The goal of this discussion post is to get community feedback on the plan outlined below, how to successfully launch the DeFi hub on Interlay and to attract sufficient capital to enable efficient usage of the DEX, lending market, bridge as well as the highly anticipated iBTC staking product.
In order to achieve this, two main requirements need to be put in place. First, to attract enough liquidity, it is proposed to incentivise the lending markets and liquidity pools. Secondly, to ensure sufficient supply of DOT into the lending market, which is a requirement for the iBTC staking product to work, it is proposed to register qDOT as vault collateral.
qDOT is the token that a supplier receives for depositing DOT into the lending market. qDOT can be redeemed for DOT any time, given the market has free liquidity. Doing so, vault operators don’t have to choose between depositing into the lending market or locking DOT as vault collateral but can utilize both, thereby providing borrowing liquidity for DOT as well as minting capacity for iBTC.
EDIT: This is postponed and first tested on Kintsugi for safety reasons and not part of the current proposal.
As stated above, registering qDOT as vault collateral is considered one of the main pillars for a successful launch of the iBTC staking product. Apart from qDOT, it is also proposed to register qUSDT as vault collateral. Albeit not being so popular as collateral, utilizing qUSDT as vault collateral would still pose an improvement in terms of capital efficiency and should have similar effects as qDOT in terms of supply in the USDT lending market.
Based on the analysis the following parameters are proposed:
| Asset | Liquidation Threshold | Premium Redeem Threshold | Safe Mint Threshold |
|---|---|---|---|
| qDOT | 125% | 140% | 155% |
| qUSDT | 135% | 145% | 155% |
Since qTokens are just a claim of the underlying token deposited into the lending market, the underlying tokens served as a proxy in the analysis and hence both share the same thresholds.
One of the main goals of the launch in order to be considered successful is to attract sufficient liquidity into the pools to ensure efficient trading, even of larger positions. This is an important requirement to attract ‘power user’ that account for the majority of the volume on a DEX and are therefore a critical user group to achieve a level of trading volume that generate sustainable trading fees for liquidity provider.
Based on the experience from the Kintsugi launch, it is proposed to launch with three essential pools, with a focus on the iBTC/USDT pool, which attracted the most volume and TVL on Kintsugi (kBTC/USDT), despite lower APY compared to the kBTC/KSM pool. The proposed incentives would run for 3 month to allow enough time for trading activity to gain traction while simultaneously avoid draining too many funds from the treasury.
| Pair | Target TVL in USD | APR at target TVL | DOT deployed at target TVL | iBTC deployed at target TVL | INTR | INTR in USDT |
|---|---|---|---|---|---|---|
| iBTC/USDT | 1,000,000 | 22.3% | — | 19 | 3,800,000 | $55,735 |
| iBTC/DOT | 400,000 | 29.3% | 43,290 | 8 | 2,000,000 | $29,334 |
| INTR/USDT | 200,000 | 58.7% | 21,645 | — | 2,000,000 | $29,334 |
| Total | 1,600,000 | 64,935 | 27 | 7,800,000 | $120,271 |
Since most of the yield for LPs will come from incentives in the beginning, it is suggested to launch the DEX with 0% fees to attract as much volume as possible.
Similar to the DEX, it is suggested to focus on the most important markets to bootstrap enough liquidity for borrowing and lending activities, with a special focus on the DOT market due it’s importance for the iBTC staking product.
The interest rate parameters were calibrated to provide a competitive supply and borrow APY at the optimal utilization ratio compared to other lending protocols on Polkadot. The jump rate for DOT was calibrated in a way to still provide excess return for the iBTC staking product at optimal utilization. Note that the optimal utilization for DOT is suggest to be at 80% to create more liquidity to withdraw qDOT to DOT if vaults that use qDOT as collateral get liquidated.
| Market | Base Rate | Jump Rate | Full Rate | Optimal Utilization |
|---|---|---|---|---|
| iBTC | 0.0% | 5.0% | 50.0% | 90.0% |
| DOT | 5.0% | 20.0% | 50.0% | 80.0% |
| USDT | 0.0% | 10.0% | 50.0% | 90.0% |
Based on the analysis the following parameters are proposed:
| Market | Max LTV | Liquidation LTV | Reserve Factor | Close Factor | Liquidate Incentive | Liquidate Incentive Reserved Factor | Supply Cap (# tokens) |
|---|---|---|---|---|---|---|---|
| iBTC | 0.63 | 0.67 | 10.0% | 50.0% | 110.0% | 0.0% | 30 |
| DOT | 0.67 | 0.77 | 10.0% | 50.0% | 110.0% | 0.0% | 1,000,000 |
| USDT | 0.67 | 0.74 | 10.0% | 50.0% | 110.0% | 0.0% | 600,000 |
Details about the parameters can be found in the (github repo)[https://github.com/interlay/interbtc/blob/f0a0144a0cd7e512bf9b2c55e57b12e4b3b5e9c4/crates/loans/src/types.rs#L89].
First and foremost it’s worth noticing that no incentives for the supply of iBTC are suggested. This is because the iBTC staking product relies on users supplying iBTC and locking it as collateral in order to receive staking rewards. Hence. the target TVL for iBTC is equal to the target TVL of DOT * DOT assumed utilization / iBTC max LTV.
The incentives for the other markets are suggested to run for three months and are merely a means to bootstrap the initial liquidity. After attracting sufficient liquidity, it is assumed that users will borrow funds to use them in DeFi application, even if it’s just to do yield arbitrage between Interlay and other lending protocols.
| Market | Target TVL (USD) | Supplied Tokens | Incentive APY | Supply APY | Total APY | Rewards (INTR) | Rewards (USD) | Assumed Utilization |
|---|---|---|---|---|---|---|---|---|
| iBTC | 595,000 | 23 | 0.00% | 1.11% | 1.11% | 0 | 0 | 20% |
| DOT | 500,000 | 108,225 | 5.28% | 19.06% | 24.34% | 450,000 | $6,600 | 75% |
| USDT | 300,000 | 300,000 | 4.11% | 8.89% | 13.00% | 210,000 | $3,080 | 80% |
| Total | 1,395,000 | 660,000 | $9,680 |
Note: All calculations assume an INTR price of $0.01466722. The actual APR and TVL might change due to price changes of INTR and the other tokens used in these calculations.
I've been eagerly awaiting this launch for a few months now. Though I am not a Kintsugi user, I enjoyed seeing the results of these products being put to work on the canary network. Really looking forward to providing some LP on the iBTC-DOT pool as well as staking some iBTC, even if the reward rate for solo staking of that is on the lower end. Hope the Interlay products roll out before the end of the month! 🙌 - Phunky
Could it not be possible to use platforms like Hydra and StellaSwap while also achieving a sufficient Total Value Locked (TVL)?
For instance, suppose there's a million dollars of TVL each in Interlay, Hydra, and Stella. Although Interlay inherently has only a million dollars of TVL, one might ensure liquidity by enabling aggregate transactions across other chains.
In this way, I believe a unique advantage of trading the entire iBTC ecosystem on the Interlay site can be created.
As for the trading image, if there's a million dollars of TVL on each chain and someone wants to execute a trade of 1.5 million dollars, the transaction could occur with the least expensive combination from each chain. For instance, $700,000 could be traded from Interlay, $500,000 from Stella, and $300,000 from Hydra.
This can be made possible thanks to the low transaction fee system of Polkadot.
@wdB3...ay33 thanks for clarifications. One doubt i want to share is imo all true dotsamers and interlay supporters will bring liquidity in pools with twice less APRs prolly, espesially given the fact that the APR on very beginning would be higher for this early bird guys. So strategically it migt be a not bad alternative to start with twice lower rewards but for twice longer period. And then see whats going each month and propose to increase if seems reasonable in terms of TVL KPI's.
Why is the INTR pool combined with DOT? It might be nice to have a [INTR, USDT] pool instead. That might make arbitrage more efficient since other exchange are not likely to have INTR-DOT pairs, and would make more DOT available for the IBTC-DOT pair. Compared to USDT, DOT has to compete against more alternative ways to use the token, so it's probably harder to get liquidity for it
Why give so many INTR rewards and put that much sell pressure on the token, when there is HydraDX for liquidity and volume?
Cool, thats what we all waited for last couple of months. May i know if some lessons from Kintsugi campaign was extracted? May be there were some mistakes can be learned and improved?