Assignment for Tokenomics contributors(Junior)
1ST TASK-TOKEN USE CASE-LENDING AND BORROWING
Adding a new feature for IDLE users to lend and borrow DAI, USDT, USDC by depositing ETH as collateral, after which that stable coins can be deposited into the IDLEâs strategies and farm IDLE.
IDLE as a collateral â
last month IDLEâs price high-Lows are as follows- 2.47$ - 9.52$
If IDLE token is used as collateral, due to the volatile nature of the cryptocurrency the margin ratio would not be sustainable and most of the users would be liquidated in no time, also the falling price of IDLE would trigger a negative feedback loop(due to liquidation of collateral) which would further cause downward pressure on IDLE price.
now letâs see high and low of ETH in last 1 month -
Hence the Borrowing done using ETH is safer as compared to IDLE if used as a collateral . SO the ques is how will be IDLE used?
IDLE will be used as collateral of last resort.
COLLATERAL OF LAST RESORT â
IDLE governance token can act as a cushion to absorb losses beyond the expected losses from collateral locked in order to obtain the stable coin . This would reduce the chance of liquidation of assets given as collateral while retaining the voting rights for proposal in IDLE ecosystem .
EXAMPLE â (as on 07th DEC 10:00 PM IST)
CONDITION BEFORE DUMP-
Price of ETH â 4377$
Price of IDLE- 2.83$
Userâs portfolio â
1 ETH (collateral)- 1 x 4377$= 4377$
1000IDLE (collateral of last resort)- 1000 x 2.83= 2830$
If a user deposits 1 ETH, the maximum he can borrow is 60%-70% of collateral (this is for the userâs safety as if more than 70% is borrowed the chance of liquidation would increase with just a minor dump)
So, with 1 ETH user borrowed 70% of 4377$ that is - 3063$
AFTER DUMP-(hypothetically)
Price of ETH- 3063$
Price of IDLE- 1.3$
Userâs portfolio â
value of collateral-1 ETH - 1 x 3063$= 3063$
1000IDLE (collateral of last resort)- 1000 x 1.3$ = 1300$
In case of a dump, if no other collateral is given. the user will get liquidated as soon as the price of ETH falls below 3063$ as the price of the collateral should always exceed the borrowed amount which doesnât give enough wiggle room , but if IDLE is used as a collateral of last resort the user can sustain much more drop while earning on the stable coin taken as loan and increasing the collateral of last resort everyday(which would help sustaining even more loss ) while paying the interest for the borrowed asset and also retaining the voting rights , also if we refer to the previous screenshot of IDLEâs high or low , due to high volatility and room to grow , more profits can be obtained as the the interest for the USDT will be constant while the profits earned in IDLE tokens can obtain more profit (due to high volatility) while keeping your asset(ETH) safe .
Problem with above approach : The borrowing interest would surpass the profit earned using IDLE strategies.
Solution: proposing a new strategy - DCA (Dollar cost averaging):
Dollar cost averaging is a strategy where only a percentage of money is used at an initial stage (from the buying condition) and as the cryptocurrency tumbles (dumps) larger size orders are placed in order to drive the average buying price of a crypto currency down. A profit percentage is decided from the average buying price. this works well in a bull cycle but also when the crypto space is going through a correction. this would help to gain more profit as the users wonât need to take the loan over the entire collateral at the initial stage and would require only a portion of assets and also increase liquidity
How will this help in overcoming the problem ?
As only a small amount of money is used at initial stage until price of the crypto currency drops, more loans can be taken hence reducing the interest rate accumulated over the time until the deals are closed in profit while keeping their long position on the collateral .
This is just one-way DCA(Dollar Cost Averaging) can be integrated where the problem stated above can be solved.
green line - target price
orange line - where safety orders are placed
Conclusion â if you are long on ETH, this proposal could help the user to avoid liquidation while earning with IDLEâs strategies . this can help you support minor or major dumps which keeping your asset safe while retaining your voting rights for proposals in IDLE. which in the bigger picture would help more money flow into IDLE token
Future enhancements-
1.To introduce IDLEâs own farming pools which would increase the yield for the users when substantial amount of money is flowing into idle.
2.Release IDLEâs platform token would help increase the use case of IDLE finance .
2nd TASK- TO IMPROVE IDLE LIQUIDITY - MARKET MAKING (Additional task)
-Humming bot: Humming bot is an open-source toolbox for professional liquidity providers.
( https://miner.hummingbot.io/ )
STEPS â
⊠Get listed on a CEX/DEX humming bot supports â Ex- Ku coin , GATE.io
(How to List a Coin on KuCoin â KuCoin Help Center)
(New Coin Listing Request-Gate.io)
(Just by getting listed on Ku-coin or Gate.io will help IDLE attain more volume)
⊠Partner with humming bot and participate in their liquidity mining campaign with IDLE-ETH pair
⊠With the help of C&M league, launch a campaign to show users how to use humming bot.
⊠Rewards will be distributed for the volume the humming bot users provide.
Humming bot uses market making strategies which are built in and users can also design their own strategies where they get rewarded on the liquidity they provide.
Though the ideas stated above are still work in progress but I am sure it will guide you in the direction I am thinking in and surely would improve over them and make them perfect. vote for me . thanks .