Date: 25 January 2023
Author: Chutoro
Reviewed By: Aiham, Tenzent
This is a proposal to extend credit lines to the following silos:
- cbETH - extend 500k $XAI credit line
- wstETH - extend 500k $XAI credit line
- DAI - extend 500k $XAI credit line
- USDT - extend 500k $XAI credit line
- gOHM - extend 400k $XAI credit line
- OHM - extend 100k $XAI credit line
The following is individual assessments of each of the above assets based on our risk framework outlined in our previous proposal (Risk Framework and Approach to XAI Credit Lines).
cbETH Credit Line
Basics
Name: Coinbase Wrapped Staked ETH
Ticker: $cbETH
Contract Address: 0xbe9895146f7af43049ca1c1ae358b0541ea49704
Description: cbETH is Coinbase’s liquid staking derivative for ETH. It is an indexed version of Lido’s stETH.
Absolute Parameters
Oracle: Chainlink cbETH/ETH price feed
Liquidation: Silo’s liquidation engine can liquidate cbETH collateral efficiently.
Protocol-Wide Parameters
As discussed in the original Risk Framework, no individual silo will receive a credit line extension exceeding 2,348,150 $XAI (1,643,705 $XAI after application of liquidity buffer).
Silo-Specific Parameters
$cbETH has significant liquidity on Uniswap v3 (~14.5m cbETH/WETH), Curve (~6m cbETH/WETH), and Balancer v2 (~10m wstETH/cbETH).
Simulating sales on Matchaswap indicate that swapping 6,000 $cbETH (~$9.8m USD) to $ETH would only incur around 0.7% slippage.
As such, the binding constraint for a credit line to $cbETH is our Protocol-wide Parameters (i.e. $XAI on-chain liquidity) rather than $cbETH itself.
Recommendation
The cbETH silo is our second highest performing silo with $2.32m in assets supplied and $0.62m in assets borrowed. There is currently a ~280k $XAI credit line extended to the silo with total $XAI utilization at around 56%.
Given that on-chain liquidity of $cbETH is abundant and utilization is high, we recommend the expansion of the current credit line to 500k $XAI. This will allow for increased borrowing activity by bringing utilization rates down and additional revenue to the DAO due to added interest. If utilization rates continue to increase, a future governance proposal may be created to expand credit lines as necessary to meet incoming demand.
We recommend continued assessment of on-chain liquidity of both $cbETH and $XAI to ensure that it remains within a safe range that will allow liquidations to occur as normal.
wstETH Credit Line
Basics
Name: Lido Wrapped Staked ETH
Ticker: $wstETH
Contract Address: 0x7f39c581f595b53c5cb19bd0b3f8da6c935e2ca0
Description: wstETH is Lido’s wrapped and staked liquid staking derivative for $ETH.
Absolute Parameters
Oracle: A custom oracle using Chainlink SETH/ETH price feed.
Liquidation: Silo’s liquidation engine can liquidate via the stETH/ETH Curve Pool and other pools.
Protocol-Wide Parameters
As discussed in the original Risk Framework, no individual silo will receive a credit line extension exceeding 2,348,150 $XAI (1,643,705 $XAI after application of liquidity buffer).
Silo-Specific Parameters
$wstETH is an indexed version of $stETH and as such can be unwrapped to redeem its underlying $stETH. On Silo, liquidations are hard-coded to route through the stETH/ETH Curve Pool which has ~$1.3b worth of liquidity.
Simulating sales on Curve indicate that sales of 200,000 stETH (~$330m USD) would only incur around 1.4% slippage.
As such, the binding constraint for a credit line to $wstETH is our Protocol-wide Parameters (i.e. $XAI on-chain liquidity) rather than $wstETH itself.
Recommendation
The wstETH silo has minimal activity with a modest credit line of ~50k $XAI currently extended of which 22% is currently utilized. Given the success of the cbETH silo in attracting borrowing activity, we believe that by expanding credit lines to the wstETH silo we can generate similar interest in the market. We believe that the $ETH liquid staking derivative narrative is extremely powerful in the near-term and will continue to strengthen over time. Given our protocol’s ability to maintain isolated lending markets, a credit line to $wstETH allows us to further Silo’s growth strategy.
$wstETH on-chain liquidity is extremely high and well in excess of our own Protocol-Wide Parameters. As such, we recommend expanding $XAI credit lines to the wstETH silo to 500k $XAI which will allow us to assess utilization with deeper lend-side liquidity.
We recommend continued assessment of on-chain liquidity of both $wstETH and $XAI to ensure that it remains within a safe range that will allow liquidations to occur as normal.
DAI Credit Line
Basics
Name: DAI
Ticker: $DAI
Contract Address: 0x6b175474e89094c44da98b954eedeac495271d0f
Description: $DAI is MakerDAO’s overcollateralized stablecoin which is backed by assets such as $ETH, $wBTC, and $stETH.
Absolute Parameters
Oracle: Chainlink DAI/ETH price feed
Liquidation: Silo’s liquidation engine can liquidate DAI collateral efficiently.
Protocol-Wide Parameters
As discussed in the original Risk Framework, no individual silo will receive a credit line extension exceeding 2,348,150 $XAI (1,643,705 $XAI after application of liquidity buffer).
Silo-Specific Parameters
$DAI has extremely high on-chain liquidity across multiple exchanges and is a constituent of Curve’s 3CRV base token.
Simulating sales on Matchaswap indicate that swaps of even 10,000,000 $DAI for $ETH would incur slippage of only 0.93%%.
As such, the binding constraint for a credit line to $DAI is our Protocol-wide Parameters (i.e. $XAI on-chain liquidity) rather than $DAI itself.
Recommendation
$DAI is the primary on-chain CDP stablecoin and is heavily utilized for yield farming strategies from protocols such as Yearn Finance. The DAI silo currently does not have a credit line deployed.
Given that on-chain liquidity of $DAI is extremely high and as a battle-tested stablecoin with a CDP design and low risk of de-peg, we recommend the deployment of a 500k $XAI credit line. The core team is currently in discussion with Yearn Finance contributors who aim to use the DAI silo to deploy yield strategies so we expect borrowing activity will be relatively high. Given the extent of $DAI on-chain liquidity, we recommend reassessing utilization and adjust upwards to our Protocol-Wide Limit as demand requires.
We recommend continued assessment of on-chain liquidity of both $DAI and $XAI to ensure that it remains within a safe range that will allow liquidations to occur as normal.
USDT Credit Line
Basics
Name: Tether
Ticker: $USDT
Contract Address: 0xdac17f958d2ee523a2206206994597c13d831ec7
Description: $USDT is a fiat-collateralized stablecoin and the second largest stablecoin by circulating supply.
Absolute Parameters
Oracle: Chainlink USDT/ETH price feed
Liquidation: Silo’s liquidation engine can liquidate USDT collateral efficiently.
Protocol-Wide Parameters
As discussed in the original Risk Framework, no individual silo will receive a credit line extension exceeding 2,348,150 $XAI (1,643,705 $XAI after application of liquidity buffer).
Silo-Specific Parameters
$USDT has extremely high on-chain liquidity across multiple exchanges and is a constituent of Curve’s 3CRV base token.
Simulating sales on Matchaswap indicate that swaps of even 10,000,000 $USDT for $ETH would only incur slippage of 0.36%.
As such, the binding constraint for a credit line to $USDT is our Protocol-wide Parameters (i.e. $XAI on-chain liquidity) rather than $USDT itself.
Recommendation
$USDT is the second largest stablecoin by circulating supply after $USDC and is heavily utilized for yield farming protocols such as Yearn Finance. The $USDT silo currently does not have a credit line deployed.
Given that on-chain liquidity of $USDT is extremely high and as a battle-tested stablecoin with a low risk of de-peg, we recommend the deployment of a 500k $XAI credit line. The core team is currently in discussion with Yearn Finance contributors who aim to use the USDT silo to deploy yield strategies so we expect borrowing activity will be relatively high. Given the extent of $USDT on-chain liquidity, we recommend reassessing utilization and adjust upwards to our Protocol-Wide Limit as demand requires.
We recommend continued assessment of on-chain liquidity of both $USDT and $XAI to ensure that it remains within a safe range that will allow liquidations to occur as normal.
gOHM Credit Line
Basics
Name: Governance OHM
Ticker: $gOHM
Contract Address: 0x0ab87046fbb341d058f17cbc4c1133f25a20a52f
Description: $gOHM is a wrapped staked version of $OHM, a reserve currency that is backed by PoL in the form of bonded assets
Liquidation Threshold: 85%
Max Liquidation Fee: 15%
Absolute Parameters
Oracle: Chainlink OHMv2/ETH price feed in combination with Silo’s custom gOHM<>OHM oracle
Liquidation: Silo’s liquidation engine can liquidate $gOHM collateral efficiently.
Protocol-Wide Parameters
As discussed in the original Risk Framework, no individual silo will receive a credit line extension exceeding 2,348,150 $XAI (1,643,705 $XAI after application of liquidity buffer).
Silo-Specific Parameters
$OHM (the proxy for $gOHM) has relatively shallow on-chain liquidity across Uniswap v3 and Balancer v2. Currently, liquidators are hard-coded to route through the OHM/ETH Balancer v2 only which has ~35m liquidity.
Simulating sales of our max credit line extension value implies a slippage of 11.4% which is within acceptable ranges given our max liquidation fee of 15% for $gOHM.
As such, the binding constraint for a credit line to $gOHM is our Protocol-wide Parameters (i.e. $XAI on-chain liquidity) rather than $gOHM itself.
Recommendation
$gOHM is a widely circulated reserve currency token with significant integrations across the DeFi landscape. The pre–existing credit line to the gOHM silo has 44% utilization - we believe that further growing this liquidity will benefit both Silo and the OlympusDAO ecosystem greatly.
It should be noted that $gOHM’s on-chain liquidity is relatively shallow especially given our liquidators are hard-coded to route via the Balancer v2 OHM/ETH pool only. As such, we recommend a reduced credit line only to the amount of 400k $XAI, which will incur slippage of 1.7% which is within reasonable bounds for liquidator profitability.
We recommend continued assessment of on-chain liquidity of both $gOHM (proxied by OHM/ETH liquidity) and $XAI to ensure that it remains within a safe range that will allow liquidations to occur as normal.
OHM Credit Line
Basics
Name: Olympus v2
Ticker: $OHM
Contract Address: 0x64aa3364f17a4d01c6f1751fd97c2bd3d7e7f1d5
Description: $OHM is a reserve currency that is backed by PoL in the form of bonded assets
Liquidation Threshold: 85%
Max Liquidation Fee: 15%
Absolute Parameters
Oracle: Chainlink OHMv2/ETH price feed
Liquidation: Silo’s liquidation engine can liquidate OHM collateral efficiently.
Protocol-Wide Parameters
As discussed in the original Risk Framework, no individual silo will receive a credit line extension exceeding 2,348,150 $XAI (1,643,705 $XAI after application of liquidity buffer).
Silo-Specific Parameters
$OHM has relatively shallow on-chain liquidity across Uniswap v3 and Balancer v2. Currently, liquidators are hard-coded to route through the OHM/ETH Balancer v2 only which has ~35m liquidity.
Simulating sales of our max credit line extension value implies a slippage of 11.4% which is within acceptable ranges given our max liquidation fee of 15% for $OHM.
As such, the binding constraint for a credit line to $USDT is our Protocol-wide Parameters (i.e. $XAI on-chain liquidity) rather than $OHM itself.
Recommendation
$OHM is a widely circulated reserve currency token with significant integrations across the DeFi landscape with a recent OlympusDAO proposal (https://forum.olympusdao.finance/d/1825-oip-127-ohm-lending-markets-pilot-programme) to bootstrap the OHM silo. In combination with a $XAI credit line, we believe that cross-collaboration between Olympus and Silo will allow for benefits to both protocols.
It should be noted that $OHM’s on-chain liquidity is relatively shallow especially given our liquidators are hard-coded to route via the Balancer v2 OHM/ETH pool only. As such, we recommend a limited credit line only to the amount of 100k $XAI, which will incur slippage of 0.2% which is within reasonable bounds for liquidator profitability.
We recommend continued assessment of on-chain liquidity of both $OHM and $XAI to ensure that it remains within a safe range that will allow liquidations to occur as normal.