Support for OADA/sOADA Liquidity Pools & as Isolated Collateral in the ADA Market

New Markets
1

Summary
This proposal aims to establish new liquidity pools to support OADA and sOADA for lending and borrowing, as well as isolated collateral in the ADA market on Liqwid.

Project and Token Overview
The OADA System is a liquid staking derivative and yield aggregation system employing a two-tranche token structure to create OADA, a monetary premium ADA-pegged asset, and sOADA, a yield-bearing asset. OADA is stripped of all system-aggregated yield, while sOADA inherits the entire yield and risk of the system. In the event of losses, sOADA would bear the risk, leaving OADA unaffected. However, the system is designed to maintain a low-risk profile utilizing only very conservative yield accrual strategies as it matures.

OADA can be staked to become sOADA, which can be unstaked back to OADA at any time. To redeem OADA back to ADA, users must swap it using the Splash stableswap OADA/ADA. The system provides deep liquidity for this swap to facilitate exiting, making it the only way to return to basic ADA after minting. OADA maintains its peg within a one percent range (0.99-1.01) through automatic buybacks and arbitrage opportunities managed by the system. The system interacts with the stableswap to maintain and arbitrage the peg via minting, burning, and adding and removing LP.

Since its launch, OADA has amassed 10.4M ADA in TVL and continues to grow its assets under management daily, further reinforcing the stability and impact of the system. Liquidity in the OADA/ADA stableswap has grown to about 22M in TVL, handling approximately 16K ADA in daily volume with a daily APR of about 0.03% yield for liquidity providers.

Optim Labs has been a leading development team in Cardano since the ecosystem’s inception. Core team members have previously worked as early contributors to Minswap and as the leading instructor for MLabs’ Plutus internship program and have remained prominent members of the community ever since. Optim’s commitment to the safety and security of their protocols can be evidenced by their double audit of Liquidity Bonds by Tweag and MLabs, setting the precedent of auditing redundancy early on. Similarly, the OADA system was audited by Anastasia Labs as well as during a bug bounty program held earlier this summer. To date, Optim’s products have handled a historical TVL of about 165M ADA over two years without any security issues or operational problems. Furthermore, the Optim DAO has spearheaded a strong commitment to decentralization by sharing control of the protocol’s core functionalities with a council of trusted members from the Optim and Cardano communities.

OADA/sOADA Market Reasoning
The OADA system is a pioneering product, serving as both a liquid staking derivative and a yield aggregation mechanism uniquely designed for the eUTxO model on Cardano. It is set to usher in a new era of complex and composable DeFi money legos, propelling the ecosystem forward. Establishing a symbiotic relationship between OADA and Liqwid lending markets early on will ensure that the vision and mission of both products remain aligned and synergistic, enabling both protocols to grow their impact across DeFi together.

As the stable pegged asset in the system, OADA bears much less risk than sOADA and can be more closely compared to raw ADA in its risk profile. As the yield and risk bearing asset in the system, the risk parameters of sOADA will need to be more conservative than with its OADA equivalent.

Specifications

  • OADA Price: Decay below 1:0.99-1.01, intimate 1% per 2-hour decay.
  • sOADA Price: Refers to the exchange rate from 1 UTXO on-chain with NFT datum that shows the exchange rate, outstanding number, and backing amount.

Conclusion
This proposal intends to add OADA and sOADA as a token for lending and borrowing and as isolated collateral in the ADA market on Liqwid with the proposed market and risk parameters outlined above.

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@hollowgrahm, Thank you for this well-written proposal—another intellectual nuke(throwback to 2022). I personally need to learn more about oADA and sOADA, but this has intrigued me.

The risk of sOADA, I’d like to find more resources on.

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Support this! Hugely important for Cardano Defi

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I like the idea of OADA and sOADA markets in principle, but I fail to see any solid reasons for borrowing either of these assets, hence I would not anticipate any meaningful utilisation in either of these markets. Interested to hear any thoughts on this.

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You can think of sOADA as the junior tranche in the system, so technically bears all the risk of OADA in exchange for the yield accrued by the entire system. But keep in mind that all yield strategies used by OADA are very conservative in risk with the two current yields strats being Optim’s Stake Auction and the Splash Stableswap AMO. In the near future we are also integrating a Liqwid AMO that will arguable be even safer since Liqwid’s been battle tested in production for much longer.

If you’d like to learn more about the technicalities I recommend checking out the gitbook at the following link: Overview | Optim Finance

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I have no issue with this proposal, and will likely vote yes.

Based on my limited knowledge, the way I see it is like this. If you have ADA, you can do any of the following:

  1. Stake ADA in your wallet and earn normal ADA staking reward,
  2. Lend your ADA on Liqwid and earn a combination of ADA staking reward and ADA lender APY, in which the total of both should be more than (1),
  3. Mint OADA via Optim and stake OADA to earn yield via sOADA, in which the yield should be more than (1).

There are different set of additional risks for the last two options an ADA holder needs to take in order to obtain above average staking returns. Nonetheless, both will result in higher TVL for Cardano ecosystem overall. IMO, this seems like a win-win for both Liqwid and Optim.

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The use cases for borrowing either asset are quite niche, but it helps when building a robust product to be able to anticipate all edge case scenarios to ensure the system can be utilized no matter the current market conditions or each users specific risk profile.

For OADA, if the cost of borrowing is less than the yield from staking, there’s an arbitrage opportunity. But now you ask yourself, why would someone lend their OADA instead of staking it themselves if lending yields less profit than staking? Because it’s a decreased exposure on sOADA but with a higher yield than raw ADA. Remember that sOADA is the junior tranche in the system, so staking bears risk in exchange for all of the profits.

Liqwid ADA supply yields 3%, but sOADA yield is almost double at 5.9%, so you could lend OADA for anything in between, and make a profit higher than regular ADA while also not exposing yourself to the risk in the system. The borrower would take on the risk from you by staking into sOADA in exchange for additional profits.

It is imperative to highlight that this could give CNTs across the ecosystem an additional use case and yield, as you could use them as collateral, borrow OADA, stake it for yield, pay back the loan, and profit the difference. This is exactly the kind of synergistic dynamic we need to kickstart our own DeFi Summer.

For sOADA, there’s an incentive to borrow it and unlock for OADA if you expect there to be a loss in the system as a way to short or hedge against it. After the system loss, you can then stake back into sOADA at a much better conversion rate, pay back your loan and pocket the difference as profit. Much more edge case scenario but once again it’s nice to have all possible options available for any given product.

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I agree that the potential use cases for borrowing both OADA and sOADA would indeed be extremely niche and rare. While I still believe that the utilization of these markets would be extremely low, perhaps there is no harm in having them merely exist if they pose zero risk to Liqwid.

However, the argument to “why would someone lend their OADA instead of staking it themselves” becomes problematic when considering that unutilized deposits in a proposed OADA market wouldn’t receive native ADA staking rewards, putting them at a disadvantage compared to unutilized ADA market deposits, which do earn native rewards.

As a result, borrower rates for OADA would need to be higher than those for ADA to ensure that the yields for OADA and ADA suppliers on Liqwid are comparable. But under these conditions, why would anyone borrow OADA at a higher interest rate when they could simply borrow ADA at a lower rate and easily mint OADA on Optim? Conversely, why would anyone supply OADA at a lower APY than the ADA market supply, when they could easily swap OADA for ADA?

Unless I’m overlooking something, I mainly support the ‘Isolated Collateral’ aspect of this proposal. I still believe that an OADA and/or sOADA market has no real use case, would see minimal utilization, and would therefore provide little benefit to either Liqwid or Optim protocols, potentially introducing unnecessary liability and workload for Liqwid without sufficient reward.

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I agree that the potential use cases for borrowing both OADA and sOADA would indeed be extremely niche and rare. While I still believe that the utilization of these markets would be extremely low, perhaps there is no harm in having them merely exist if they pose zero risk to Liqwid.

However, the argument to “why would someone lend their OADA instead of staking it themselves” becomes problematic when considering that unutilized deposits in a proposed OADA market wouldn’t receive native ADA staking rewards, putting them at a disadvantage compared to unutilized ADA market deposits, which do earn native rewards.

As a result, borrower rates for OADA would need to be higher than those for ADA to ensure that the yields for OADA and ADA suppliers on Liqwid are comparable. But under these conditions, why would anyone borrow OADA at a higher interest rate when they could simply borrow ADA at a lower rate and easily mint OADA on Optim? Conversely, why would anyone supply OADA at a lower APY than the ADA market supply, when they could easily swap OADA for ADA?

Unless I’m overlooking something, I mainly support the ‘Isolated Collateral’ aspect of this proposal. I still believe that an OADA and/or sOADA market has no real use case, would see minimal utilization, and would therefore provide little benefit to either Liqwid or Optim protocols, potentially introducing unnecessary liability and workload for Liqwid without sufficient reward.

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Hey, Kylix from the Liqwid core team here. I personally do not support this proposal, as I think the OADA system is still relatively new and immature. There might be unforeseen risks that only time can tell. OADA I don’t believe is useful as a market underlying, since it’s a token that can be swapped 1:1+-0.01 for ADA. sOADA carries potentially unforeseen risk. On another note, pricing something like sOADA doesn’t seem trivial enough as to where I think the core team should be pouring effort into this when there are other lower-hanging, higher-reward priorities that can be focused on.

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However, the argument to “why would someone lend their OADA instead of staking it themselves” becomes problematic when considering that unutilized deposits in a proposed OADA market wouldn’t receive native ADA staking rewards, putting them at a disadvantage compared to unutilized ADA market deposits, which do earn native rewards.

I wouldn’t say this is problematic because by holding OADA you are actively foregoing any expectation of yield already so a non-zero utilization of the OADA market would always yield higher than the zero yield alternative of not staking and not lending. We can look at the several CNTs on Liqwid that offer a supply APY of less than 0.1% to see that it’s not a deterrence to supplying liquidity. Besides, low utilization results in a low borrow cost, which more strongly incentivizes the arbitrage opportunity of pocketing the different between the yield from sOADA and the cost of borrowing OADA. I know this might seem unintuitive but economic market forces would quickly find an equilibrium for people with different risk profiles to take advantage of. If there is a profit to be made, someone will take advantage of it.

As a result, borrower rates for OADA would need to be higher than those for ADA to ensure that the yields for OADA and ADA suppliers on Liqwid are comparable. But under these conditions, why would anyone borrow OADA at a higher interest rate when they could simply borrow ADA at a lower rate and easily mint OADA on Optim?

The yields for OADA and ADA actually do not need to be comparable because they cater to completely different risk profiles, and the difference in yield is the perceived cost of that risk in the market. But once again we can look at edge cases to find scenarios where unintuitive situations actually make sense. For example, once the ADA utilization / kink point makes the interest shoot up past the OADA interest, then it becomes more profitable to borrow OADA and stake it as opposed to borrowing ADA, minting OADA and staking for sOADA.

Conversely, why would anyone supply OADA at a lower APY than the ADA market supply, when they could easily swap OADA for ADA?

This is where basic economic market forces would find an organic balance. If the APY for OADA is lower than for ADA, then people are incentivized to swap OADA for ADA and supply that instead. But the direct side effect of this is that a lower supply of OADA makes the utilization and thus the interest rise faster, which would incentivize people to eventually supply OADA instead. Thus market equilibrium is organically found.

Unless I’m overlooking something, I mainly support the ‘Isolated Collateral’ aspect of this proposal. I still believe that an OADA and/or sOADA market has no real use case, would see minimal utilization, and would therefore provide little benefit to either Liqwid or Optim protocols, potentially introducing unnecessary liability and workload for Liqwid without sufficient reward.

Just to recap, the use cases are the following:

  • Supply OADA for higher yield than ADA, but lower than sOADA, for a more conservative risk profile.
  • Supplying OADA equates to higher TVL in Liqwid.
  • Borrow OADA when ADA utilization and interest starts getting too high.
  • OADA Market actually helps stabilize the ADA market by allowing it to cool off in a safer and less volatile manner as it provides an alternative asset to borrow for the same arbitrage opportunity purpose.
  • Borrowing sOADA allows users to short or hedge against losses in the system.
  • Supplying sOADA is basically free TVL being deposited into Liqwid.
  • Supplying sOADA yields profits when short traders turn out to be wrong.
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OADA I don’t believe is useful as a market underlying, since it’s a token that can be swapped 1:1+-0.01 for ADA.

An OADA market enables users to leverage their positions which increases the utilization of assets deposited into Liqwid, thus increasing overall profits for the protocol. Increasing the monetary premium of OADA by offering an alternative yield stream outside of staking it also improves the staking yield as it is less diluted by a smaller supply. The higher the yield on sOADA the more room for profitability there is in an ADA looping strategy, which equates to higher utilization and more profits for Liqwid.

sOADA carries potentially unforeseen risk.

Which can be mitigated by a conservative Max LTV and Liquidation Threshold. I would argue that it’s actually much safer than most volatile CNTs as sOADA is not only very tightly correlated to ADA itself, but is also yield bearing and accrues in value against it. So hypothetically speaking the health of your loan could actually improve over time if the value it accrues is higher than the cost to borrow.

On another note, pricing something like sOADA doesn’t seem trivial enough as to where I think the core team should be pouring effort into this when there are other lower-hanging, higher-reward priorities that can be focused on.

Pricing sOADA is actually fairly simple and done natively in the Unstake UI as it shows you the conversion rate back to ADA. This conversion rate can also be referenced on-chain as well to be fully composable with the rest of the DeFi ecosystem.

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I am trying to find the reason of the market risk someone would also lend OADA.

  • ADA earns native rewards.
  • OADA does not receive native rewards carries additional smart contract risk, and forgoes the current 5.9% return if staked at sOADA
  • OADA supplied to liqwid, 2nd additional smart contract risk( 1st optim, 2nd liqwid), only receives supply interest and opportunity to use as collateral.
  • Currently, we are experiencing an opportunity loss of native rewards/staked OADA rewards. We call this 2-6%, rounded for simple illustrative numbers.
  • Splash dex AMO is set to algorithmically arbitrage ADA: OADA
  • I would need to find a strategy to better that 2-6% ROI of sOADA
  • Who is the supplier of oADA that wants to take on 2x smart contract risk, forego 2-6% interest, for a hard-to-see or defined strategy?
  • Coupled with the infrastructure cost to maintain this pool on liqwid.

It makes sense to supply CNTs that don’t offer a staking option to hold and earn additional interest, even if less than 0.1%.CNTs that do offer staking, like ADA and SHEN, have that added back into qToken for the suppliers.

If an OADA liqwid market did exist, Unutilized OADA could then be staked for sOADA and increase the qOADA -OADA exchange rate, which then returns to net or net positive if the original OADA was staked on optim( net positive would be sOADA+ Liqwid interest rate). This would indicate that the borrowing cost is a bit higher than 0%.

For the Splash AMO to have a deep pool to maintain the peg within the 1% range, the Liqwid protocol pool of ADA or OADA is used to mint/Burn OADA, and liqwid earns from that. This seems like a comparable option to the Minswap POL. Maybe thats the Liqwid AMO?

I still get stuck on why loan oADA and forgo the current 5.9% interest when arbitrage is the opportunity and you are competing against an AMO. Aside from exploiting it, which I know is not the route anyone is trying to suggest this is set up for, how do you beat an AMO?

That said, I would be thrilled to supply my ADA, use it to borrow OADA, and stake it. It’s a no-brainer for me, as I want to meet the person wishing to supply the OADA.

@hollowgrahm, keep the information coming; this innovation will be amazing if it holds water.

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this would mean that OADA is being borrowed more than ADA, at a conversion rate of 1ADA to covert ADA to OADA, seems unlikely someone would want this? when you could convert ADA for less than the 1% loan fee than the borrowing interest.

100%

Assuming that someone has supplied OADA, makes sense since OADA = ADA ‘pegged’. This needs point 1 to be true, if false, why supply OADA?

If OADA is pegged to ADA, is this cooling off the liquid markets interest rates? Wouldn’t these two markets be directly correlated in how they heat up or cool down?

what system is being hedged? Optim or Liqwid or general Cardano. Doesn’t sOADA carry all the risk?

This is true for any asset supplied? minus the costs to maintain the assets(s)
edit8/13/24

wouldn’t this be true for any asset again?

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I am trying to find the reason of the market risk someone would also lend OADA. … I still get stuck on why loan oADA and forgo the current 5.9% interest when arbitrage is the opportunity and you are competing against an AMO.

Fair enough, let me highlight a few things and you can tell me if that paints a better picture of the scenario.

  • ADA yield on Liqwid is 3.06%
  • ADA borrow rate on Liqwid is 4.98%
  • sOADA yield is 5.9%
  • Meaning lending OADA in the 3.07%-4.97% range is profitable to both the lender and the borrower
    • The OADA lender can earn more than simply supplying ADA. Why not simply stake into sOADA? Because sOADA being the junior tranche bears the risk of the system, and while the risk is very conservative, different users will price that risk at different levels. Do you want to earn more than raw ADA but not incur any risk of the sOADA strategies? Simply lend OADA.
    • The OADA borrower also profits because as long as the interest rate is lower than the 5.9% yield on sOADA, they can borrow, stake and pocket the difference.

Who is the supplier of oADA that wants to take on 2x smart contract risk, forego 2-6% interest, for a hard-to-see or defined strategy? That said, I would be thrilled to supply my ADA, use it to borrow OADA, and stake it. It’s a no-brainer for me, as I want to meet the person wishing to supply the OADA.

First of all, I hope that after this you won’t think this strategy is hard to see or not well defined lol.

I’d like to point out that one of the biggest holders of OADA is the Optim DAO itself, which is mainly used by the Stableswap AMO to hold the peg. A byproduct of this is that it also boost the yield of sOADA significantly as well. The implied APY for LPing into the stableswap is about 3.36%, meaning that the Optim DAO itself is incentivized to provide ODAO liquidity at any rate higher than the LP yield. And since the amplification factor of the Splash stableswaps makes the pool very easy to balance, then suddenly the ODAO has a lot of liquidity to provide into Liqwid.

I’m not sure if it was you or DunkyNed inquiring about this with zygo in the Discord, but this is essentially what the Liqwid AMO would do, as well as depositing idle ADA not being used in the stableswap or stake auction AMOs. So it’s actually important to consider that creating a Liqwid OADA market would increase the amount of idle ADA in the AMO, which is then free to be deposited into Liqwid and increase its TVL. But if there is no OADA market then the AMO is forced to just keep the OADA and ADA paired into the stableswap.

So creating an OADA lending market would increase the yield on the stableswap LPs (because there’s less liquidity), would create an arbitrage opportunity for users between the cost of borrowing OADA and staking it, and would deposit tons of ADA into that market as well, improving liquidity available for the whole looping strategy and massively increasing Liqwid’s TVL.

Mind you, what I’m describing above is the kind of product synergy and composability that is basically standard and taken for granted in all other DeFi ecosystems. This is exactly what we need to kickstart our own ecosystem if we ever want to do more than incestuously trade governance tokens back and forth until the heat death of the universe. This is why we need to give people different yield options that cater to their respective risk profiles.

If an OADA liqwid market did exist, Unutilized OADA could then be staked for sOADA and increase the qOADA -OADA exchange rate, which then returns to net or net positive if the original OADA was staked on optim( net positive would be sOADA+ Liqwid interest rate). This would indicate that the borrowing cost is a bit higher than 0%.

I like the way you’re thinking! This is exactly the kind of synergies that we want users to start thinking of themselves. With that being said, Liqwid itself would probably not be willing to take that risk themselves at this point, as they’d be liable for eventually returning OADA and if there were to be a hypothetical loss in the sOADA system it could put them in an uncomfortable situation. But I do think that after some time, maybe at least a year, of a proven track record and maturity of the OADA system, the Liqwid DAO could choose do something like this.

It could literally just stake idle OADA and give ALL the profits back to LQ stakers, creating an organic yield for their own token. In the edge case scenario the system incurs a loss while the Liqwid DAO is in custody of staking idle OADA, it could just pay back any bad debt with LQ itself. Hypothetical scenarios of course but it’s important to consider the kind of additional synergies that could be extrapolated on top of the OADA/Liqwid system we’re proposing. This is what we really mean when we say we’re designing the decentralized finance money legos of the future.

For the Splash AMO to have a deep pool to maintain the peg within the 1% range, the Liqwid protocol pool of ADA or OADA is used to mint/Burn OADA, and liqwid earns from that. This seems like a comparable option to the Minswap POL. Maybe thats the Liqwid AMO?

You’re thinking along the right lines, but I won’t steal zygo’s thunder and let him disclose more info about potential lending market synergies when his design is ready for public dissemination. But what you’re describing is very similar to the way Frax can mint stable assets with volatile overcollateralization through a lending market AMO.

Great questions so far CK please keep them coming if there are any more!

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this would mean that OADA is being borrowed more than ADA, at a conversion rate of 1ADA to covert ADA to OADA, seems unlikely someone would want this? when you could convert ADA for less than the 1% loan fee than the borrowing interest.

Not necessarily because ADA and OADA could have slightly different interest rate curves. For example, the OADA interest would probably need to have a base rate higher than the ADA supply rate and start off from there. Remember that as long as the cost to borrow OADA is less than the yield on sOADA, then lenders have a market at a rate that’s higher than raw ADA. Seeing how currently sOADA yield is almost twice as much as ADA yield (5.9% vs 3.06%) there’s plenty of room in between for both sides to profit.

Assuming that someone has supplied OADA, makes sense since OADA = ADA ‘pegged’. This needs point 1 to be true, if false, why supply OADA? … If OADA is pegged to ADA, is this cooling off the liquid markets interest rates? Wouldn’t these two markets be directly correlated in how they heat up or cool down?

The way this plays out in real time is that if the cost to borrow ADA starts getting high there’s two reactive forces that come into play. The first one is that people with already open loans are incentivized to close them. The second is that is that ADA holders are then more incentivized to supply at the higher yield. Both of these market reactions will lower utilization and thus bring the interest down to a healthier level. Additionally, since OADA is so easily converted back to ADA, then OADA suppliers would probably do the swap and supply the ADA market instead. This would decrease OADA supply but increase its utilization rate and thus increase the interest. So as ADA interest is falling OADA interest is rising at the same time, which at some point will incentivize depositing OADA instead of ADA. Basically both markets would help each other find a healthier market equilibrium by balancing each other out.

what system is being hedged? Optim or Liqwid or general Cardano. Doesn’t sOADA carry all the risk?

It would be a user individually hedging themselves against the sOADA risk if they’re a large holder and want to reduce their exposure without closing their position. A short seller is instead probably not a holder but thinks the system might incur losses in the short term and thus wants to profit from it by shorting it. Why supply sOADA into this market though? Because if the short sellers are wrong then you directly profit from their loses.

This is true for any asset supplied?

Correct, but if an sOADA market does not get approved then Liqwid is essentially passing up free TVL.

wouldn’t this be true for any asset again?

Also correct, but people were questioning what the use case for lending and borrowing sOADA would be so was just making that dynamic explicit.

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I hear a lot of claims that this thing is low-risk but it just got to market. I am strongly against listing assets that do not first withstand proof-of-time. Take a look at how we dealt with Mehen’s USDM, we gave ourselves the time to observe and perform due diligence on their product before listing it. This is extremely important for us as a lending protocol - with any asset we list, we, the Liqwid DAO, and the users of the Liqwid protocol take on all of the risk. I believe there’s merit in your team building an AMO where you use deposited ADA for supplying on Liqwid, but OADA and sOADA in my professional opinion are too immature both from an economical and from a technical point-of-view for me to deem this low-risk. Regarding an OADA market, I think the arguments on creating yield arbitrage aren’t logical, if users want to earn interest on their ADA, they can just supply ADA on Liqwid Finance, they don’t need to go through OADA to do so, users who do want to hold OADA can decide to either tap out of OADA back into ADA and supply on Liqwid or they can stake it to earn an APR within the OADA ecosystem at what I currently deem a higher risk-profile. Creating an OADA market will just fragment ADA liquidity across Liqwid more than I think it should be.

I think OADA is great, don’t get me wrong. I think down the line we can and probably should revisit, but presently I think it’s too early to make a move. The effort it’ll take to price both OADA and sOADA is also an argument I want to go back to, sure the exchange rates are posted on-chain within your protocol, however, that doesn’t mean it won’t require effort on our end. We’ll either be forced to pay for an oracle service who then invests time into pricing these assets (for instance Orcfax once they reach Mainnet) or we’ll need to invest our developers’ time into learning your system and implementing a fail-proof system to price the assets, both again carry risk. I don’t like either of the options at present time, due to the fact that we have an ambitious roadmap that we’d like to complete, and yes market launches throughout this roadmap are a given, but initially market launches that do not require any special treatment would be the ideal case scenario.

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I’d also like to mention that using arguments like

passing up free TVL.

Is very superficial. A user who doesn’t know better will read this and immediately believe it to be true, but things don’t come for free (batching and oracles are both continuous costs and the time we invest in deploying and testing markets also don’t come for free, our developers’ time isn’t for free) and, on another note, specially in the DeFi realm, things most definitely don’t come without risk.

Coming out of this governance discussion, I’d just like it if at the very least the Liqwid DAO gave this proposal some careful consideration and time before a move is made.

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Please provide a flowchart that breaks down how the 5.9% return is generated when staking in sOADA, and explain all the parameters influencing it, including ADA staking rewards rate and OADA.

Can your system work without cheap ADA liquidity?

Just to recap, the use cases are the following:
** Supply OADA for higher yield than ADA, but lower than sOADA, for a more conservative risk profile.*
** Supplying OADA equates to higher TVL in Liqwid.*
** Borrow OADA when ADA utilization and interest starts getting too high.*
** OADA Market actually helps stabilize the ADA market by allowing it to cool off in a safer and less volatile manner as it provides an alternative asset to borrow for the same arbitrage opportunity purpose.*
** Borrowing sOADA allows users to short or hedge against losses in the system.*
** Supplying sOADA is basically free TVL being deposited into Liqwid.*
** Supplying sOADA yields profits when short traders turn out to be wrong.*

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I believe there’s merit in your team building an AMO where you use deposited ADA for supplying on Liqwid, but OADA and sOADA in my professional opinion are too immature both from an economical and from a technical point-of-view for me to deem this low-risk.

I don’t disagree that the technical implementation of Liquid Staking Derivatives, Automatic Market Operations and Yield Aggreggators have yet to be tested by time on Cardano, as that is the nature of any new product, but I do strongly believe this type of innovation is exactly what our ecosystem needs to spur more DeFi activity that we desperately need. Access to credit has always been the primary way to stimulate markets, and an OADA <> Liqwid synergy is the perfect way to enable that. So while perhaps waiting for the maturity that time brings is the conservative approach, I think there’s a large portion of the Cardano and Liqwid communities that are more comfortable with a less conservative approach in exchange for the benefits this dynamic would bring onto the entire ecosystem.

I would also like to add that from an economic perspective these ideas are not immature at all. Frax and Yearn innovated on AMOs and Yield Aggregators back in the summer of 2020 and quickly grew to become two of the DeFi pillars on Ethereum since then. LSDs have also been the biggest market share of TVL for the past two years and were the only products to actually thrive over the bear market. So it’s imperative to highlight that the economic maturity of these ideas has been battle tested in production for years to much acclaimed success already.

Regarding an OADA market, I think the arguments on creating yield arbitrage aren’t logical, if users want to earn interest on their ADA, they can just supply ADA on Liqwid Finance, they don’t need to go through OADA to do so, users who do want to hold OADA can decide to either tap out of OADA back into ADA and supply on Liqwid or they can stake it to earn an APR within the OADA ecosystem at what I currently deem a higher risk-profile. Creating an OADA market will just fragment ADA liquidity across Liqwid more than I think it should be.

To clarify what I think might be a misconception here, a user would supply OADA into the market for a higher yield than than supplying ADA because as long as the cost to borrow is the less than the yield on sOADA, both the lender and borrower profit from this dynamic as they are essentially trading risk and using the OADA Liqwid market as a price discovery mechanism for the cost. So if we consider staking sOADA to be the higher risk profile yield strategy and lending ADA to be the lower risk profile one, then lending OADA becomes the mid risk profile alternative. I think we can all agree that offering users more risk profiles to better suit their desired exposure is a net positive in user experience overall. That’s not even considering the added market stimulation this would spur, which the Liqwid DAO and LQ stakers would directly profit from.

The effort it’ll take to price both OADA and sOADA is also an argument I want to go back to, sure the exchange rates are posted on-chain within your protocol, however, that doesn’t mean it won’t require effort on our end. We’ll either be forced to pay for an oracle service who then invests time into pricing these assets (for instance Orcfax once they reach Mainnet) or we’ll need to invest our developers’ time into learning your system and implementing a fail-proof system to price the assets, both again carry risk. I don’t like either of the options at present time, due to the fact that we have an ambitious roadmap that we’d like to complete, and yes market launches throughout this roadmap are a given, but initially market launches that do not require any special treatment would be the ideal case scenario.

This is a valid point and something I believe Zygomeb and the rest of our Dev team would be more than happy to help out with. As we’re of course looking to have as many integrations with OADA as possible we definitely wanna ensure that the onboarding process has minimal barriers to entry. Is there a specific point of contact that we should reach out to provide documentation and technical support to?

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