This is a proposal to remove the SHEN token as collateral from the Liqwid app. Users will no longer have the option to use SHEN as collateral for existing loans or to open new loans backed by SHEN.
Reason for removing SHEN Token:
The SHEN token currently has a total supply of 31 million ADA, valued at approximately $7.75 million. (data: Taptools) Some are part of the ADA/SHEN pool on Minswap, which is worth around 1.9 million ADA (approximately $~500k). This consists of approximately 1 million ADA and 1 million worth of SHEN, translating to $250k ADA and $250k SHEN on Minswap. Notably, Wingriders holds the largest ADA/SHEN pool with $890k, equivalent to approximately $445k worth of SHEN. In total, there is slightly less than $700k worth of SHEN in liquidity on Cardano.
Extract Minswap and Wingriders*
The total assets available in the pools are considerably low when compared to the total circulating supply of SHEN (~10%). Consequently, a large sell order for SHEN would result in a significant price drop on any decentralized exchange (DEX).
Furthermore, SHEN cannot currently be redeemed in the DJED protocol because the current reserves (293%) are below the required 400%. Even if this option were to be activated, the high fees would deter SHEN holders from doing so, making this arbitrage mechanism inefficient.
Lastly, the lack of demand and use cases is why SHEN has not been widely used as collateral or for borrowing. The total supply of DJED is currently capped at 4.1 million due to the reserve mechanism design, which requires a ratio above 400% for new DJED minting, with the current ratio at 293%.
Wind-down Phase for SHEN as collateral:
- Modify the front-end to prevent users from adding more SHEN as collateral or opening new loans backed by SHEN.
- Users with existing SHEN-backed loans will still be able to repay their loans, borrow more, or provide additional collateral from a different asset type.
- Develop and communicate clear information to users about the status of SHEN, including the effective timeline following a positive vote.
The Core Team recommends adopting this proposal to remove the SHEN token from being used as collateral on Liqwid. It should be noted that SHEN can still be supplied and borrowed but can no longer be used as collateral.
- Yes, I support the adoption of this proposal.
- No, I do not support the adoption of this proposal.