Proposal to add SPOT as a capped collateral to Interest Protocol

Ampleforth Governance
1

Overview

List SPOT as collateral on Interest Protocol, a lending protocol. This lets lenders borrow against their SPOT, and even leverage to speculate on SPOT price increases.

From their docs:

Interest Protocol (IP) is the first fractional reserve banking protocol on the Ethereum blockchain that pays interest to all depositors. Interest Protocol issues a stablecoin, named USDi, that is both over-collateralized and highly scalable. USDi holders automatically earn yield without having to stake, which means Interest Protocol provides yield opportunities to gas-conscious users. Compared to lending protocols without fractional reserves, Interest Protocol can generate more loans from a given amount of capital while incurring less liquidity risk.

Current SPOT proposal

I will post the draft proposal below to their forums after some feedback from the Forth DAO.

Past flatcoin or stablecoin proposals

  1. Proposal to add CHAI
  2. Proposal to add sUSD
  3. Proposal to Add cUSDC (V3) as Collateral

IPTMan expressed a personal opinion that synthetic stablecoins that have backing based on a single instrument should be capped at no more than 10% of the backing on USDi and LTV limited to 90%.

Technical notes

  1. 1 USDi is currently hardcoded to 1 USDC.

  2. Their analytics currently show that CHAI, an interest-bearing DAI, makes up more than 25% of their collateral.

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  3. Interest Protocol is currently small (Total USDi: 823,000, Total Value Locked: 1,142,000, Total Value Borrowed: 457,000) so any large borrow may cause borrowing rates to go up significantly.

  4. If the Forth DAO wants to short SPOT on Interest Protocol, it needs to be added as a reserve asset. Getty from GFX Labs said, “I wouldn’t rule anything out, but using a protocol generated stable-like coin often comes with a heightened risk.” (Discord invite link).

Relevant References

Audit by Dedaub

Proposal to add SPOT

Proposal to add SPOT as a capped collateral to Interest Protocol.

Overview

From SPOT Bends vs Breaks Deck 1:

SPOT is a decentralized flatcoin designed to survive black swan events.

SPOT can:
I. Support extremely long-lived periods of stability
II. Degrade gracefully outside discrete price and collateralization-ratio bands
III. Resume stable value storage after Black Swan Events without bailouts

SPOT is a responsibly-designed store of value built to support extremely long-lived periods of stability. The system “bends” safely rather than “breaking” catastrophically, and can forever resume its function without reliance on bailouts.

Parameters

Token Address: 0xC1f33e0cf7e40a67375007104B929E49a581bafE
Capped Token address:
LTV: 90%
Liquidation incentive: 0.75%
Maximum Cap: 100,000
Oracle Address: N/A
Primary oracle: N/A
Secondary oracle: N/A
Price deviation: N/A

Liquidity

Market Cap: $754,000
Liquidity: At time of writing $813,000 on Uniswap V3 of which $350,000 is in an Arrakis vault
Volatility: See Coingecko
Coingecko 7-day avg 24hr volume: $5,415
Notable exchanges: Uniswap V3

Notes on liquidity

Although $813,000 liquidity seems small, Uniswap V3 liquidity is concentrated so that selling 95,000 SPOT has 2% slippage.
image

Notes on Arrakis vault liquidity

The ranges were chosen to balance concentration of liquidity (i.e. efficiency, which also help increase fees), with rebalancing over time as inflation changes the target. So we wanted to leave some upward headroom. The ratio of funds to add depends on the market price, so it can shift over time depending on whether it’s high or low within the range.

The price range is modifiable by the vault manager, but the manager does not have access to remove any funds of depositors–only depositors do. There’s no smart range management, but that’s no big deal since this is basically a stable pairing anyway. The vault manager is currently the Kennel Club multisig, but can eventually be handed off to onchain Forth DAO control if FORTH holders approve.

Notes on volatility

The price of SPOT can be any value because SPOT is just a one-directional claim on a basket of assets. Just as the price of Bitcoin can occupy any number without breaking the system, so can the price of SPOT.

Technical risks

  1. Type of contract: ERC20
  2. Underlying asset: AMPL senior tranches or raw AMPL
  3. Time: Deployed December 9, 2022
  4. Value:
  5. Privileges: A 2 of 4 Safe msig (0x57981B1EaFe4b18EC97f8B10859B40207b364662) is currently the owner, but ownership will eventually be handed over to the Forth DAO
  6. Upgradability: Yes

Relevant References

SPOT main site
SPOT protocol overview video
SPOT Bends vs Breaks Deck 1
SPOT docs
SPOT dashboard
Audit by PeckShield

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2

I am in favor of propositions that will drive adoption of SPOT the Digital Asset, and also awareness of the AMPL-SPOT System. This is likely to accomplish both. Right on.

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