Use Bootstrapping ETH to mint and seed XAI to silos

Proposal Discussion
1

Proposal

The SiloDAO has authorized the use of 897 ETH to seed liquidity in the Silo lending protocol. Since the core team has deployed ~ 450 ETH to different silos. The remainder of ETH sits in our DAO’s development fund.

This proposal is an addendum authorizing the core team to collateralize the DAO’s ETH to mint XAI. Minted XAI will be seeded into silos. By depositing XAI to select silos and rebalancing deposits in the protocol, our DAO effectively becomes a market marker. The promise of making markets serves as a great collaboration tool that we can leverage to attract deposits of base assets and establish relationships with Defi communities.

The Core Team will take the following steps to achieve the above:

  • Withdraw ETH from all silos.
  • Deposit 125 ETH between cbETH and wstETH.
    • Since these are ETH Derivatives it makes the most sense for users to want to use this as the bridge rather than XAI.
  • Deposit 772 ETH into the bridge silo (XAI-ETH).
  • Borrow XAI at 175% Collateral Ratio.
  • Distribute XAI between pools.

In the future, we may again move the minted XAI to support new markets and adjust liquidity in under-utilized silos.

Rationale

With XAI’s launch, our stablecoin is now a revenue maker. We need XAI deposits across multiple silos so that users may immediately borrow them. The team will maintain when seeding XAI to silos:

  1. Secure oracles: We will seed liquidity to silos with secure oracles.
  2. Deep liquidity: Only silos with liquid markets will receive XAI deposits.

Benefits

  • Accelerate usage of our protocol by bootstrapping XAI Liquidity across silos.
  • Since the XAI is collateralized by ETH, there are no negative effects on XAI as a whole should a market incur a bad debt.
  • Co-marketing opportunities with communities/DAOs that can make use of our isolated lending markets.
  • Revenue to the treasury from interest income.
  • Increased ETH Liquidity in the XAI Bridge silo.

Drawbacks

  • In the event of smart contract or oracle exploits, the treasury would bear the loss which would shorten the runway of the protocol.
  • Since we will be collateralizing ETH to borrow XAI, we will have less liquidity to spread around to new silos.
  • There is a risk of liquidation.
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