Add stakedCVX Market to FiRM

FiRM
1

Summary

This proposal seeks to add stakedCVX as collateral on FiRM. Using the Personal Collateral Escrow design, CVX will earn cvxCRV yield through the Convex staking mechanism.

Background

Convex Finance is a platform that aims to simplify both farming for liquidity providers and locking of the native token for platforms such as Curve, Frax and Prisma Finance. We have already worked closely with Convex, by offering collaterals such as cvxCRV and cvxFXS as collaterals on FiRM.

To first introduce CVX, the majority of holders will do 1 of 3 actions, which are: locking, staking, or providing liquidity.

  • Locking: CVX can be locked to vlCVX for 16 weeks, giving the user voting power. This is used for voting on CRV governance and gauge votes. Significant income can be earned from vote incentives paid to vlCVX users
  • Staking: CVX can be staked in order to share a portion of CRV platform fees. This CRV is locked to cvxCRV and distributed. Stakers have instant access to their token, but do not have any voting power
  • Liquidity providers: CVX holders can add to the main liquidity pools in order to be paid incentives as well as trading fees, the main pool is CVX/ETH on Curve

On Convex Finance, a 17% fee is taken from all CRV earned by LPs on Convex (currently $1.76bn of LPs deposited via Convex), of which 4.5% goes to CVX stakers as cvxCRV. Staking CVX has never been too lucrative, with vlCVX lockers having their CVX “staked” as well, significantly diluting the cvxCRV rewards.

However, there is currently a proposal live in Convex governance to set vlCVX lockers staking allocation to 0% (from 100%); this will mean that while the total cvxCRV reward amount stays the same, it is completely distributed to stakers. The expectation is that the APR for staking CVX will immediately increase to ~85% once this proposal passes if all things remain constant (CVX price, cvxCRV price, CRV earn rate, amount of CVX staked)

Implementation

The market collateral will be the CVX asset, with staking (unstaking) logic built into deposits (withdrawals). Rewards will accrue as a claimable asset, rather than being autocompounded.

Market Opportunity

CVX is an asset that has had very little exposure to leverage in its history, this is because the APR vote incentives (that are only received when locked) have been so high (average ~30%), that it makes little sense to not be locked. However, after this change, due to the significantly improved APR to stakers, borrowing against CVX now makes a lot more sense, provided it is staked. Due to the PCE design, there is a huge opportunity to integrate stakedCVX as collateral before any other lending markets are able to. First-mover advantage could be significant here due to:

  • Bigger opportunities for co-marketing and community awareness being the first to integrate
  • CVX holders who have wanted leverage for a long time will be eager to jump at the opportunity
  • CVX is currently trading at its 1-year low - there could be people willing to bet big that the price will turn around (especially with this change), and doing so via spot leverage
  • Another great yield-generating collateral option that borrowers will likely be happy to pay high DBR prices for (at least while FiRM is the only lending market with the integration)

Risk Assessment

The RWG analysis for CVX can be found here, which assigns a score of 6.96/10

**Parameter recommendations: shown as on-chain actions

Conclusion

Adding stakedCVX as collateral further strengthens Inverse Finance’s ties with both the community and team at Convex Finance. Being the first mover to provide stakedCVX as a collateral option is compelling, especially with the APR to stakers expected to be so high initially (this will take time to decrease due to most users needing to wait for their current vlCVX to unlock, which takes up to 16 weeks).

On-Chain Actions

  • Add CVX Market to DBR
  • Set the borrowController of the CVX Market
  • Set the CVX Feed to the FiRM Oracle
  • Set CVX Market Supply Ceiling to 2,000,000 DOLA
  • Set Initial Fed Supply to 500,000 DOLA
  • Set CVX Market Daily Borrow Limit to 250,000 DOLA
  • Set Firm Global Supply Ceiling to 44,000,000 DOLA
  • Set CVX Market Collateral Factor to 70%
  • Set CVX Market Liquidation Factor to 50%
  • Set CVX Market Liquidation Incentive to 10%
  • Set Staleness Threshold of CVX market to 86430
3 Likes
2

I think I am in favor. But adding this market goes a bit against the direction of inverse to reduce exposition to CRV. Convex is mainly a CRV liquid locker and thus adding CVX exposes FIRM to CRV indirectly. There was not something about that in the risk analysis even though it is an important point to consider.

3

I’m supportive of this proposal, I believe this is the type of asset that will justify high DBR costs, I also don’t think we’ll see much lower prices than we are at the moment and almost certainly won’t see swift movements to the downside that make any potential positions unliquidatable.

The initial proposed cap is low and the upside potential for both FiRM as well as CVX holders is clear, let’s run it