[Proposal]: Supercharge Borrowing - Nexus-Pylon-Spectrum

Hey guys,

Looks like this has been going under the radar with all the MIM worry on the protocol right now. Right now it looks like there are 2 camps. The more conservative camp who are worried about MIM impacts and the more degen camp who thinks we can handle it if we innovate on borrowing.

Well, what if I told you some protocols have been doing it for us behind the scenes, and maybe it would just take a little community shift (vote with our funds) to charge up the borrow-side demand.p

So I came across this on spectrum:
Liquid Pylon Vault — when lossless investment meets auto-compound | by Spectrum Protocol | Dec, 2021 | Medium

Which is talking about this:
Nexus Liquid Pylon Pool & Protocol-owned-Assets | by Nexus Protocol | Dec, 2021 | Medium

Which you can get here on Pylon gateway:
Liquid Pylon Pool for Nexus Protocol | by Pylon Protocol | Pylon Protocol | Dec, 2021 | Medium

OK, so what does this all mean though?
Well, the key to raising borrow-side demand is yields from borrowing, that is how much can other protocols yield off the UST. the higher the yield they can realize the greater the demand. So how does Spectrum’s new idea come into play?

Well first we have to know what Nexus does.

Nexus is probably one of our best borrowers, they auto manage b-assets and borrowed capital to produce yield through the anc rewards (by maintaining a high LTV). They are currently competetive with bluna and far more competetive than beth with their synthetics nluna and neth. Those represent collateralized deposits on Anchor.
That is ETH = bETH = nETH and LUNA = bLUNA = nLUNA
both nETH and nLUNA are yield bearing assets and as such are actually suitable as anchor collateral deposits if you see what I’m getting at :wink:

So nexus effectively acts as a debt market maker on Anchor and essentially sets the highest possible yield from borrowed UST, which is also the highest possible borrowing demand we can get with our current LTV.

it’s token PSI captures 100% of the yields generated on nexus vaults.
Nexus POL proposal is to drop the UST lp rewards on its terra swap and implement a 24 month vest LP program that would go strictly to the protcol and team. Heres how it works

=Deposited UST= --------------> aUST in Anchor ------------> Yield is provided to protocol/team ----------> PSI is rewarded to LP token holders

PSI is pegged to bLUNA and bETH

Nexus pool token value is net present value of ust users can claim at pool maturity plus implied yield from psi token rewards.

So because UST is stable and PSI is soft pegged to eth and luna we have a semi-stable LP token for anchor debt.

Thats right its a debt lp token, kinda like what mirror has but much better.

PSI’s value is equal to the yield of the UST borrowed by nexus on anchor. So if this yield is positive, PSI’s value is positive, meaning the equation for the lp token as given on the medium is:

So lets say nexus goes protocol owned, net cash flow will be positive because its the sum of total cash recieved less total cash spent and a protocol wouldnt go into debt, especially one like nexus which is degined to create yield instruments. Net cash flow would only increase as borrowing increases, it would decrease if borrowing decreases. So we can derive its net cash flow (t) equation to be:

(1+net anchor borrowing rate at time t)*(Loan amount)

Then 1+ anchor earn rate is obviously the earn rate (not the same as the yield rate, should be equal to just the anchor borrow rate).

Soo we get this equation for the LP

(1+Net Anchor Borrow Rate)^(Period(t)) * (Nexus Loan To Value) * (Total Nexus Collateral)

                                     (1+ Anchor Borrow Rate)^(Period(t)) 

Now we can seperate the equation into two parts

(1+Net Anchor Borrow Rate)^(Period(t))

(1+ Anchor Borrow Rate)^(Period(t))

Let this Equal the productivity ratio of anchor called P

(Nexus Loan To Value) * (Total Nexus Collateral)

Let this be the maximum risk collateral called R*C (that is risk * collateral)

So this liquidity pool is simply P * R * C

the productivity of the anchor protocol times the maximum amount of collateral that can be at risk at any given moment.

What is important is C is simply the dollar value of the collaterals and can be factored out leaving us with P * R

That is productivity times risk.

If this P * R ratio is above 1 Anchor will increase borrowed collateral, if the P * R ratio is below 1 anchor will bleed borrowed collateral.

What this fundamentally means is if we incentivize the value of this liquidity pool we incentivize the value of anchor borrowing.

Now with this new LP pool open MIM actually in beneficial to the equation. See because MIM lowers the base anchor borrowing rate it increases productivity. The next step would be to simply ensure that the NET anchor borrow rate remains above 0% (That is There is no cost to borrowing or there is a profit by borrowing).

This means more MIM deposits = higher Productivity, positive borrow rates = higher productivity

The next side of the equation is the R, that is the risk.

Simply by raising liquidation LTV we raise R which in turn raises the pool value which in turn raises borrow demand.

Ok, so this is all great, I think we have a solution for borrow side demand with this pool, so how does spectrum come into play?

Spectrum automates all of this so users can be an ape just like with the MIM machine, deposit UST and watch the yield grow,
remember the more use of this LP the greater the use of the borrow side demand, as the protocol will seek to ensure cash flow is greater than Anchor interest to attract yield into the LP pool we can incentivise this drive by simply setting the Net APR for borrowing to be positive and not fall below 0%. If we need to increase borrowing we can simply increase the Net APR for borrowing to +1% or +2%. Or we can reduce the yield on EARN. But nobody wants to do that aparently so I think we should just have a proposal to fix borrow rate to +2% and start marketing spectrum like our good ol boy danny sussy markets MIMtoy degenbox 3.0

Between Abracadabra.money and terra.spec.finance we can probably get this massive chasm under control.


so if i were to summarize.

offer ‘nLuna’ as collateral ?


Basically this and fix borrow rates to +2% (so you earn 2% for borrowing)
or even better is offer bpsidp lp tokens as collateral.

I’m gonna be honest, that’s a whole lot of math and I’ll probably need time to properly digest all of that, but isn’t this proposal gonna lead to Anchor canabilizing itself?

nLuna and nEth represent collateral on Anchor, so that’s something that’s already benefiting the protocol, then Nexus deposits the UST into Anchor, so that’s our own Yield + Yield Reserve, and you propose that we keep our own emissions positive, so that Nexus sells and we get yield from it?

So the way I see this is it’s essentially Anchor getting yields from Anchor and Nexus taking a cut.

Am I missing huge something here? I apologize if I am.


Better than MIM where we get no cut

We just have to be careful of rehypothecation, not inherently a bad thing but we certainly have to be careful.

Maybe someone could give a basic example from a user perspective. That would help. i.e. steps to follow starting with … starting with , Borrow UST from Anchor exchange for 50% nLuna / PSI and provide as LP in Spec. So far so good?
Then what happens under the hood and what is the APR benefit to the user and benefits to Anchor stability. So far so good?