#Leveraging Staked ILV

1 messages · Page 1 of 1 (latest)

peak ridge
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This was an idea brought up by @obtuse vessel recently in the tokens channel. I offered to help write up a proposal/idea to see what feedback we can get from the community.

Simple Summary
Create a system that allows ILV staker to leverage their locked tokens.

Abstract
A new system can be built within the Illuvium staking dashboard that allows ILV stakers to borrow against those staked coins for ETH. Liquidity can be provided by the community in order to earn fees. Illuvium can also capitalize on those fees for RevDis.

Overview
Users of this platform will agree to terms and conditions stating the risks of leverage. ILV can be liquidated if lendee cannot pay back loan.

Rationale
ILV stakers who are looking for liquidity can remain staked in the ILV pool as opposed to removing and selling that ILV, leading to price stability.

Counterpoint
Leverage is risky due to the volatility of the crypto markets.

mild swift
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This sounds like a third party service offering, too much risk for the illuvium brand imo

If it was a profitable endeavor a major lender would do this, we could propose this in aaves gov or a few.

Also lending platforms are not ez

peak ridge
keen flume
regal chasm
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It would be cool if you could take out a loan and pay it off with RevDis 😅😂

mild swift
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The other issue is liquidity. Staked coins are often locked.

Step one would be getting ILV accepted by lenders (the erc20)

lethal sleet
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I'd agree with Spoon here - Illuvium makes games, with blockchain elements supporting those games. I don't think we want to venture this far into DeFi, it turns into a whole different game with regards to what we would need to fulfill legally to be providing complex fintech services like leverage and/or lending.

It's a cool idea, but I'd challenge the Rationale. While taking loans against staked ILV would provide stability so long as the borrower is solvent, liquidation would result in some potentially severe instability. I'm also not convinced that additional price stability is strictly desirable - Revdis mechanisms are pretty favourable for long term holders when the price of ILV is lower, as more tokens can be bought and distributed. Revdis mechanisms also provide their own form of stability, so long as revenue is coming in.

Keep in mind that insolvency would primarily happen if ILV's price were already on a downward trajectory (ex. a borrower has borrowed against their staked ILV, which has decreased in price), so liquidation of a few loans would have a high chance of cascading as the collateral is liquidated.

Staked (and still locked) ILV cannot currently be moved out of the staking contracts, so I'm not sure how that liquidation would happen. New staking contracts would be required to be able to remove locked positions, unless we were only allowing unlocked staking positions to be eligible.

At a high level, I don't see enough benefit to pursue this. Lots of work, extra hoops to jump through, and not something I think Illuvium should focus on.

peak ridge
floral niche
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Just a heads up too there are already 3rd party apps you can borrow against your ILV. I don’t recommend this for all the reasons ppl have already stated here and I don’t know if these platforms are legit but seems like a defi platform thing more than an us thing. Also imo if people are looking to borrow against their ILV they are either over leveraged and/or over invested which are both dangerous if market conditions turn south