Borrow Against Auto-Compounding $METIS LP Assets with Agora+
100M+ TVL in ~14 days!
However there is no such thing as steady state in DeFi. Our success is bound to attract other me too competitors, as well as cross chain giants such as AAVE.
We will have to continuously move forward by offering useful products while also balancing security.
We have already included the top 5 assets on Metis. Tethys has some problematic flash loan code in its token contracts which prevent it from being used as collateral. Further, BNB volume is only 3.3M at this stage.
As more assets migrate to Metis, we will be sure to add them, but we have already gone after and captured the bulk of the first order token TVL on Metis.
However, another opportunity exists in the form of LP tokens.
There is almost 180M worth of TVL which can be captured, and better still, these are yield generating assets. LPs are tokenized assets, thus can be used as collateral.
We are happy to introduce “Agora+” which allows LP providers to borrow against their auto-compounded LP positions.
First let’s understand what an auto-compounded LP means:
Most of the11 LPs (aka liquidity pools, in the above image) have farms that incentivize LP providers. An auto-compounding service will automatically harvest your rewards and redeploy them to the LP.
Auto-compounding will generally lead to significant increase in the net return to the LP provider, as seen in the chart below.
This auto-compounding effect is notably pronounced when applied to higher base rates.
A 50% APR farm auto-compounded once daily will result in about 65% APY, but a farm with 200% results in ~700% rewards when auto-compounded.
Better still, auto-compounding service providers give you a receipt token when you stake your LP, so you can actually use that as an asset to borrow against…
OCP Auto-Compounding LP Tokens
We are partnering with OCP, which is an auto-compounding service provider.
OCP is already auto-compounding all the major Netswap farms on Metis via OmniSteaks, and we are allowing them to be used as collateral.
The user flow would be: you supply LP, deposit the LP tokens on OCP to get receipt tokens (puff tokens,) and then use these puff tokens as collateral on Agora+ to borrow against them.
If this sounds fairly complex to you, that is because to some extent it is, however… Complexity is often in the eyes of the beholder.
Having said that, we have taken several steps to silo risk:
- We will be establishing a new money market instance separate to the current one where these puff tokens can be used as collateral. They will not be used on the main instance that is currently live. This will separate the risk associated with them and allow depositors in this instance to make a conscious decision about the amount of risk they choose to take on.
- We are pricing the LPs in non-manipulative manner, for further details the logic employed is here https://blog.alphafinance.io/fair-lp-token-pricing/
- The collateral factor of these auto-compounded LPs will be quite low to start at 25%. This will then steadily increase as the system withstands the test of time and more liquidity enters the market. They are not expected to exceed 65% at their maximum though.
- The user typically receives 1 or less than 1 puff token per LP token staked. This is because the puff tokens continuously increase in value. This means that the price of a corresponding puff token would be > the LP token. However we are pricing the price of the puff token to be the same as the LP token at the contract level. This makes things more conservative while also reducing the risk associated with pricing the puff tokens separately.
- The puff tokens cannot be borrowed, they can only be used as collateral. This reduces significantly the risk of flash loan based attack vectors.
- Various stable coins and METIS can be borrowed against puff token collateral. These however cannot be used as collateral and can be only used to earn a staking APY plus Agora rewards
- The puff token markets are not incentivized with AGORA. You earn only for staking the puff tokens and borrowing stables or METIS. This creates borrowing demand for the stables and METIS, and, supplying stables or METIS is incentivized with AGORA.
We are allocating 10M AGORA tokens as incentives to this market, to jump start liquidity. Be part of the movement — use our walkthrough.
The rewards and collateral factors of this instance are as follows:
We will be closely monitoring the progress of Agora+, but we are confident that, with the support of the community, Agora will only get much bigger.
More exciting things are in store for Agora and we will continue to build for the community!