Summary
This proposal aims to enable borrowing capabilities within FiRM’s staked INV Market, building on the innovative Personal Collateral Escrow (PCE) and Pessimistic Price Oracle (PPO) feature, and allowing for INV collateral for the first time since April 2022.
Background
Following the INV price manipulation incident on April 2, 2022, in which a malicious actor took advantage of a vulnerable Keep3r TWAP oracle and exploited Anchor/Frontier, Inverse Finance’s now deprecated variable-rate lending market, borrowing against INV collateral has not been possible on-chain.
Recent developments with Curve Finance and their latest liquidity pool design equipped with built-in EMA oracles are enabling safe borrowing against collaterals lacking Chainlink price feeds. These EMA oracles are widely recognized to be manipulation resistant and tests have shown that at a 10-min EMA, the maximum the price oracle can be manipulated is 4% if an attacker takes over 3 consecutive blocks. At present, these oracles are functional across three FiRM markets; cvxFXS, cvxCRV, and st-yCRV.
A new INV price feed utilizing the EMA oracle, sourced directly from the recently deployed TricryptoINV pool is now being utilized for the INV market on Frontier. This feed procures the INV price in terms of USDC, as provided by the pool, which is then translated into a USD valuation leveraging the Chainlink price feed for USDC. The stage is set to once again allow for borrowing against staked INV collateral, leveraging Curve’s resilient EMA oracle as well as FiRM’s Pessimistic Price Oracle feature, which was designed to protect against price manipulation exploits.
Implementation
INV stakers (xINV holders) on FiRM receive rewards in two forms; anti-dilution rewards which are meant to offset potential dilution caused by liquidity-based emissions, and “real yield” received through DBR streaming. The possibility to borrow against one’s staked INV collateral on FiRM is an opportunity to create further utility for INV, granting INV holders the opportunity to leverage their holdings.
The existing underlying mechanics will ensure that governance rights and yields derived from staking INV will remain functioning as intended. Any withdrawals or interactions would be facilitated seamlessly via the Personal Collateral Escrow feature.
Market Opportunity
The link between DOLA borrowing and INV staking, brought on by DBR streaming, creates a direct connection for holders of Inverse Finance DAO voting power and the success of the product suite. With the growing popularity of FiRM and its potential value propositions, introducing borrowing capabilities for INV can:
- Boost INV’s utility, granting existing users the opportunity to leverage their holdings.
- Enhance FiRM’s product offerings, strengthening its position as a versatile lending protocol.
- Cater INV to a wider audience, especially DeFi enthusiasts and strategists.
Risk Assessment
In September 2023, a comprehensive risk assessment was conducted on INV. The assessment covered holders information, liquidity analysis, slippage and price impact simulations and revealed that INV’s Total Asset Score (TAS) showed a slight increase, registering 5.39, up from 5.23 in May 2023. This model evaluated INV based on six criteria: market capitalization, trading volume, price volatility, token distribution, project fundamentals, and token utility. It should be noted that the lack of analysis for xINV in the TAS score negatively impacted it. Despite scoring poorly in some criteria, Inverse Finance’s RWG granted the introduction of INV into the FiRM market with conservative market deployment parameters. These are summarized in the “On-Chain Actions” section below. The assessment also touched on the importance of monitoring the INV market closely and conducting regular stress tests to ensure its resilience against unforeseen market shifts.
Conclusion
By enabling borrowing in FiRM’s INV market, we not only elevate INV’s utility but also reinforce Inverse Finance’s commitment to innovating and serving the evolving needs of its community. We believe INV has significant potential as a collateral on FiRM, which, when harnessed correctly, will be mutually beneficial for both INV holders and the broader Inverse Finance ecosystem.
On-Chain Actions
- Add INV Market to DBR
- Set the borrowController of the INV Market
- Set the INV Feed to the FiRM Oracle
- Set INV Market Supply Ceiling to 350,000 DOLA
- Set Initial Fed Supply to 350,000 DOLA
- Set INV Market Daily Borrow Limit to 25,000 DOLA
- Set Firm Global Supply Ceiling to 44,350,000 DOLA
- Set INV Market Collateral Factor to 30%
- Set INV Market Liquidation Factor to 20%
- Set INV Market Liquidation Incentive to 10%
- Set INV Market Minimum Debt Amount to 1250 DOLA