Adding $STAKE as Collateral to Agave

#1

On September 30th the proposal to add $500k in $STAKE rewards to the Agave protocol passed. You can read more here.

There were 2 parts of this agreement:

  1. matching the rewards with $500k in AGVE and
  2. add the $STAKE token to the Agave protocol and to be used for collateral.

This proposal is requesting the support of adding the $STAKE token as collateral to the Agave Protocol.

Add $STAKE as collateral to Agave?
  • Yes
  • No

0 voters

We also must determine the appropriate risk parameters to use. There are 3 parameters: Liquidation Threshold, LTV, and Reserve Factor

The liquidation threshold is the percentage at which a position could get liquidated.

The LTV is the maximum the user can use as collateral. The difference between LTV and the liquidation threshold is set to protect users from a sharp drop in price resulting in a liquidation.

The reserve factor allocates a share of the protocol’s interests to a collector contract as reserve for the ecosystem

I would propose for simplicity and to allow users of the protocol maximum freedom of the protocol we set the LTV 5% below the liquidation threshold.

Set the LTV 5% below the liquidation threshold?
  • Yes
  • No

0 voters

It is standard to use a higher reserve factor for riskier assets. 10% is standard for very low risk, 20% for medium risk, and 35% of very high risk. These values for all intensive purposes are arbitrary at this time but we can always change them later and for this reason I would propose we can leave this at 10%.

Leave Reserve Factor at 10%?
  • Yes
  • No

0 voters

Most importantly is the actual liquidation threshold. If the value of the collateral decreases, it might reach the liquidation threshold and start getting liquidated. The markets then needs to hold sufficient volume for these liquidations because the selling of the underlying asset will result in some amount of slippage affecting the value recovered.

Please read more about how these work before voting if your unsure.

What should Liquidation Threshold be?
  • 50%
  • 60%
  • 70%
  • other

0 voters

Shout out for @Stonky @luigy help with this

7 Likes
Requesting Matching AGVE Rewards to Incentivize Agave Protocol
#2

Great , excellent information, I already made my vote and I stay in stake!

1 Like
#3

Yes! We definitely should add Stake.

LTV of 5% below liquidation threshold is way too low for a token like STAKE, it’s too aggressive and with the token volatility of STAKE we risk having too many borrowers getting liquidated. That’s not to our advantage, the more borrowers the more income Agave is making. I would go for 10%-15%.

The Liquidation threshold for a token like STAKE with fairly low liquidity in USD terms should have a lower threshold than tokens that have more liquidity in the market so 60% should be good enough. 50% is perhaps too much.

The reserve factor at 10% is too low for two reasons: STAKE has a lot of volatility so it increases the risk for agave holders in having it listed in the protocol. So the reserves should be higher. Secondly, if the reserve factor is higher the borrowing rate becomes also higher which reduces the incentive to short STAKE which would contribute to lower our incentive rewards value.

So my idea would be:
LTV: 50%
Liquidation threshold: 60%
Reserve Factor: 20%

4 Likes
#4

Thanks for feed back. It’s critical we get more discussion on these. in the future we can start working on better templates and metrics to help direct us a bit better.

I think with the 2 metrics ltv and reserve factor aren’t deal breakers so bumping the gap up to 10 and having a bit higher reserve factor for a bit more protocol fees to offset risk makes sense too. I am sure Aave would probably do something like LTV 45, Liquidation threshold 60, and RF 35. So 50/60/20 seems very reasonble middle ground.

1 Like
#5

How will the liquidation system work? Will the protocol have its own backstop option or will the AMM backstop be outsourced (of course with the open market liquidation option)?
Given the relatively poor liquidity and potentially high slippage, what % will be liquidation premium?

#6

I’ve voted. I hope to see more discussion about this. I’m with STAKE