Proposal for rETH-cETH Zero-Liquidation Loans

Growth
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Hi Bagogel,

thank you for your kind feedback and taking the time to read through the proposal.
Happy to dive into your questions:

1. From the documentations, I understand that MYSO borrowing / lending is not based on any chainlink oracle or uniswap TWAP oracle. How does your oracle work? What are the risks involved and is there any fallback solution?

Exactly, the MYSO borrowing and lending pools are not based on any chainlink or uniswap TWAP oracles. In fact, we don’t use any oracles at all. The risk associated with this is that a pool might not get funded by liquidity providers if its loan terms are off. Allow me to explain this in two parts below (A and B).

A: How does your oracle work? → No oracles
MYSO doesn’t use oracles but instead the way our pools work is that at deployment we define how much loan tokens a user can borrow per one unit of pledged collateral token. This loan ratio is set as an immutable pool parameter (“maxLoanPerColl”).

As described in the proposal, we could for example set this value to 46.89, meaning that per pledged rETH collateral unit a user can borrow 46.89 cETH. At the time we wrote the proposal, the market exchange rate for 1 rETH was around 52.1 cETH.

So if we allow users to borrow 46.89 cETH per rETH this corresponds to a 90% LTV. Independent of what happens on the secondary market (depeg, flashcrash etc.) users can borrow at a rate of 45.89 cETH per pledged rETH unit in this pool. It is up to the liquidity providers to decide whether they want to provide cETH liquidity at this rate (see part B).

B: What are the risks involved and is there any fallback solution? → Liquidity providers need to monitor the price
Since there’s no oracle dependency, there’s also no risk of any oracle failure. Instead, liquidity providers need to decide if they feel comfortable providing cETH liquidity at the given loan ratio (e.g., 45.89 cETH as described before).

Generally, rETH is expected to increase in value faster than the cETH rate because the ETH staking yield currently exceeds the Compound deposit rate.

So in the good case (no depeg) we can expect that the rETH-cETH exchange rate will grow higher, i.e., over time 1 rETH should become worth more than 52.1 cETH. This naturally leads to a lower LTV over time because the collateral value is expected to become more valuable relative to the loan currency.

However, in the bad case (rETH depegs) it might happen that 1 rETH becomes worth less than 46.89 cETH. In this case, liquidity providers should remove their liquidity to not get arbitraged. Otherwise borrowers could come in an borrow 46.89 cETH per pledged rETH unit although rETH might be worth less on the secondary market. In the extreme case where rETH was worth 0 then a user could still pledge his rETH and receive 46.89 cETH per pledged rETH unit, in which case borrowers wouldn’t repay their loans and liquidity providers would be left with the rETH collateral. So liquidity providers need to actively monitor their position.

2. In your proposal you mention explicitly Compounds cETH. Would MYSO money market also work with other collateral, e.g. native ETH or Aave?

Yes absolutely, we could roll out pools for other asset pairs as well. So for example, we could also create a rETH-ETH pool in which liquidity providers can put in ETH and borrowers can borrow ETH after pledging rETH as collateral.

3. How much are the MYSO protocol fees for opening / closing the leveraged position? As the term are fixed to 90 days, I think it’s important. Or asked differnetly: How much $ does one need to put into MYSO so that it covers the fees (assuming no depeg)?

There’s a maximum pool fee of 30bps. This fee is configurable at deployment of the given pool and immutable. Naturally, for shorter loan tenors we would set this fee to be lower to make the overall annualized APR be reasonable. So, for example, if we set the pool fee at 20bps then the APR for a 90 day loan would be 0.8% p.a. + the applicable compound deposit rate (historically has been between 0.07-1.86% p.a.).

4. The leverage level in your example is 1.9 - This is fexed by the pool, and user can’t change it?

In the example we illustrated a 1.9x leverage a borrower can build up by borrowing cETH and then swapping it for rETH. If the user was to continue this indefinitely then the theoretical achievable leverage would be 10x (assuming a 90% LTV as described in the proposal). We could implement a peripheral contract to do this atomically in one transaction. But even without, a user could already obtain 1.9x leverage with just one borrow transaction.

5. MYSO is currently live on testnet. What is the timeline for mainnet launch?

Yes, we’re currently live on testnet and also running a giveaway campaign with cash prizes as well as a limited LP waitlist signup until 30th of Nov. Our plan is to launch on mainnet end of 2022 / early 2023.

Pls let me know in case the above helps answer your questions, otherwise also happy to dive deeper into any specifics. Moreover, also wanted to share the links to our audit report and whitepaper:

Thank you again for your feedback and look forward to continuing the discussion.

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