Initial Collateral Onboarding (Pre-Launch)

#1

The purpose of this thread is to start discussing which collaterals should be onboarded as part of the starting MOR protocol.

Important considerations for onboarding collaterals

  1. Smart Contract Risk

    2. When proposing initial parameters (min collateralization ratio, stability fee, liquidation penalty…) the smart contract risk should be priced in.

  2. On-chain Liquidity/Debt Ceiling ratios

    3. To minimize as much as possible failed liquidations there should be healthy on-chain liquidity when compared to the debt ceiling.

Parameters for collaterals

Debt Ceiling

The "Debt Ceiling" is the maximum amount of MOR that can be minted using a collateral type.

Stability Fee

Borrow APY being paid by users on their outstanding MOR debt (higher collateral risk -> higher stability fee). In order to be competitive it is recommended that stability fees are at least slightly lower than the rates offered by money market protocols (Venus, Cream, Alpha Finance & Alpaca Finance).

Minimum Collateralization Ratio

This is the minimum required collateralization ratio that a user needs to have in order to avoid liquidations (if the collateralization ratio is 150% then they need to have at all times at least 150$ worth of collateral for every 100 MOR in outstanding debt). If the minimum collateralization ratio is very low the user can be very capital efficient and use high leverage to maximize profits but it shouldn't be too low since that can lead to a higher default risk and failed liquidations. When proposing a minimum collateralization ratio for a collateral its volatility and liquidity should be taken into account.

Liquidation Penalty

Liquidation penalties are additional fees charged by the protocol and serve as buffer to cover losses in the event of failed liquidations (the difference between penalties and failed liquidation losses would be extra revenue from liquidations). If a collateral is high risk it should have a high liquidation penalty so that succesful liquidations create a buffer/reserve in case a black swan event happens.

Oracles

MOR uses two main oracle types:

Chainlink Oracles

You can find the available pairs supported by Chainlink on BSC here.

Long TWAP Oracles

For those pairs that don't have support from Chainlink oracles we would use long TWAP oracles (Time Weighted Average Prices), in order to avoid price exploits TWAP prices have slight price delays and that should be taken into account for the above parameters too.

Competition Rates

This are the main protocols on BSC that offer borrowing, their rates and LTV ratios should be taken into account when considering a competitive stability fee.

Venus

When looking at Venus rates it should be taken into account the net borrow rate (borrow rate - liquidity mining rewards) and the net supply rate (supply rate + liquidity mining rewards). For most collaterals Venus has a 80% LTV policy which equals a 125% minimum collateralization ratio. They don't support supplying yielding collaterals.

Alpaca Finance

When looking at Alpaca rates it should be taken into account the net borrow rate (borrow rate - ALPACA liquidity mining rewards). They support some PancakeSwap and WaultSwap LP tokens as yielding collaterals, best place on BSC right now to check the demand on leverage yield farming for some pairs and the net borrow rates users are willing to pay.

Alpha Finance

Alpha Finance only allows borrowing BNB to leverage yield farm (MOR is $ soft pegged), they support some PancakeSwap LP tokens as collateral.

Alpha Finance

Cream is a money market protocol like Venus, they support some PancakeSwap LP tokens but they aren't receiving and compounding the CAKE rewards.

Potential Yielding Collaterals to discuss about

  1. stkTokens using ApeSwap LP tokens and stkBANANA.
  2. stkTokens using PancakeSwap LP tokens and stkCAKE.
  3. stkTokens using Wault Finance LP tokens, stkWEX and stkWAULTx.
  4. stkTokens using MDEX LP tokens and stkMDX.
  5. stkTokens using Venus vTokens.
  6. stkTokens using Alpaca ibTokens and stkALPACA.
  7. Alpha Finance ibBNB.
  8. stkAUTO using AutoFarm.
  9. stkWHEAT using WHEAT.

Potential Non-Yielding Collaterals to discuss about

  1. BNB
  2. BTCB
  3. ETH
  4. GRO
  5. gROOT
  6. LINK

Now it’s time to start discussing and planning for the MOR launch!

4 Likes
#2

I certainly think having Growth-native tokens available as collateral is a good move. It allows members of the existing Growth community to utilise their existing holdings and take advantage of MOR without having to sell into other assets. The sooner that gets implemented the better imo as it helps with demand & builds a use case

#3

I think the Yielding Collaterals are a game changer so they are a priority.

1 Like
#4

Are there examples of other protocols that also implement over-collaterized stablecoins?

#5

Maker & DAI are the best example. The main difference is using vault tokens as collateral (so you can earn whilst you borrow/leverage your APY returns)

1 Like
#6

And that is something that is currently a new idea for DeFi right? Using staked vault tokens as collateral?

#7

Afaik yes, so it’s a key selling point

#8

This is a sample collateral onboarding proposal for stkBANANA.

Risk Parameters:
Min Collateralization/ Liquidation Ratio: 150% (66.67% LTV) (3x Max Leverage)
Stability Fee: 10%
Debt Ceiling: 2 Million MOR (Initial Debt Ceiling, roughly 6% of the total liquidity in BANANA/WBNB and BANANA/BUSD)
DC-IAM gap (Debt Ceiling Instant Access Module gap): 500,000 MOR
DC-IAM ttl (How often the DC-IAM can be called to adjuts the gap): 24 hours
Cut (Auction price drops 1% every “step” seconds): 99%
Step: 60 seconds
Buf ( Multiplicative factor to increase starting price): 110%
Cusp (Percentage taken for the new price before auction reset): 30%
Tail (Time elapsed before auction reset in seconds): 2100 seconds
Chip (Percentage of outstanding debt to incentivize keepers): 0%
Tip (Flat tip to incentivize keepers): 3 MOR
Ilk.chop (liquidation penalty): 20%
Ilk.hole (Max MOR needed to cover debt+fees of active auctions per collateral/ilk): 2 Million MOR
Dust: 100 MOR

Leverage Yield Farming using stkBANANA
This numbers are calculated with a 5% performance fee charged by WHEAT for auto-compounding, higher leverage will also affect your principal when BANANA changes in price (if the user has a 2x leverage position they will profit 2% for every 1% move and lose 2% for every 1% move).

Yield Farming without leverage: 219.34% APY - 0% Stability Fee = 219.34% net APY
1.5x leverage: 570.67% APY - 5% Stability Fee = 565.67% net APY
2x leverage: 1,019.8% APY - 10% Stability Fee = 1,009.8% net APY
2.5x leverage: 1,822.41% APY - 15% Stability Fee = 1,807.41% net APY
3x leverage (MAX): 3,256.7% APY - 20% Stability Fee = 3,236.7% net APY

Note: Users should not open positions anywhere closed to the max leverage since they risk being liquidated.

This would be a sample onboarding collateral proposal (it should also include a brief overview and reasoning over why to onboard that collateral type (ilk), use it for your own proposals.

2 Likes
#9

There should certainly be support for our own ecosystem tokens (GRO, WHEAT and gROOT), when proposing onboarding for this three tokens keep in mind what their on-chain liquidity looks like, to be safe the debt ceiling of the collateral type (ilk) should be less than 10% of the liquidity.

This means that if GRO has 1 Million $ worth of liquidity across different pairs it should not have a debt ceiling above 100,000 MOR.

For all collaterals it is best to start at a conservative level and scale them up overtime as they get more usage and proof that the demand is there.

2 Likes
#10

MOR reuses a lot of Maker DAO’s architecture and modules, we wouldn’t be able to do it without what they have been developing since 2014.

The approach of MOR is different from DAI since it focuses on yielding collaterals and chains which Maker doesn’t support.

The first step towards ensuring a healthy ecosystem for MOR would be accumulating a large system surplus through PSM fees, stability fees and liquidation penalties which will enable the protocol to survive and thrive through black swan events.

1 Like
#11

The closest thing on BSC would be Alpaca Finance and Alpha Finance but they need other users to deposit/lend their tokens to the protocol beforehand which are then borrowed to create leveraged positions, they don’t use a native overcollateralized stablecoin.

On Ethereum there are a few projects that use yielding collateral to create a stablecoin, the main example would be Alchemix using yUSD and yETH to create alETH and alUSD stablecoins, this are loans that repay themselves automatically but have the same denomination (you can’t provide yETH to mint alUSD for example).

Maker DAO is slowly starting to accept yielding collaterals, their first onboarding proposal is for stETH (Lido’s tokenized ETH 2.0 staking solution).

1 Like