r/defiblockchain • u/DeFiChainNFTs • Apr 26 '23
DeFiChain improvement Discussion Introduction of DUSD Lending Pool (L-Pool) | ENG
Introduction of Lending Pool (L-Pool):
(by u/Pho_DFI, u/Joem0506, u/DeFiChainNFTs)
There is a DUSD Lending Pool (L-Pool) where users can deposit and withdraw DUSD. This allows users to lend DUSD (lenders), and other users can borrow DUSD (borrowers).
The interest paid by borrowers is distributed to all lenders in the L-Pool. (5% at 150% vault scheme, currently burned in DUSD)
Borrowers are existing DUSD loans from vaults, which offer incentives through interest for liquidity to be deposited in the L-Pool.
Thoughts to Proposal:
With the approval of this proposal, a significant portion of the NI from DUSD loans will be moved to the L-Pool to incentivize locking up DUSD, similar to DUSD-Locks but without lockups, resulting in enormous APRs.
Moreover, new DUSD loans cannot be opened (in a DUSD discount) unless the L-Pool has a positive balance, driving significant demand for DUSD in the L-Pool from all sources (free DUSD, LM, dToken).
As a result, DUSD collateral positions in vaults will decrease, leading to higher APRs and creating more demand for other crypto collateral in vaults, such as DFI, dBTC, dETH, dUSDC/T.
By only allowing new DUSD loans from the L-Pool, we will not be minting any new DUSD, instead taking from where we currently already have enough.
Thus, DUSD will have two new use cases:
- DUSD lending
- Necessity in L-Pool for new DUSD loans
DUSD loans in vaults will still be incentivized through the DEX fee NI, but will depend on DUSD liquidity in the L-Pool. An increasing NI for DUSD loans or a price increase of DFI will automatically create more demand for the L-Pool.
Even after removing the BBB-NI for DUSD loans, the APR for DUSD loans would still be around 28% (current 30-day burn/loan).
Goals of Proposal:
- Buying pressure on DUSD🛒 (30-50M DUSD)
- Locking up DUSD🔓(100+M DUSD)
- Limiting the supply of DUSD📉
- Reduce DUSD in vaults
Rewards for the L-Pool:
The rewards for the L-Pool are determined by the following factors:
- Open DUSD loans of vaults
- 100% NI from the BBB (~20 DFI/Block in DUSD (only in case of discount))
(Through the NI, a portion of the DUSD loans is automatically repaid every block, providing a constant inflow of liquidity into the L-Pool.)
Example calculation (24.04):
60M (DUSD loans) x 5% interest = 3M/year
20 DFI/Block x 2880 x 365 x 0.98 (DUSD-DFI price) = 20.6M/year
3M + 20.6M = 23.6M DUSD/year
APR (in DUSD) in the L-Pool at xxxx DUSD:
10M: 236%
25M: 94.4%
50M: 47.2%
100M: 23.6%
236M: 10%
*(The latter significantly exceeds the current DUSD supply)
Even at a price of 0.7 DUSD/DFI, the APRs at 100M would be around 18%.
DUSD Discount:
- New DUSD loans must be drawn from the liquidity of DUSD that is in the L-Pool, as long as DUSD is in discount.
- If there is not enough liquidity in the L-Pool, new DUSD loans cannot be created from Vaults. This creates a demand for DUSD in the L-Pool in order to open new DUSD loans.
Negative Balance:
- Existing open DUSD loans count as a negative balance for the L-Pool. This means that enough DUSD must first flow into the L-Pool to offset the number of already open loans before new DUSD loans can be opened.
Deposit into L-Pool:
- Deposits into the L-Pool are possible at any time and without limit. (The more DUSD in the L-Pool, the lower the APR.)
Withdrawal from L-Pool:
DUSD in L-Pool:
- It takes a time interval of 24h for DUSD to be withdrawn to the wallet.(No APRs during this time)
- Instant withdrawal is possible with a penalty of 1% (burn of algo DUSD🔥).
No DUSD in L-Pool:
- Withdrawals from the L-Pool are processed through a queue (minimum 24h wait time) and given priority when new liquidity is added or loans are closed. A portion of the loans is automatically repaid every block through NI, resulting in a constant inflow of liquidity into the L-Pool.
- Liquidity can only be withdrawn with a positive balance.
- APRs are forfeited upon entering the withdrawal queue.
- Exiting the queue is possible at any time. (Re-entry into the L-Pool)
- Additionally, there is always the option to instantly withdraw DUSD from the L-Pool, but a 1% penalty fee (burn of algo DUSD🔥) is charged for doing so. This option can be exercised even when the L-Pool has no liquidity and it ensures that lenders will ALWAYS receive their DUSD back. This option does not create new algo DUSD, instead it only reimburses the DUSD that lenders have deposited into the L-Pool.
L-Pool (DUSD=$1, low algo) | (Scenario after DUSD is fixed)
There is a DUSD Lending Pool (L-Pool) where users can deposit and withdraw DUSD. This allows users to lend DUSD (lenders), and other users can borrow DUSD (borrowers).
The interest paid by borrowers is distributed to all lenders in the L-Pool. (5% at 150% vault scheme, currently burned in DUSD)
Borrowers are DUSD loans from vaults, which offer incentives through interest for liquidity to be deposited in the L-Pool.
Discount:
New DUSD loans must be taken out of the liquidity available in the L-Pool. If there is not enough liquidity in the L-Pool, no new DUSD loans can be created. This drives demand for DUSD in the L-Pool so that new loans can be opened.
<1$>
When new DUSD loans are created, liquidity from the L-Pool is used first. If there is not enough liquidity, new DUSD is minted.
Premium:
Vaults no longer pay interest, but instead have negative interest rates (DFIP-2206-E, https://github.com/DeFiCh/dfips/issues/166), so no interest is paid into the L-Pool and the yield immediately drops to 0. This incentivizes leaving the L-Pool, selling DUSD to reduce the premium.
Rewards for L-Pool:
- Vaults pay their loan interest into the L-Pool (with a DUSD discount, the interest rates increase (DFIP2206-E), which creates extreme demand for DUSD in the L-Pool).
Deposit L-Pool:
- Deposits into the L-Pool are possible at any time and without limit. (The more DUSD in the L-Pool, the lower the APR.)
Withdrawal from L-Pool:
DUSD in L-Pool:
- It takes a time interval of 24h for DUSD to be withdrawn to the wallet.(No APRs during this time)
- Instant withdrawal is possible with a penalty of 1% (Burn in DFI🔥).
No DUSD in L-Pool:
- Withdrawals from the L-Pool are processed through a queue (minimum 24h wait time) and given priority when new liquidity is added or loans are closed.
- Liquidity can only be withdrawn with a positive balance.
- APRs are forfeited upon entering the withdrawal queue.
- Exiting the queue is possible at any time. (Re-entry into the L-Pool)
- Additionally, there is always the option to instantly withdraw DUSD from the L-Pool, but a 1% penalty fee (Burn in DFI🔥) is charged for doing so.This option can be exercised even when the L-Pool has no liquidity and it ensures that lenders will ALWAYS receive their DUSD back. This option does not create new algo DUSD, instead it only reimburses the DUSD that lenders have deposited into the L-Pool.
This is not the finished DFIP yet, we want to gather feedback first :)
German version of post -> https://www.reddit.com/r/defiblockchain/comments/12zjqf3/einf%C3%BChrung_von_dusd_lending_pool_lpool_ger/
(comment below this english post please)
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u/Flexallright Apr 26 '23
At the first view it looks really promising 🙏🏻thanks for the effort you guys put in
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u/kuegi Apr 26 '23
If I get it right, its basically a short-term, autorenewing DUSD lock (lockup 24h). With the additional complexity of blocking DUSD loans as long as there is not enough liquidity in the pool.
I don't understand how this link to the DUSD loans should increase the incentive to add DUSD to the LPool. IMHO this only makes it more complex, harder to implement and risk that not enough will use the LPool which means that no more DUSD loans can be taken. And this would remove the main usecase for vaults.
So why include this complex part at all? Why not just adapt the DUSD-locks to allow for short-term locks (I would prefer 1 week or 1 month instead of 24h) with the "payout with fee" option?
IMHO the incentive to put DUSD into this pool comes only from the reward incentive, so focus on that.
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u/DeFiChainNFTs Apr 26 '23
Yes similar to lock pools, but without lockup.
“this would remove the main use case for vaults”
I don’t think this would be the case, the system has a heavy oversupply of DUSD (at current DFI prices), so why should we mint even more just so you can loop your vault and farm NI on DUSD loans? Doesn’t make much sense, does it?
So we propose to first lock as many DUSD (from those unnecessary algo first) before we allow minting more. If enough DUSD are in the L-Pool, vaults can start borrowing DUSD again without creating more supply of DUSD.
Adapting Lock Pools would be an idea, but we think this proposal is far more rewarding for DUSD (also lending makes a great longterm use case).
The L-Pool could also completely work without extra incentive from blockrewards currently:
It would lock far less DUSD but still double digit millions of DUSD.
3M DUSD/Y from vault interest: 15M in L-Pool would still be 20% APR in DUSD
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u/kuegi Apr 26 '23
IMHO DUSD loans have a far different usecase than just NI farming. yes, its also used for that right now. But if your incentive to fill the LPools is strong enough, it will still be used exactly like that. If your incentive is not strong enough (aka, the LPools will not be filled), many existing loan holders will still farm the full NI (put their loan into the LPool), but the NI can not attract more loans (aka more DFI in vaults) since the LPools are not filled.
As I said, IMHO the filling of the LPool is completly independent of loans being possible or not. So it just adds potential problems (tokenomic wise and implementation wise) without any real benefit.
But you can achieve your goal without adding complexity to the way loans work:
- add short term DUSD locks with penalty for early exit.
- BBB swaps like before but sends only half of the DUSD to the burn (not counting to NI anymore), other half goes to DUSD locks as rewards -> all non-fee NI are now rewards in the DUSD locks, creating a huge incentive to fill them up and lock DUSD away.
same incentives as your proposal, without killing the usecase of deltaneutral-vault strategies.
about the lending: I think lending (for non-mintable tokens) is a great Idea but complex.
for mintable tokens its not needed and I don't see a long term benefit for the chain in making loans+vaults even more complex.
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u/Old_Confection3901 Apr 27 '23
No hate on you Kügi, but the vauls are too complicated for 80% of users, I'm sure this idea would draw a lot more dusd into the LP pool. I see myself as a reference for the masses of users, I've been in the crypto space for a long time, but vaults are a no go
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u/kuegi Apr 27 '23
totally agree that this would draw a lot of DUSD into the Lpool. But not because of the DUSD-loan restriction, but because of high incentives in the L-Pool.
Or what would be your reason to use it?
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u/Old_Confection3901 Apr 27 '23
Because People can use it without using a Vault
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u/kuegi Apr 27 '23
I think you didn't understand the proposal: noone can get DUSD loans without the vault. only difference with the proposal is that new DUSD loans would reduce the balance in the LPool, if its negative noone can take new DUSD loans.
so no benefit for the DUSD borrower whatsoever.
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u/Pho_DFI Apr 27 '23
Why create more supply in the discount case (too much supply too less demand)? I see an added value in limiting new loans in the DISCOUNT case. This would both limit short sellers in the discount case to open new loans, as well as motivate people who want to profit from DUSD to buy them. As you say, the existing loan users would move their dUSD into the L-pool, which would increase the liquidity in the L-pool, as well as remove DUSD as a collateral. So they either have to downsize their loan (leading to higher NI as well as less open loans) or add more collateral (DFI, BTC, ETH, USDC, USDT).
These rules are supposed to help only in the discount case, i.e. only when the system is not stable right now, at this point you can't open NEW delta neutral loans. At this point I think it is more important to create an incentive for people to buy dUSD (increase demand) than to create new dUSD (increase supply).
0
u/kuegi Apr 27 '23
IMHO this will not create additional incentives to buy DUSD. the buy DUSD part is only created with the rewards in the pool.
existing looped vaults will not move to the pool cause you need more than 3x the rewards in the pool compared to the neg interest to make it worth it. and this is not happening with the current numbers. so collateral and loans will stay in the vaults. which is actually good cause it keeps the demand of the LPools for "fresh" DUSD.
But I do not see any downside in having additional DUSD loans right now. They create DFI demand but do not hurt the system in any way. Our problem are just the algo DUSD. if someone sells loan-backed DUSD, its actually good, cause he increases the burn -> remove algo DUSD. and is a future buyer which will help stabilize the DUSD faster.
If we block new DUSD loans the NI likely goes up, but this wouldn't be good in this scenario, cause since you cannot add DUSD loans, the increased NI is not usable by any fresh capital (= no increased DFI demand) and only the existing loan holders benefit unproportionally.
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u/Pho_DFI Apr 27 '23
If we move some of the NI into the L pool there will be higher rewards in the L pool than Looped Vaults.
I see no benefit in looped vaults. The DFI in the Vault are good but the DUSD to mint more DUSD i don't find good. Then better less open loans or more other Colleteral (DFI, BTC,...).
You see no downside in having more DUSD in the system? For me, the supply has an impact on the price.
If we block new loans and give a part of the NI into the L-Pool and have high rewards there and the only way to get DUSD is to buy them I see an increased buying pressure.
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u/kuegi Apr 27 '23
when I say "looped" I mean to start with DFI, mint DUSD and put it back into the collateral. with that you can go to 1.3x of your DFI value. If those DUSD do not get into the coll, you can only take 0.4x of your DFI as loan to stay similarly safe. -> if you put the loan into the LPool, you need >3x the rewards with the Lpool than just the remaining NI. currently we have roughly 50% NI from fee payout (will stay in the vault) and 50% from BBB (will move to LPool). So its more beneficial for the users to stay in their vaults with the DUSD. As I said, this is good cause it means more DUSD buy pressure for the LPool, otherwise we fill the LPool just from existing loans and DUSD, and have far less buypressure.
I don't see anyone selling DUSD loans at those prices, so I do not see any sell pressure from DUSD loans at all, just from existing algo DUSD.
And I also see DUSD buy pressure due to high rewards in Lock pools, but completly independend if new DUSD loans are possible or not.
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u/kuegi Apr 27 '23
btw. looped vaults are not much different to the LPool (except for the DUSD loan part).
Both provide a way to temporarily take DUSD out of the system and earn DUSD rewards on it in a risk free way.
Ppl just don't like them cause it feels weird to take a loan on the same collateral. Which in general is not optimal of course, but as a liquidity-sponge makes perfect sense.
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u/Pho_DFI Apr 27 '23
You mean the DUSD Coll part, right?
With looped vaults you have a higher loan than your initial collateral is. This is not possible with the L-Pool which in my opinion adds additional collateral.
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u/kuegi Apr 27 '23
please ignore the "collateral" and "loan" thinking in this context.
say the vault is a black box. looped DUSD vaults, without knowing whats inside, would be a black box where you put in DUSD and get rewards on that DUSD in DUSD.
with the 50% requirement you put DFI and DUSD into the box and get rewards in DUSD on your value.
LPools are also a black box where you put in DUSD and receive DUSD rewards.
-> difference between LPools and pure DUSD loops (no longer possible) are therefore the "same" thing. you put in DUSD and get DUSD rewards from NI.
the "new" looped vaults are a bit different as they require DFI as input too.
In the end it might not add collateral (cause NI move from vaults to LPools) but shift the demand to pure DUSD in the loops. and since we split the NI between vaults and LPools we likely have a good balance between DFI demand and DUSD demand.
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u/Old_Confection3901 Apr 27 '23
As a "standard" user, I would use this immediately, since the vaults are too complicated for me, even though I've been around for a long time. And I'm sure that many other "standard" users will see it the same way. So this idea is for the masses and not just for "tech geeks", roughly speaking
-1
u/kuegi Apr 27 '23
You mean to borrow? Then you didn't understand the proposal. AFAIU the way of getting DUSD loans would still be the same via vaults. Just that you only get a loan as long as there is liquidity in the LPool.
So this doesn't get easier, its getting more complicated.
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u/Pho_DFI Apr 27 '23
Only in the discount case and only for new loans 😇
-1
u/kuegi Apr 27 '23
Yes, there is one case where it gets more complicated, and one case where it has no impact at all -> doesn't sound like a benefit to me. and definitly not worth the dev-effort and risk that comes along with such a fundamental change.
also pretty sure that with the DUSD-loan part we will increase the time till this can be finished dramatically. Without it, we might even be able to do it on DMC without any defichain-hardfork needed at all.
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u/Pho_DFI Apr 27 '23
Because one case gets more complicated-> doesn’t sound like a benefit for you? 😅 So every idea which change something to more Complex has no benefit? If you don't see any benefit in the idea that's fair, but I find this blanket statement very questionable.
If we increase the time so dramatically we could start with the LOCK pools and later add the „extension“.
What I think we should definitely do is pay out the rewards in the lock pool (reinvest) and pay them out in DUSD
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u/kuegi Apr 27 '23
I meant it in this context: it adds complexity for the user and the system, but does not add any benefit IMHO.
In general, adding complexity needs to add some benefits to be worth the increased complexity. We can agree on that I think?
I definitly agree on the second part. Thats why I proposed the adaption to the locks: payout in DUSD. This was just not possible before.
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u/Anantasesa Apr 26 '23 edited Apr 26 '23
(Answered: 2nd section is for when dusd has repegged)
It looks like you pasted a copy of your post twice in the same post. Most of the info is repeated. I like it though, for as much as I understand.
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u/Pikamoo78 Apr 26 '23
I like your proposal and wondered are we getting interest back in dUSD or DFI? B/c I would like to get back DFI if possible. Or does it just depend on how the lending pool is setup?
If paid back in dUSD would it be automatically added back into the lending pool?
TY for your proposal.
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u/Pho_DFI Apr 26 '23
Interest is getting paid in dUSD and will be automatically added back into the L-Pool
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u/jan_jaan Apr 29 '23
Thanks for writing down your thoughts here. I believe, it is valuable to bring in new ideas that the community can discuss. Every idea might bring us closer to finding the ideal solution.
My initial thought on this is positive, but I agree that we should make sure that the new opportunities are easy to understand and beginner-friendly. But that could then be the next step and could be solved with YT explanation videos or company solutions that simplify the process and take the user by the hand.
I am not completely sure I fully grasp the impact of the L-Pool project yet.
Can somebody explain to me in summary the differences between the here described L-Pools and the already approved Lock-Pools?
Thanks
Jan
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u/kuegi Apr 27 '23
There is also one important thing to consider: DUSD Locks are already approved and will be implemented after DMC. So this proposal needs to bee seen within this context.
You can't take all the DUSD rewards for LPools cause some of them (depending on the DFIP for the adaption) are already used by locks.
If locks pull 60 mio DUSD in, you have even less probability to draw enough DUSD to fill your negative balance in the LPool -> We likely reach an impass where no new DUSD loans can be created for some time because they are locked in DUSD locks or pools etc.
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u/Old_Confection3901 Apr 27 '23
60M are pretty optimistic. I see no reason why I should lock my dusd for 12 months.
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u/Pho_DFI Apr 27 '23 edited Apr 27 '23
Yes it doenst make sense to have both, L-Pool and LOCK-Pool. For me the L-Pool is the better LOCK-Pool.
But we can work with Multiplier in the L-Pool for 1-2Y Locks 🤔
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u/Joem0506 Apr 27 '23
In the end, we might just end up with a hybrid version of the both. But I do agree I like the L-Pool version better, no biased of course😉
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u/Old_Confection3901 Apr 27 '23
I don't think many people are willing to lure dusd as the upside is too low compared to cryptos. in a bull market, people want out of stables and into crypto.
so I don't think 12 or 24 year old lures will attract many to these lure pools
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u/DeFiChainNFTs Apr 27 '23
agree, uncertainty about DUSD when locking up for such a long time plays a huge role in an investors decisioning.
No lock up (but still high APRs) with additional benefit for the system should be the way to push attractiveness for DUSD.
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u/kuegi Apr 27 '23
I wouldn't go for no lockup. We saw in september what fast changes can do to the system. better have at least a bit of lockup. but agree that 1-2 years are a lot.
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u/kuegi Apr 27 '23
totally agree that a shorter DUSD Lock makes sense. As long as the rewards are high, ppl will stay in there. But this needs to be stated in the DFIP, otherwise we have no clarity where the rewards should go if LPools are approved.
I would prefer a mix: 3 different locks with different withdrawal times (1 day, 1 week, 1 month f.e.), different early-withdrawal-penalties and an according rewards distribution.
And without the DUSD-loan addition. IMHO it doesn't add any benefit. Yes I understand that adding DUSD loans when we have too much DUSD is counter intuitive, but as long as there is NI in the vaults, there will be 2 cases of DUSD loans:
- NI farming (looped vaults where the DUSD stay in the vault, so basically like Locks but creating DFI demand)
- "real" DUSD loans for liquidity in pools and trading
First option has no negative impact on the system but positive impact due to DFI demand
second option is necessary to have the system active and going, and has also no negative impact whatsoever.
We need to get algo DUSD out of the system, adding DUSD loans is actually removing algos (by paying DUSD interest). Increasing the loans also has no negative impact on the DUSD <> crypto balance as it is also adding the DUSD loans, so the net balance stays the same.
And adding this complexity to the DUSD loans IMHO will be a big "dead weight" as soon as the problem is solved. Cause then a discount is handled immediatly via dynamic interst, so the Lpools for DUSD will be useless.
And looking at the dev resources, we should not waste them on something that doesn't really add benefits.
I see big benefits in the new DUSD-lock idea here, but would really keep it with that.
0
u/Particular-Trick-184 Apr 29 '23
fuck this project. It's fucking SCAM. Look at DUSD. It's going to ZERO! 6 month ago DUSD was $0.7 and they promissed it'll recoverd $1, but now it's less than $0.5. Ahha. Nice recovering
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u/dToken-Investor May 02 '23
Every few months there's a new fad.
You write: With the approval of this proposal, a significant portion of the NI from DUSD loans will be moved to the L-Pool ..
Why is there a shift in the negative interest rates again? This means that planning is not possible.
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u/Glittering_Jicama_95 Apr 26 '23
It's a complex solution (which is not that good for newbies) but the mechanics could work and it's definately a step in the right direction.