Lybra is a borrowing service that allows borrowing of its stablecoin, $eUSD.
Today, we will explore the V1, and a second Alpha Report will follow to discuss the V2.
Introduction
Lybra is founded on the idea that it is indeed necessary to have stability in our volatile ecosystem, but it should not mean being at the mercy of the printing machine.
The Lybra team has, therefore, built a product that combines stability, decentralization, robustness, and yield!
eUSD
The eUSD is an interest-bearing stablecoin, pegged to the USD, over-collateralized, and backed by stETH.
It is minted (borrowed) when a borrower deposits stETH or ETH into the protocol and takes out a loan. You can borrow up to ~58.8% of the value of your collateral (Minimum Collateral Ratio of 170%).
By holding eUSD, you generate a yield of approximately 7.2%. It operates through a "rebase" mechanism, meaning that the balance in your wallet increases simply by holding eUSD.
These earnings come from the yields generated by stETH (or ETH converted to stETH) within the protocol, which are then converted to eUSD and distributed to eUSD holders.
eUSD Peg
The objective of eUSD is to maintain a price equal to $1. To achieve this, the protocol employs several mechanisms that collectively work to achieve or at least approach this goal.
⇒ Minimum Collateral Ratio
Each eUSD is backed by at least $1.5 worth of stETH. A loan position in the protocol with a collateralization ratio lower than 150% would be subject to liquidation.
This ensures that each eUSD is consistently over-collateralized, and the system remains solvent.
⇒ Floor Price (redeem)
If eUSD price falls below $1, the protocol hopes that users will purchase it on the secondary market and then redeem it with the protocol for 0.995$ worth of stETH per eUSD ($1 - 0.5% fee).
These redeemers profit from the difference.
⇒ Ceiling Price
When eUSD surpasses $1, the protocol anticipates that users will create as much eUSD as possible and then sell it on decentralized exchanges (DEXs) to increase the supply and decrease its price.
These sellers can then repurchase their eUSD at $1 to repay their loans and make a profit from the difference.
Redemption
Redemption is a mechanism that allows any eUSD holder to directly exchange 1 eUSD for 1$ worth of ETH with the protocol.
Example: 1000 eUSD exchanged for 1000$ worth of ETH.
There is no time limit or minimum amount required for redemptions.
This service incurs a cost of 0.5%, which is deducted from the redemption amount. This redemption fee is entirely distributed to the redemption providers.
Unlike the Liquity model, redemptions are not based on the least collateralized positions in the system.
Here, either the stETH accumulated by the Lybra protocol is used for redemptions, or users of the protocol decide to provide the service. These users are called redemption providers.
⇒ Redemption Providers:
When you have an open position, you have the option to provide the redemption service when needed.
In this case, when the redemption is triggered, your collateral will be given to the redeemer, and your debt will be proportionally reduced.
Depending on the amount redeemed, your debt can be fully or partially repaid.
Providing this service allows you to generate 0.5% of fees when your collateral is used, and this increases your yields by 20%.
Liquidation
To be able to take out a loan, the required Minimum Collateral Ratio is 170%.
However, once the position is open, the Minimum Collateral Ratio decreases to 150%.
If the Collateral Ratio falls below 150%, your position will be subject to liquidation.
Keepers ⇒
These are the actors who monitor the status of borrowers and liquidators. When a position becomes eligible for liquidation, keepers can trigger the liquidation process.
They are compensated with 1% of the liquidated assets for this service.
Liquidators ⇒
They repay the debt (eUSD) of the positions to be liquidated and receive collateral (stETH) in exchange.
There are two types of liquidations:
- Partial Liquidations: When a position has a Collateral Ratio above 125%, up to 50% of the collateral can be liquidated.
- Full Liquidations: When a position has a Collateral Ratio below 125%, the debt can be entirely liquidated, and the liquidator obtains for each 1 eUSD repaid, $1 * (CR - 1%) of collateral. The 1% is for the keeper.
For each 1 eUSD repaid by the liquidator, they receive 109% of the collateral (stETH) from the position, and the keeper receives at least 0.5%.
Fees
There are no borrowing fees or repayment fees.
Instead, Lybra will charge a service fee of 1.5% on the total amount of eUSD in circulation. These fees will be directly deducted from the yields in stETH.
For example, if there are 1 billion eUSD in circulation, 15 million eUSD will be collected over 1 year from the stETH yields as service fees.
$LBR
$LBR is the native token of Lybra.
The maximum supply of $LBR is 100 million tokens, and its Token Generation Event (TGE) took place on April 23, 2023.
esLBR
By converting $LBR to esLBR, you gain the following benefits:
- Governance Power: You have the right to participate in decisions concerning the protocol's treasury and parameters.
- Platform Revenues: You receive 100% of the service fees.
In addition, esLBR is used to distribute incentives to liquidity providers (LPs), pools, etc.
To convert esLBR back to LBR, you can vest them. Afterwards, you will receive LBR linearly over a 30-day period.
Conclusion
In the current state (before V2), we can observe that the creation of eUSD has been significant. This is likely due to incentives, and it has proven to be effective.
Although use cases are still limited, the protocol is relatively young, and new applications will undoubtedly emerge over time.
V2 is coming with several changes, which will be addressed in the next Alpha Report.
Article posted @July 31, 2023
