for Liquid Staking Tokens and Their Original Tokens
Author:
Summary
This proposal aims to introduce a leverage function for liquid staking tokens and their original tokens within the Starlay platform. It seeks to capture the leverage demand for Liquid Staking, providing users with potentially higher yields while also considering the associated risks and technical implementations.
Motivation:
The motivation behind this proposal is to enhance the utility and financial optimization of the Starlay platform by enabling users to leverage their staked assets. With the increasing popularity and TVL in Aave v3, and the utilization of its emode, there is a clear demand for leveraged strategies in the DeFi space. This proposal aims to cater to that demand within the Starlay ecosystem, particularly focusing on upcoming liquid staking assets like nAstar and vDot.
Specification:
nASTR<>ASTR case
The implementation involves creating a mechanism that allows users to:
- Convert their ASTR holdings (V) to nASTR tokens.
- Use nASTR tokens as collateral to borrow ASTR at a specified LTV.
- Convert borrowed ASTR back to nASTR.
- Repeat the process to a specified limit, achieving geometrically increasing leverage.
The leverage and APR will be calculated based on specified LTV, interest rates, and borrow rates, with considerations for different tokens.
or more simple way for nASTR in case the following conditions as an example: Leverage:1.538461538, nASTR LTV:35%, User holdings: 10ASTR
User profit rate
Due to leveraging, the yield obtained from nAstar is multiplied by the leverage. However, interest is charged on borrowing Astar, so ultimately, a yield of Leverage × (nAstar yield - Astar borrowing interest on Starlay)※ ****can be obtained, which can be quite substantial in the current scenario of nAstar: Leverage ratio※ × (10.3-0.46) = APR, which is considerably high.
| LTV | Leverage | APR(%) | |
|---|---|---|---|
| 30% | 1.428571429 | 14.18571429 | |
| 35% | 1.538461538 | 15.27692308 | |
| 40% | 1.666666667 | 16.55 | |
| 45% | 1.818181818 | 18.05454545 | |
| 50% | 2 | 19.86 | |
| 55% | 2.222222222 | 22.06666667 | |
| 60% | 2.5 | 24.825 | |
| 65% | 2.857142857 | 28.37142857 | |
| 70% | 3.333333333 | 33.1 | |
| 75% | 4 | 39.72 | |
| 80% | 5 | 49.65 | |
| 85% | 6.666666667 | 66.2 | |
| 90% | 10 | 99.3 | |
| 95% | 20 | 198.6 | |
| 97% | 33.33333333 | 331 |
※ Rate is on 6th Oct 2023
※ Formula for Leverage ratio = 1/(1−LTV)
※ Actual APR may be lower than the indicated number above due to DEX fees per nASTR ↔ ASTR swap and a practical limit on loop iterations (e.g., max 10 times)
Benefits:
- Users can potentially achieve higher yields through leveraging.
- Enhances the utility and financial strategies available within Starlay.
- Can attract more TVL and user activity to the platform by catering to the demand for leveraged staking.
Costs:
- The followings will be covered by SCI budget
- Development and implementation of the leverage mechanism and possibly a flashloan function.
- Potential need for implementing rebase compatibility for certain tokens.
Time:
The implementation time is not specified and would require a detailed technical analysis to determine.
Risk Management:
Potential risks
- User losses due to depegging between original and liquid staking tokens.
- Technical risks associated with the development and implementation of new functions.
- Market risks related to interest and borrow rate fluctuations.
Risk migration
- Mitigations may include thorough audits, however given that the changes are minimal and, compared to Aave’s emode, do not alter existing LTVs but rather utilize them in the implementation of flashloans and incentives around liquid staking tokens, the risk to the shared pool is low. Therefore, the necessity for additional smart contract audits is diminished in this instance.
Next Action:
- Develop a detailed proposal for forum proposal
If it looks promising,
- Consult with Algem, Acala and Bifrost team regarding potential collaborations and technical considerations.
- Conduct a thorough technical and risk analysis to further refine the proposal and start the development