Proposal: Add Support for SHEN on Liqwid v1

[Dewayne]

Relevant links:

Djed

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

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

Project and Token Overview
SHEN is the reserve coin of the DJED stablecoin protocol. The minted DJED is backed by ADA and uses SHEN as its reserve coin. 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. As SHEN forms the backbone of the DJED stablecoin protocol and trades close to the price of ADA, it makes for a secure collateral type for Liqwid users to lend and borrow with.

Security Considerations
Smart Contract Risk of the DJED stablecoin protocol - DJED/SHEN 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 over one month.

Liquidity Risk
The circulating supply of SHEN is 23,696,178.31 with 15,040,919.49 additional SHEN able to be minted now at current reserve ratio. Much of the minted SHEN is held in wallets as the on-chain liquidity on DEXs is more limited (WingRiders ADA/SHEN pool has ~$2.52m in liquidity, Minswap ADA/SHEN pool has ~$690k in liquidity)

The following chart from Coti shows when SHEN is able to be minted and burned based on the protocol’s collateral ratio:

Specifications
The Liqwid Labs developers have completed majority of the New Market support tasks needed to list the SHEN market including: testing the proposed interest rate model and risk parameters, configuring the SHEN oracle price feed, confirming SHEN token properties relevant for listing.

Suggested SHEN Market Parameters
The proposed SHEN interest rate algorithm parameters and resulting interest rate curve are as follows:

The proposed SHEN risk parameters are as follows:

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

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

• Yes
• No

[Yuta]

Great suggestion! I voted yes for SHEN, but here are my two personal impressions of the documentation.

1).It may be better to specify that it is not eligible for LQ rewards

Reason: Since SHEN is not a stablecoin, we thought it would be excluded from LQ rewards.

2).It may be easier to understand if the document explains how SHEN’s unique risks are reflected. It’s a little strange that the risk parameters for SHEN and DJED are the same.
(I may be doing something big wrong )
In other words, my gut feeling was that SHEN’s risk parameters should at least be rated as riskier than DJED.

Reason:
This is because SHEN takes the following two risks to protect DJED.

(a). Higher volatility risk than ADA
To make a very crude argument, SHEN will go up 20% if ADA goes up 10% and go down 20% if ADA goes down 10% to protect DJED. (Of course, this is not an exact calculated number.)

(b).Liquidation risk
If ADA crashes significantly, we will not be able to liquidate (SHEN burn) to protect DJED’s veg.

[Dewayne]

These are very solid points to consider. We can speak about a more conservative set of risk parameters for the SHEN market. To answer your point on LQ rewards, each asset supported on the protocol is eligible for rewards, regardless if it is a stablecoin or not.