[Proposal] sAVAX collateral onboarding

Excellent! I fully support the coming of moar and moar bcollaterals as Terra grows.

9 Likes

I think this is an excellent idea! Let’s get this into the pipeline.

6 Likes

this is great news!

2 comments:

  • i notice the oracle feeder is a different wallet from the bAsset oracle wallet; just want to confirm that this is intended

  • sAVAX doesn’t seem to follow the bAsset pattern; can we get some background on how anchor will get the sAVAX rewards when locked as collateral?

edit more specifically, please describe what sAVAX’s custody’s distribute_rewards() execute message does. i’m not able to find docs or contract code to read for myself.

thanks.

3 Likes

Great news! More collateral could never goes wrong, if it meets the security standards.

From what I understand sAVAX accrue values by autocompound into the value of the token, so will have to wait for borrowing V2?
If that the case, also wondering if whitelisting will have to wait for V2, or it could be done beforehand?

4 Likes

Yes, please. Adding sAVAX collateral support would be great!

3 Likes

sAVAX is actually being added without a taking a staking percent. The contracts would have to changed to do that and it would have to have it’s own interest rate, which it won’t. This model is more competitive to the new market space where liquid staking derivatives can be added to any saving and lending protocol very easily. Eventually, bLUNA, which is old and dated will be placed with stLUNA and lunaX. The theory is that borrowing against a LSD will demand a higher borrow rate because of higher utility. You could theorize that it would be something close to the base market borrow rate on the asset plus the staking rate.

3 Likes

When bANC, bSol, bAtom ? @bitn8

4 Likes

Wanted to share a few thoughts from the Risk Harbor research team on this.

sAVAX as collateral would not only increase TVL and slow the depletion of the yield reserve on Anchor, but it would also make the protocol more robust to shocks by diversifying the protocol’s assets.

The addition is not without risks, risks that we actively analyze and account for. We argue, based on the risks outlined in the proposal, that the benefits far outweigh the risks.

  1. Smart Contract/Technical Risks: Usually, smart contract risks are minimal for integrations into existing protocols and for simple primitives like liquid staking. The Benqi code has also been audited, and its results are publicly available.

  2. Liquidity Risk: it is important that the underlying asset (sAVAX) has a great deal of liquidity so that liquidations from Anchor do not move the price of sAVAX too much, causing further liquidations in what’s known as a deflationary spiral. As the proposal mentions, there is currently 150M of liquidity on the sAVAX/AVAX pair on Trader Joe. Combining this with all of the liquidity available across AVAX/XYZ pairs on Avalanche DEXs, liquidity risk appears to not be a problem.

  3. Bridge Risk: The bridge (wormhole in this case) is what keeps the version of sAVAX on Terra, wasAVAX, in 1:1 correspondence with sAVAX on Avalanche. If the bridge is compromised, this ratio may slip. Such a slip would cause Anchor to misprice the value of assets it actually holds, wasAVAX, relative to the true price of native sAVAX. This may cause protocol insolvency in the short term.
    The great news here is that well-financed wormhole backers demonstrated their readiness and agility to cover the losses resulting from a bridge compromise event in the past. Everyone can rest assured that, even if the bridge is compromised, the funds will be safe in the medium and long term.

3 Likes

Ideally in about 1-2 weeks! Almost there- AMA to come in two weeks diving into it!

1 Like

This is the way

3 Likes

@bitn8 would you mind responding to this?

1 Like

@bitn8 wow, so after onboarding sAVAX, going to board the next bAsset imediately?

1 Like

Thanks so much for the assessment; I wholeheartedly agree on points 1 and 2 that led us to a similar consensus. We are proud to have Risk Harbors Ozone backing us on this!

As to point 3, we are seriously looking at bridge risk and working with the team and Wormhole to implement solvency checks, similar to what Thorchain has done, as well as possible liquidity caps and other bridge safety measures. The reason we continue to trust wormholes is that they also take security so seriously by backing security breaches with refunds. We are in good hands in this regard!

Looking forward to adding more assets and building a sustainable anchor!

yes, this was intended.

Wait, so sAVAX won’t be contributing any yield to the protocol yields (outside of borrowing rates) and will share the same borrowing rate as the remainder collateral? That would make it the ultimate choice for collateral as it’s far cheaper… I understand we’re pushing towards the V2 model, but this is forcing the V2 model in on one collateral type only…

Did I understand this correctly? If so, this should have been clearly stated in the proposal and feels like it wasn’t an oversight.

3 Likes

Correct you understood it correctly. No one will probably borrow sAVAX at the market rate of staking returns plus base borrow rate. Slowly bLUNA and bETH will be phased out as well and the dynamic borrow rate will be adjusted. If Anchor wants to compete it can’t have some of the highest borrow rates. This why we need a dynamic earn rate as well. We have reached the top of the competition and now need to act accordingly. Nothing is stopping lending protocols taking liquid staking derivatives at this point that are autocompounding. Look at Edge: it already has LunaX as borrow collateral, many more will follow. Anchor needs to be ahead of the curve.

I understand and agree with the statement and direction for the protocol, but this change feels like it’s been pushed in hiding and that I don’t agree with.

This isn’t the proposal for dynamic rates or Anchor V2, this is the onboarding of a new collateral type that was in every way similar to all the others, or at least I don’t remember reading any mention of it being different and assumed it would be equal, it’s my opinion that it should have been clearly stated and wouldn’t have made any difference in the outcome of the vote.

But it does matter as it won’t contribute at all to the yield reserve drain until borrowers start closing down sAVAX collaterized loans.

1 Like

Agreed it probably could have been better communicated. Since there were no contract changes that would be needed to make the rate different from the bLUNA bETH rate we assumed users would know we weren’t collecting the staking returns this was clearly mentioned as the new v2 and prop didn’t mention a new rate to take staking returns as part of the sAVAX whitelist. But again to your point, I appreciate you helping clarify this and make it more clear here.

I don’t think I agree with this statement, as it’s going to add more collateral and borrowing to all the UST sitting idle not generating any return right now. Adding more collateral doesn’t drain the YR it at least at min helps buffer it.

3 Likes

If sAVAX is not generating any staking yield for Anchor, then every sAVAX depositor could take out the average borrowed amount on Anchor and deposit that into Anchor Earn, thus draining the Yield reserves at ~3.3% APR. Of course that assumes that 100% of borrowed UST goes straight into Earn and the other rates are the same as measured above. 30%+ of borrowed UST would then need to not be deposited into Anchor Earn for the yield reserve drain to break even in this case. Unless I am forgetting something important? :sweat_smile:

1 Like

Yeah great. waiting for next chain Polygon