Summary:
This proposal seeks to introduce a new cvxCRV market to FiRM, Inverse Finance’s fixed-rate lending platform. This market would be the first of its kind with no direct rivals; therefore we expect it will draw attention from both the Inverse and Convex communities, as well as small and large DeFi natives. . The proposed cvxCRV market highlights many of the defining features of FiRM, including Personal Collateral Escrows (PCEs), the ability to accrue rewards on your collateral, and Pessimistic Price Oracle (PPO). A comprehensive risk assessment was conducted by the Risk Working Group (RWG), and was utilized as guidance when deciding on deployment parameters for the market.
Background:
As part of the Convex ecosystem, cvxCRV plays a crucial role in representing voting power and earning potential. When users deposit their CRV tokens into Convex, these tokens are locked on the platform as veCRV. In return, users receive an equivalent amount of cvxCRV tokens. This process is one-way, meaning that the conversion from CRV to cvxCRV cannot be reversed. However, users can trade their cvxCRV tokens for CRV through existing liquidity pools.
The value of cvxCRV is derived from the CRV tokens locked in Convex and the platform’s ability to continuously accumulate more CRV. The Convex platform aims to secure as much CRV as possible by offering attractive yield farming opportunities and streamlining the process for users. As a result, the value of cvxCRV is closely tied to the success of Convex in its ongoing competition with other platforms in the Curve ecosystem, often referred to as the “Curve Wars.”
In January 2023, the Convex team introduced updates to the cvxCRV token, which included:
- 2% platform fees directed to buy and lock cvxCRV on a weekly basis (estimated at 3 million cvxCRV per year).
- Rewards earned by locked cvxCRV allocated to stakers.
- Increased CVX emission rewards.
- Adjustable reward payouts based on game theory among stakers.
- And, crucially, the ability to use staked cvxCRV as collateral (with ERC-20 compatibility).
These updates highlight the Convex team’s commitment to enhancing the cvxCRV token’s utility and value within the DeFi ecosystem. With the introduction of the ability to use cvxCRV as collateral, there is increased interest in incorporating cvxCRV into lending markets such as FiRM, where it can further demonstrate its utility and drive demand.
Risk Assessment:
The RWG conducted a thorough risk assessment on cvxCRV, which can be found here, and determined that it is a suitable collateral for FiRM.
The market will require a composite oracle implementation that makes use of several price feeds in order to protect from both upward and downward malicious price manipulations. Specifically, the chainlink price feed for CRV will act as a “price ceiling” for cvxCRV, as there are no scenarios aside from malicious ones where the price of cvxCRV would ever be greater than CRV. Otherwise, the price will be derived from the Exponential Moving Average (EMA) reading from the new cvxCRV/CRV liquidity pool when cvxCRV price is below 1 CRV. Together with FiRM’s PPO safety feature, we believe this makes for a robust and reliable oracle implementation.
As the price oracle component of this proposal is essential for maintaining the stability and overall security of the cvxCRV market on FiRM, we’ve included it in an additional, outside audit of FiRM being conducted by Nomoi. All cvxCRV market and FiRM-related smart contracts have already undergone our rigorous smart contract safety review process, which includes formal review from both internal and external developers.
Based on the risk assessment, the following parameters are proposed for the cvxCRV market on FiRM:
- Supply Ceiling: $1,000,000. This value is on the lower end of what is considered safe, given cvxCRV’s current liquidity situation.
- Initial Fed Supply: $500,000. This figure is derived from both the supply ceiling and daily borrow limit and is proportionally in line with other collateral assets on FiRM.
- Daily Borrow Limit: $100,000. This conservative figure is considered appropriate for a new market launch and can be adjusted upward if cvxCRV’s liquidity improves.
- Liquidation Factor: 50%. This value ensures that the liquidation incentive matches with the Collateral Factor and is recommended due to cvxCRV’s liquidity and risk factors.
- FiRM Global Supply Ceiling: $5,000,000. This increase from the current $4,000,000 ceiling accounts for the addition of the cvxCRV market.
- Collateral Factor: 50%. This recommendation is based on the balance between risks associated with cvxCRV and the demand for loans. Similar to other collateral on FiRM, adjustments to the collateral factor may be proposed to governance after the guarded launch period has concluded.
Proposal:
Based on the risk assessment, oracle solution, and parameter recommendations, we propose the following actions:
- Add the cvxCRV market to the FiRM fixed-rate lending platform with the recommended parameters presented above:
- Increase the FiRM Global Supply Ceiling to $5,000,000 to accommodate the new cvxCRV market.
- Implement the composite oracle solution for cvxCRV pricing as described in the risk assessment.
- Launch the cvxCRV market on FiRM in “guarded-mode” due to the current thin liquidity of cvxCRV. This mode will allow for close monitoring of the market dynamics and adjustments to parameters as needed.
- Continuously monitor and reassess the cvxCRV market after an initial period, with potential recommendations for changes based on DOLA’s liquidity picture and demand, the liquidity of cvxCRV, and evidence of MEV searchers finding and integrating the market for automated liquidations.
Conclusion:
Adding the cvxCRV market to FiRM presents an exciting opportunity to expand the platform’s offerings and attract further attention from the DeFi community. By implementing the recommendations from the risk assessment and launching the market in “guarded-mode,” we can ensure a safe and successful integration of cvxCRV as collateral on FiRM. This proposal represents a well-researched and carefully considered addition to the platform, and we encourage the Inverse Finance community to support its approval.