vUSD,vETH Lending Part II

[WhoseForgotten]

Lending

Between FaaS and NFTs the two growing hot topics which mainly is FaaS as a priority for Value, I am going to outline and expand on the original lending concept I had presented for vUSD and vETH. I have gathered that this is back of the line priority but longevity of Vaults is not guaranteed income or stability while FaaS, liquidity and loans with credit score can be the bigger picture I hope we can both see together.

FaaS is interesting because Satoshi has given the community the task to help define what parameters of what rug proof means for a stamp of approval on our platform. I love the concept of having secure, trustworthy and verified projects on our platform with an NFT stamp of approval. Picture the evolution for the Lending service and FaaS combined.

Day 1 assets or LP tokens (VLP) accepted for loans assumed to be wETH and wBTC. Locking the VLP into the lending platform for vUSD and vETH is where we currently are on this concept. What if on top of the approved asset list we deem as safe for LP loans (utilizing these LP’s in Vaults is up in the air for me as it is not necessary), FaaS projects can also be eligible for users locking their LP for loans within the system. How and who would control this? Value Governance will set a strict requirement list for FaaS projects to be eligible which could look like: Rug proof NFT stamp of approval by the Value team, 100 million worth in the FaaS projects pools for “x” amount of time consecutively, etc. Projects look to have more utilization on their tokens for usage in crypto and what better way for projects to have a fair launch distribution on FaaS and have a goal for users to be approved on the Value Lending Service with the liquidity they provide on said project. NFT stamp of rug proof is just an amazing idea as an entry for serious projects that are innovative and help give some sort of trust that we build from here on out with this NFT stamp that investors, farmers, anyone in crypto can rely on as a safe place to put their assets into.
This is just the first level of the NFT use case Satoshi has presented. vUSD and vETH will become crypto backed assets so what would a loan process look like under this service? Under-collateralized loans will be the starting point when locking the LP tokens for vUSD or vETH that comes with an interest rate to unlock the LP. Example for taking a loan and building credit over time with NFT usage: A minimum amount of 500 vUSD is given and this user has an allotted time frame of 1 month minimum to 3 month maximum to return the 500 vUSD + interest accrued to receive an NFT to increase the wallet holders collateral ratio on the next loan. User withdraws LP tokens with swap fees accrued over this time and decides to instantly add back into the pool. The NFT associated with this wallet is recognized as someone who increased their credit score and is able to increase the loan to value ratio by 2%. Cycle can repeat up to a maximum amount over time and eventually reach the level of over-collateralized loans that banks are able to provide based on credit scores etc.
Contraction, Expansion and Stability are integral for rebasing but before I mention this let me bring up what to do with the interest earned from lending. The Reserve fund and Gov Vault should be simple enough as the reserve fund is separate from the insurance fund that has been built up over time. Ampleforth is where the code is forked and a price target triggers the rebasing. I’m not sure how the locked LP’s can contribute to triggering the rebase as collateral and stability of the price for vUSD and vETH but it is something to take note of. How do we or what can we do to mitigate the selling pressure of a contracting market and selling vUSD/vETH for other assets that the users decide to hold for a period of time? Interest rate managing to force users to buy and return the loan with interest/make payments to lower the interest rate, an expansive period where the crypto backed is tied into the price of vUSD/vETH or what ampleforth did with geysers incentivising holding with a faucet drip of the rebasing token. I think a stablecoin basket or pairing for vUSD would be ideal for swaps and a vETH/ETH combination would be an ideal starting point as faucet drips to lower sell pressure or go an entirely different route of staking the vUSD/vETH for an underlying interest bearing token that comes from interest accrued on the loans being given out similar to cDai.

Need to define what triggers the rebase as supply increases with loans distributed, price fluctuations for expansive and contractive cycles and if the LP collateral can stabilize the rebasing. For black swan events and a 50% or more drop occurs across crypto, the reserve fund and rebasing can contract the total supply while we lower interest rates in such events. Need help in this section but the ideas are here as my 1st rough draft.

[Shane]

I know that Elastic & Rebase supply tokens have been rapidly rising in the DeFi sector. I believe that vUSD innovations implemented from VALUE will attract mass attention from the wider crypto community. ETH Value Vaults were full withing 5mins, and Lending & Elastic vUSD will bring more opportunity from larger whales to use the VALUE ecosystem. This will increse more fees thats allows for more buybacks and other incentives to increase bottom line APY. DeFi Farming has almost peaked, however, Elastic & Rebase supply tokens are rapidly rising. I propose we prioritise work on this concept for vUSD & vETH as outlined from WhoseForgotten ASAP.

[Mangeb]

First, I want to thank Whose again for his continued work on this lending idea. I know this stuff takes time to think through and this clearly took time to pull together.

Just to clarify - over collateralized loans don’t require credit scores as your collateral is all you need to back the loan. Under collateralized loans are like mortgages, personal loans and credit cards where your credit score determines your lendability and risk levels for banks to provide you more than you have in collateral. You reversed the two in your discussion above.

I think you have the kernel of an idea, but a significant amount of work may still be required to flesh this out into a full-fledged lending platform. I think the idea of using LP tokens to over collateralize loans of stable coins is pretty straight forward these days in defi. Trying to do this with an elastic coin adds complexity. It’s hard enough to try to direct an elastic coin to a target value by rebasing, but then tying this to lending opens up new risks for abuse.

Here are some things we would have to think through to make this work:
How do we manage arbitrage situations where loan amount is not always the same as the value of the loaned tokens? If I understand it correctly, rebasing does not peg an elastic coin to a single value. It instead adjusts the volume of tokens to drive buying or selling pressure that would push the price back to the target. So, the price actually fluctuates between a range above and below the target. Review the price history for AMPL and you will see it is all over the place and not very stable at all. How does this price volatility impact the amount of the loan, repayment requirements and collateralization requirements?
If undercollateralized lending is to be considered, how will the platform underwrite these loans? an oracle providing credit scores, if one exists, would not be enough. Credit scores are a starting point, not an end-all solution for underwriting. This is where trained loan officers process all manner of details to determine risk levels for an under collateralized loan.
Will this process be hands off automated by the contracts or will it require manual intervention for loan approval?

So, I am not bashing this idea. I think if these things can be solved for, this can become a very unique defi solution.

Also, we may have to come to a realization that vUSD and vETH are NOT the right solution and instead go with a true stablecoin. That creates a whole host of other issues since there already are significant amounts of both tokens in circulation. But, just because they exist doesn’t mean they are the only way to solve the lending problem.