Proposal: Add Support for DJED on Liqwid v1

[DC1]

Relevant links:

https://djed.xyz/
https://twitter.com/DjedStablecoin
https://twitter.com/COTInetwork

COTI – Medium

Summary
This is a proposal for creating a new liquidity market to support DJED stablecoin lending and borrowing on the Liqwid v1 protocol.

Project and Token Overview
DJED is a Cardano native overcollateralized stablecoin implemented by the Coti and IOG engineering teams. The protocol is unique for its 400-800% minimum collateral ratio for minting DJED. This makes for a strong collateral type for Liqwid users to lend and borrow with a relative degree of confidence in its collateral backing. The stablecoin launched on mainnet <1 week ago and already has a circulating supply of $1.9m.

Currently the DJED protocol has a collateral ratio of 616%

DJED Market Reasoning
Currently most DJED is being LP’d on Cardano DEX, most notably WingRiders where ~$1m in total is being LP’d across multiple pools.

The ability lend and earn interest passively on DJED stablecoin holdings does not yet exist in Cardano DeFi. This could drive minting demand for DJED as users will have an additional utility in pooled lending (notable differences being no impermanent loss, no need for a 2nd asset that opens LPs up to impermanent loss or depeg risk).

Historical borrow volume in Aave and Compound show strong trends overtime towards stablecoin borrow demand and we expect similar trends to emerge on Liqwid with the launch of the DJED market. Users supplying ADA will be able to open loans collateralized by their qADA tokens.

Security Considerations

Smart Contract Risk of DJED - DJED smart contracts were built by IOG and audited by Tweag. The full audit report can be found here: tweag-audit-reports/Djed-2023-01.pdf at main · tweag/tweag-audit-reports · GitHub.

While the smart contracts are built by IOG and audited by Tweag the protocol has been live on mainnet for just under one week.

Stablecoin Risk - The stability of DJED is based on a required protocol collateral ratio of 400-800%. The protocol remains extremely overcollateralized by ADA holders minting the SHEN reserve token. The following chart from Coti shows when DJED and SHEN are minted and burned based on the protocol’s collateral ratio:

Unlike centralized fiat stablecoins DJED’s issuance and redemption model is executed entirely on-chain backed by ADA collateral. The following chart from Coti compares DJED overcollateralized model to fiat and algorithmic stablecoin models:

Specifications

The Liqwid Labs developers have already completed the technical work to list the DJED market including: testing the proposed stablecoin interest rate model, completing the off-chain updates to support multiple collateral asset loans, configuring the DJED oracle price feed, confirming DJED’s FixedToken and other token properties relevant for listing.

Suggested DJED Market Parameters

The proposed DJED interest rate algorithm parameters and resultant interest rate curve for suppliers and borrowers are as follows:

The proposed DJED risk parameters are as follows:

*collateral factor is the maxLTV.

*Any updates to this proposal will be labeled as Amendments.

Do you support this proposal to add support for DJED lending and borrowing on Liqwid v1?

• Yes
• No

[kion]

As it’s already over collateralized what do you think raising the Collateral factor to 90%?

[LapinMalin]

Nice to see we’re close to having stablecoins on the platform.

1. Could you explain how you’ve computed the “Suggested DJED Market Parameters” and why you think they are at the sweet spot?

2. What is the IncomeDividend parameter? Is that the interest payments going to LQ stakers? (and if so, are you expecting this to jump to 10% for all lending/borrowing markets once LQ staking goes live and and the DAO votes for it?)

[Gugo]

Doubt: will we have a qDjed that can be offered as collateral, in addition to loans?

[guywiththe5]

Can you borrow DJED with qADA as collateral?
Can you borrow ADA with qDJED as collateral?
Can you borrow DJED with qDJED as collateral?

[FlorianVolery]

@kion @LapinMalin @Gugo @guywiththe5

Indeed, DJED is backed by Cardano and is overcollateralized. Nevertheless DJED is not yet battle-tested and we feel more comfortable to propose a Collateral Ratio around 75% like ADA (“conservative”) and potentially increasing it over time.

Regarding the interest parameters, the rates are consistent with those on AAVE/Compound for stablecoins. (see DAI/LUSD/BUSD on AAVE for examples). There for utilisation rates of “50% / 60% / 80%”, the interest rates are around “2.5% / 3% / 4%”. Our rates will be around “4% / 4.4% / 5%” for utilisation rates of “50% / 60% /75%”. There are a bit more “expensive” because the supply is low.

The “sweet spot” is difficult to predict, but we expect a high demand and a utilisation rate of 50%+. We note these market parameters can be changed at any time once the DJED market matures. This is also the beauty of Liqwid where everything can be tailor-made.

The IncomeDividend parameter is not activated and can be only done through a governance vote. One solution could be a decrease of the others 2 factors (Reserves and DAO) to increase IncomeDividend.

The following uses of DJED will be possible:

• Borrow DJED with qADA as collateral
• Borrow ADA with qDJED as collateral
• Borrow DJED with qDJED as collateral

[Antoine]

This is an essential one ! Considering that everything looks ready, what will be the time frame to have it live ?

[DC1]

Yes you can to all 3 of these (up to the maxLTV’S for ADA & DJED).

[LapinMalin]

With the Djed market launching soon, have you decided how the LQ incentives would be split between the ADA and Djed markets?

Even 50/50 distribution?
Proportional to the size of the markets?

There were also talks of “multiplier” factors, should we assume the multipliers will be 1x/1x until Agora is live to vote on it?

Thanks.

[Yuta]

I think here is the answer🤔 so we have to decide “multiplier parameter”

LQ Tokenomics and Utility

the allocation key will be based on the amount of interest accrued daily by the borrowers in each Liqwid market

total LQ amount distributed per market will be controlled through a governance configurable multiplier (i.e., the incentives distributed for accruing $1 of supply/borrow will depend on the community voted multiplier parameter).

[DC1]

@DC1

Project and Token Overview

point number 2 is correct yes, the IncomeDividend is the “fee switch” parameter representing interest that accrues to LQ stakers. The % will be unique for each market and will be pending an on-chain vote.