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Liquidation Risk: A Major Limitation Facing PolyCUB Synthetic Assets Lending + Way Forward

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Greetings to my esteemed Lions 🦁 on the LeoFinance ecosystem and the entire hive blockchain. It's a new day and a time to focus on things that'll take the LeoFinance ecosystem forward and place it strategically for value accrual first to the community and then to the entire hive blockchain. It's your friend @faquan saying hello from this part of the world.

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It's no longer a news that the new vision of PolyCUB is now use very assets on the platform for value accrual. This on its own is a very good way to project PolyCUB for an all time highs.

To achieve this value accrual goal, the LeoFinance front desk have decided to use the entire V2 vaults as synthetic assets for xPolyCUB collateralized lending in order to continue the free flow of rewards to the platform.

Based on the above, one will observe that the relevance of holding xPolyCub is very essential in participating in the upcoming collateralized lending. Just like the normal traditional banking loan, xPolyCub holders will loan some amount of their xPolycub stakes to those in need of them in exchange for some interest and after the said loan contract, the xPolycub holder gets back his or her xPolyCub as well as the interest that have accrued from the loan contract.Source

The PolyCUB V2 vaults are going to be used as synthetic assets for the collateralized lending in order to add more rewards to the PolyCUB treasury. From this point, PolyCUB V2 vaults will converted into synthetic assets used for the collateralized lending.

Also worthy to note is the fact that there's already an existing liquidity pools for the PolyCUB V2 vaults in their respective multi-chain bridges, which will not need a fresh creation of liquidty pools by the LeoFinance team.

Challenges facing the PolyCUB Synthetic Assets During Lending

  • The first challenge facing PolyCUB synthetic assets is creating a new synthetic tokens. For instance, to get a synthetic assets, you need to create a synthetic token like sPHBD, which is the synthetic version of pHBD. This new synthetic token will have the issues of liquidty pools, which you need to create afresh. By transferring the PolyCUB V2 vaults as synthetic assets, that challenge has been solved.
  • Liquidation risk. There'll be no liquidation risk if the price of PolyCub continues to hike, but immediately the price of PolyCub falls, the xPolycub treasury holds a lot of synthetic assets, what'll all those assets that have been converted to xPolycub be used for. Adding all the xPolycub that has been generated through the lending process, into the already dip market, will help further deepen the market or what khal calls increasing the cascading effect on the market.

Way Forward

  • add a liquidation window that uses a multi-day average feed price. This will slowly push the much xPolyCub in the treasury into the market and not in full scale.
  • deploy the liquidated assets as bonds.

For more information on xPolyCUB collateralized lending and the liquidation risk paradigm click here

Posted Using LeoFinance Beta