Hi mStable community!
My name is Salomé, I am a Swiss digital nomad and a member of Idle.finance DAO’s Treasury League. We are reaching out to the mStable community to explore potential opportunities to collaborate and build up synergies within our protocols.
Lets build money Legos!
Idle launched its DAO in December 2020 after the $IDLE release. Since then, we piloted a “league” structure with the support of our community and that experience allowed us to set up the current league’s format: Treasury League, Dev League and Communication & Marketing League.
The Idle community is committed to integrate and build DAO2DAO alliances with the best decentralised communities in the pursuit of strengthening the entire DeFi ecosystem. We are aspiring to experiment with the best practices for DAO governance and partner up with other DAOs to let the DeFi ecosystem grow and strengthen over time.
On the protocol side, Idle is a DeFi yield aggregator optimiser that interfaces with several of the largest lending platforms (Compound, DyDx, Aave), currently on Ethereum and Polygon (really soon, with an interesting aspect for B2Bs). Capital within an Idle strategy for a given asset can be allocated in chunks across several protocols simultaneously to either maximise the average returns or minimise risk exposure for depositors.
The tenets of the protocol are 4-fold:
- Competitive optimisation technology (Dynamic Allocation Mechanism),
- High security standards (5 audits, $500k bug bounty program, safety criteria for new implementations),
- Long track record (battle-tested since mid-2019).
- Yield infrastructure for B2Bs (focus on integrations with other DeFi protocols to develop the most secure infrastructure to connect with DeFi yields)
The upgrade we are proposing is to upgrade the current “mStable Save product” manual rebalance mechanism with Idle’s Best Yield allocation strategy or the perpetual tanches.
This, in essence, will higher the yield perceived by mStable Save depositors, lower fees for rebalance on behalf of mStable protocols, and entitle mStable to be part of Idle’s B2B Affiliation Program.
The very first synergy we could develop together is on the Best-Yield product side: instead of using a fixed allocation between Aave and Compound, mStable community can get the best out of Compound /Aave / dYdX by just integrating with Idle. With Idle continuously monitoring these protocols, and algorithmically allocating funds.
A second opportunity for mStable is to use Idle’s Perpetual Tranches (Senior or Junior) for their Save product as underlying yield source. Using tranches will allow mStable to pick the strategy logic according to the focus on what matters the most for its user base in terms of risk profile.
Idle has recently started a B2B partner program to share up to 50% of the generated fees with integrators (e.g. up to $2m annual revenues for $500m routed to Idle). This is an opportunity to benefit from Idle integration and earn protocol fees for deposits that originate from mStable’s gateway.
Automatic and dynamic rebalance mechanism instead of manual rebalance
Co-marketing activities between Idle & mStable: From tweets or blog-posts covering this partnership, to community engagement events such as AMAs
Fostering DAO2DAO activities and engagement + community co-communications within Idle and mStable communities
$IDLE rewards for mStable depositors
Lower gas fees overhead for mStable protocol
- Smart contract risk associated with Idle Finance codebase
Next steps could be broken down into two macro-phases if the mStable community expressed a positive feedback about this proposal.
The integration process is detailed in our documentation. More precisely, here you can find:
- Supported assets and providers
- IdleToken interface
- IdleToken methods
- Fetch user earnings
- Security audits
- Best-Yield allocation model
- Perpetual Yield Tranches (beta)
The Idle Dev League is always available for any inquiries and support for the integration of Idle’s allocation strategies in Discord (check for @Dev League tag).
After the integration and testing phases are completed, the Treasury and C&M Leagues would be keen to bring resources, marketing and business development expertise as well as incentivizing online community collaboration. AMAs hosted on both Idle and mStable Discord channels would be more than welcomed.
That being said, I would like to hear everyone’s feedback over this potential collaboration between Idle & mStable. I believe it is built on a solid foundation for an innovative mutually beneficial collaboration that will pave the way for greater interaction in further DeFi and/or B2B partnerships.
Let’s build money legos!
#Appendix: Product Offering Details
Best-Yield allocation strategy
The central idea for this strategy is to allocate capital among multiple lending protocols in whatever ratios result in the highest net interest rate.
Imagine that you’ve deposited a significant amount of DAI into Compound. You’re happy with the lending rate, and go on with your daily DeFi life. You come back after a while and discover that a lot of capital has followed you into the Compound interest rates dynamics, dragging down your returns to the point where you’d be better off using Aave instead. So, you decide to move your capital.
After you do so, you check the rates again - only to find that Aave’s rate of return has decreased, and Compound’s has increased, to the point where Compound is once again the better place for your funds.
The ‘solution’ here is to only move some of your funds over to Aave, and leave the rest in Compound, in such a way as the average of the returns from the two is higher than you being purely in one or the other.
That is where Best-Yield strategy comes in - you don’t have to mediate your returns across protocols or spend plenty of time and gas fees to pursue the best interest rates.
Perpetual Yield Tranches for mStable
The various DeFi protocols can be - and often are – viewed as walled gardens from the perspective of the average lender: security concerns notwithstanding, they will deploy funds with the lending protocol promising the best returns.
However, not all mStable users share the same risk profile and tolerance.
Perpetual Yield Tranches offer a way to diversify asset allocation into a spectrum of different yields and risks. The advantage of using Tranches compared to other products is that there is no lock period and accrued governance tokens are automatically compounded in the pool.
Integrators get to choose the strategy according to the risk profile that they want to create for their customers:
Junior Tranches: higher risk, levered variable rate rewards.
Senior Tranches: lower risk, built-in coverage for variable rate rewards.
This product pools together user deposits into underlying markets and allocates the accrued yield on the sum between two different risk profile subsets.
In case of default (hack, loss of funds), Seniors are entitled to a first line of credit in case of default of the underlying pool. They share 80% of the yield accrued by the capital deposited into that given market with the junior depositors. While Junior Tranches have a higher risk profile, they also receive a proportional compensation by their Senior counterparts for taking such risks.
The novelty behind Idle Tranches is the epoch-free model, with limitless product iterations & interactions. mStable can now deposit and withdraw anytime, with no maturity date or locking periods – perpetually tranche your yield and risk.
Tranches added value for mStable:
- Cheaper and optimized gas cost for deposit and redeem.
- Governance tokens ($COMP, $stkAAVE) automatically harvested to boost yields.
- Staking opportunity to receive $IDLE liquidity mining on top.
mStable community can check the current APYs provided by tranches here:
The codebase has been already audited with ConsenSys Diligence, and an additional review of the last changes will undergo in the next couple of months.
When depositing in Senior and Junior tranches, LPs receive LP tokens (named AA_idleDAIYield and BB_idleDAIYield respectively). These are ERC-20 tokens represent a claim on the deposited principal plus yield accrued over time, and are built with fungibility in mind, enabling to unlock many composable use cases.