Thread by @AgilePatryk

@EdgeProtocol will be a money-market protocol on #Terra - allowing users to lend and borrow various #Terra-native tokens.

Let's take a closer look at it.

(Long thread)

/1

@EdgeProtocol will provide:

1️⃣ Customized pool creation
2️⃣ Money-market marketplace
3️⃣ Liquidation/stability reserve

All of that while enabling Protocol-Owned Money-Markets (POMM).

/2

1️⃣ Customized pool creation

Just about anyone will be able to create a pool - a set of tokens that will act together in lending/borrowing tandem.

Tokens deposited to the pool will act as collateral to borrow other tokens from the same pool.

/3

Current #DawnOfEdge launch (delayed until tomorrow) is a beta version with just one genesis pool containing:

- $UST
- $aUST
- $LUNA
- $bLUNA
- $LunaX
- $ANC
- $MIR

/4

Each asset has a "collateral factor". Example:

I deposited 200 $UST and $100-worth of $LunaX.
Collateral factors:
- $UST: 90%
- $LunaX: 80%

Borrowing power = $200 * 90% + $100 * 80% = $260.

Collateral factor is used to account for volatility of the collateral asset.

/5

How much can I borrow with borrowing power of $260? That depends on what I want to borrow - each asset has a borrowing factor too, which (again) accounts for its volatility.

If I wanted to borrow $LUNA (borrowing factor 85%), I could get:

$260 * 85% = $221 worth of $LUNA.

/6

Since I deposited $300, that gives me max LTV of 73.67% - for that particular combination.

In each case maxLTV will be different - that's why Edge uses:

Risk Ratio = CurrentLTV / maxLTV

Liquidation takes place at maxLTV.

Current/Safe/Liquidation LTV are shown on a bar.

/7

Once liquidation takes place, liquidators can get collateral at a discounted price.

That discount is pre-defined and depends on the asset liquidated.

Below a table with:
- Collateral factors
- Borrowing factors
- Liquidation discount
for the Genesis pool.

/8

Another element pre-defined for the Genesis pool are interest rate curves.

For a $FOO token, interest rate curve defines:

"How much interest do I need to pay for borrowing $FOO, if x% of $FOO from the pool is currently borrowed"

That x% is called "utilization ratio" btw.

/9

Every single token in the Genesis pool has a different curve.

All these curves have one thing in common though - the rate increases slowly until certain point (=target utilization) is reached. Once target utilization is exceeded, borrowing rate raises sharply.

/10

All of these parameters:
- Collateral factors
- Borrowing factors
- Liquidation discounts
- Interest rate models
are already defined for the Genesis pool.

Creator of any new pool will be able to define them on her own.

A bit daunting, but quite flexible at the same time.

/11

@WhiteWhaleTerra has $782k of $WHALE in their treasury.
@NexusProtocol has $159K of #PSI.

Many other protocols have community funds containing their native token.

These tokens are just held - they bear no yield.

That could change with POMM.

/12

@WhiteWhaleTerra could create their own pool on @EdgeProtocol, e.g. containing:
- $WHALE
- $UST
- $vUST
- $vLUNA (once $LUNA vault is opened)

then end $WHALE to it and earn deposit rate.

@NexusProtocol could do the same with $PSI, $nLUNA, $nETH and $UST.

/13

2️⃣ Money-market marketplace

One thing to notice is that the same asset (e.g. $UST) may appear in many pools.

Since each pool is a separate and independent money market, the deposit/borrow rates might differ.

As $UST depositor I may choose the pool.

/14

That's what @EdgeProtocol calls Money-market marketplace.

Different pools might compete for the same assets with various rates and token compositions.

Some will chase higher deposit APR or lower borrow APR, others will choose a pool as an enabler of their chosen strategy.

/15

3️⃣ Liquidation/stability reserve

In case of a liquidation, there is a risk that the amount from liquidation won't cover the borrowed amount (=underwater risk).

@EdgeProtocol will have a reserve to mitigate that risk to some extent.

/16

Borrowers will be paying interest on their loan that depends on utilization ratio of the borrowed token. Let's call their rate BR (borrow rate).

Depositors will earn interest on their deposits = DR (deposit rate).

/17

Normally it would be:
DR = BR * (totalBorrowedAmount / totalDepositedAmount) = BR * utilizationRatio.

In @EdgeProtocol it will be:

DR = BR * utilizationRatio * (1-insuranceFundFee)

Insurance fund fee = 10% for the Genesis pool.

/18

In practice, depositors will be getting 90% of the yield paid by the borrowers, with remaining 10% going to the "liquidation reserve".

That reserve will protect depositors' principal in case of a underwater liquidation, at a cost of slightly lower yield.

/19

@EdgeProtocol seems to have an interesting value proposition.

Not much is known about the tokenomics of their token (not even the ticker). No public sale info, no distribution chart, no information about value accrual.

/20

I imagine there will be a token though, e.g. to incentivize the deposit and/or borrow in certain pools.

Until then - I will be following closely the deposit/borrow APRs to (maybe) execute one of the strategies:
➡ Loop $aUST
➡ Loop $LunaX
➡ Short an asset
➡ Leverage-farm

/21

➡ Loop $aUST

Steps to execute:
1) Deposit $aUST (collateral factor 90%)
2) Borrow $UST (borrow factor 95%)
3) Deposit borrowed $UST to Anchor Earn to get $aUST
4) Repeat steps 1)-3)

In step 2) I can borrow 80%*90%*95% = 68.4% or the original amount at LTV 80%.

/22

I calculated borrowed amounts in each loop and effective APY from $aUST - in the table below for LTV 80/85/90/95/99%.

DISCLAIMER
These calculations ignore deposit APR and borrow APR. Actual effective APY in real life will vary from what you can see in the table.

/23

With LTV 99% and 10 loops we can safely say that with just Genesis pool we might get a #Terra-native Degenbox strategy.

Best part? Based on Oracle feeds, I cannot think of a scenario that would result in liquidation. 🤯

/24

That's all for now (thread limit).

More details on other strategies and more calculations will follow after launch (hopefully, tomorrow). 😉

/25-end