Adding rETH as collateral for MAI stablecoin

The QiDao community is looking to add rETH as collateral for MAI, our overcollateralized stablecoin. We would start with Ethereum.

Before devoting the resources to make this happen, we wanted to analyze what the level of demand would be for this rETH use case. There are many different types of loans that QiDao can offer. For example:

  • option 1: 0% interest loans, with performance fee on rETH yield
  • option 2: fixed-rate loans, with no performance fee

There are of course many other ways we could launch this, so we would love to get your feedback on what works for you.

Link to learn more

One thing that’s repeatedly asked for is simple hyperstaking.

Eg, in theory with a LTV of 80%, it’s possible to get 5x rETH APR minus borrow costs. One version of this recipe:

  • You have x ETH
  • Flashloan for 4x ETH
  • Swap 5x ETH for rETH
  • Deposit rETH
  • Borrow 4x ETH
  • Pay back loan
  • You now have 0 ETH and 0 rETH and claim to an account with 5x ETH worth of rETH earning yield.
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the plan is to do 125% min CDR, which is equivalent to 80% LTV

Hyperstaking may not be a great application with QiDao loans. Mainly because the debt is denominated in MAI - their soft-ish pegged stable coin. So, a borrower is exposed to rETH/USD movements and would be a fair bit higher risk then if their debt was strictly denominated in ETH. It would be great option to have for CDP style ETH/USD leverage though especially on L2’s where Maker and Liquity don’t have quite the presence.

Some thoughts on being a QiDao user on Polygon myself from Summer of 21 until March of 22:

  • The 0% ongoing interest was a really, really great deal before there was a performance fee. Now, with a performance fee (or fixed interest rate if selected), it will mean users have to very carefully assess whether that is worth it - and it very well may be given that the borrow incentivces (paid out in QI and based on the amount of MAI borrowed) could more then offset any lost yield on the collateral. For example, looking at the “Beefy WSTETH/ETH CRV” vault on optimism, there is currently a 0.92% perormance fee. That reduces the yield on the underlying LP tokens from 4.4% to 3.48%. But there are currently borrow incentives quoted at 15% APY based on how much MAI gets borrowed.
  • The borrow incentives are dynamic though, and are based on the absolute quantity of QI that gets directed to a vault type based on a QiDAO votes by folks with locked Qi. I believe there is a bribe based votium system to direct these incentives? The effective yield of the incentives also vary based on the USD price of QI, since the absolute amount that gets directed to the vault type doesn’t change in each fixed period incentive round (2 weeks I think?).
  • When I was using it, the borrow incentives were calculated and paid out manually via an airdrop on Polygon on weekly basis. At the time it was a fairly rough process, often with multi-day delays in the payouts.
  • If you don’t need the MAI debt for real world stuff, farming the MAI in a stable coin LP is another nice source of yield. During the bull this was regularly above 20%. Even now something somewhat conservative like the MAI/USDC farm on Velodrome is paying ~8% ATM.
  • MAI has a soft-ish USD peg compared to the usual behavior of DAI or USDC. You do have to weigh the cost of swapping to and from MAI to another stable but this does give you the option of paying back debt at a bit of a discount.
  • QiDao uses debt limits to constrain how much MAI can be minted at any time. This is done fairly manually by the dao, and you do need to pay attention to when the limits increase because they can be eaten up fairly quickly on popular vaults.
  • Your vault is represented by an NFT that you mint before you deposit anything. So, you don’t get any other receipt tokens back representing your position. Some folks might find this to be advantageous if they worry about the tax implications of getting a token back on deposit.

You’re right - good call.

What might be an interesting product though is something that tokenizes an rETH hyperstaked position, and then uses that as a collateral for borrowing a stable coin for whatever desired purpose. This is obviously quite a bit more degen, and would need a much more conservative debt ratio though from the lender.

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borrowing ETH against rETH is definitely a safer bet if you’re leveraging rETH. Minting MAI against rETH is best for those that want to hodl ETH and boost their rETH yield.

By minting MAI against rETH + farming you can boost your ETH yield without getting too risky.