Capital Efficiency for Sushi LPs and Sushi Stakers

Sushi LPs and Sushi stakers are some of the core protocol supporters. They have their capital locked in. Though, they Sushi rewards, protocol can be made capital efficient.

Proposal:
Collateralize SLP tokens and xSushi to mint synthetic stable coins.

Flow:
Collateralization ratio of 150% - Use Sushi TWAP oracle or External Oracle - Mint Stablecoin zUSD.
zUSD can be used freely by the LPs (LTV approx 40%).
Liquidation Process:
Warning factor 70%. When the value of the LP tokens reaches 60% of the synthetic asset value, assets can be marked as potential for liquidation.
Liquidation factor 80%. Underlying LP tokens to be auctioned at discount, if no takers automatically liquidate the underlying assets.

At present total liquidity in Sushi is 400 Million. Considering top 4 pools and collateralization factor of 150%, zUSD mcap can be close to 100 Million.

4 Likes

I was thinking about a somewhat similar approach after StableCredit announcement.
As long as the LTV is very conservative and everyone understands how clogged eth networks gets during extreme volatility - this suggestion could be an interesting yield enhancement approach. (Assuming either reinvesting the USD into less risky yielding assets or more risking leverage up).

However, the pairs should have isolated margin, especially once sushiswap begins listing lots of exotic assets (in order to prevent malicioius actor stuffing the protocol with worthless assets and take away more valuable collateral).

3 Likes

This will be super easy once BentoBox is live. We can use an oracle that ‘understands’ SLP tokens and sets the price according to the underlying tokens, whose price could come from sushiswap TWAP or from other oracles (compound/CREAM/etc). Cool new legos are being cooked :wink:

3 Likes