Explaining yEarn’s new product: StableCredit

StableCredit is a new protocol for decentralised lending, stablecoins and AMM. Introduced about 30 hours ago, this new product is both fascinating and confusing. Adam from Interaxis suggested that I explain it and hence, here’s your additional weekend read.

Never a quiet day in defi, isn’t it!

Firstly, thanks to the new premium subscribers on Substack and Patreon! I’m very appreciative of you! We have Brian Spector, Joshua Arthur and Ian!

This is an Explain-like-I’m-High School version. I’m also going to reference to other DeFi projects in the space, so you can make the links. Indeed, it’s all just lego blocks stacking on to each other and building skyscrapers.

YFI Project

If you have not heard about Yearn yet, it’s the hottest project so far. I’m due to make a video about YFI in the next few weeks. Hard to keep up with all the fun experiments and protocols going on!

StableCredit combines the Lego of 4 DeFi protocols

If I can sum it up, it is combining 4 existing projects together:

1) Using @MakerDAO‘s model of multi-collateral in the system, instead of just single asset collateral. You can put whatever asset you want as collaterals.

2) Using @AaveAave‘s lending protocol so you can borrow up to 75% of the collaterals you provided (see 1 above)

3) How does the INTERNAL economy work then? It uses a single-sided AMM to mint the tokens. Confused? Think of it as @Bancor but BNT (the native token of Bancor) is not traded in the secondary market. So you reduce exposure for fluctuation.

3.5) Now, @iearnfinance goes a little further and say, “ok we don’t want this new native token to be traded in the secondary market. Bc volatility sucks. So what can we do?” Simple. We make that new native token a stable token with a pegged value. Which brings us to (4)

4) Lastly, it uses @AmpleforthOrg‘s model of tapping into secondary market for traders to do arbitrage to get the pegged value back to its ideal state. Why would they do that? Bc traders get to make money. Duh.

Win-win-win.

What’s the Point of This…..?

You’re probably thinking, what’s the point. Creating ANOTHER token. Creating ANOTHER stable/pegged token. Why all the trouble when you have these lego blocks out there? Just use them if you need, right?

Wrong.

Here’s why:

Impermanent Loss

Another point on the stable asset in the single-sided AMM: this helps to reduce (remove, maybe? I can’t justify if it removes it for real) impermanent loss when trading.

Combine (3) and (4), you realise that the asset will move quite a bit right? And when that happens, you have this thing called impermanent loss. Impermanent loss is a bad thing. Bad for asset holders in the AMM, can be bad for traders. So reduce this by reducing vol.

What this asset does

Now, question. What does that…. stable asset do then?

Simple.

(A) you get to collect the collaterals in the AMM

(B) you get to use it in the defi system bc it’s pegged and has value. E.g. use it to borrow assets in Yearn.

Application to Yield Farming?

And, how does it apply to yield farming? Because this information and system has no economic value if people don’t use it, right?

(A) Use that new stable asset to be doing your whatever farming field. Like a fertiliser.

(B) Reduces vol with the stability, so easy to cal returns

If you want to nerd out more, here’s the video explaining the math behind Bonding Curve Algorithms in Autonomous Market Makers in the space!