DIP011 – Proposal to Extend USX Secured Credit Line to Liqee

Governance DIP
#1

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> DIP011 – Proposal to Extend USX Secured Credit Line to Liqee

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Summary:

Liqee is the first lending market for liquid staking tokens, powered by dForce’s lending protocol. As an important ecosystem partner of dForce who will help extend lending support beyond major crypto-assets, we propose to extend a 6,000,000 USX-minting secured credit line to Liqee.

Background:

dForce will partner with Liqee to launch the lending market for liquid staking tokens (PoS staking tokens, DeFi staking tokens, etc). As an ecosystem project, Liqee is fully powered by dForce lending protocol (codebase is based on codes from dForce) with allocation of LQE Token (Liqee’s governance token) to DF token stakers, demonstrating strong interest alignment between the two communities.

In light of the partnership, we propose to extend 6m secured line of credit in terms of USX minting to Liqee, allowing users to mint USX against supported collaterals on Liqee, and further promoting USX’s adoption.

Proposal:

We would like to advance the following proposals:

  1. Activate USX minting on Liqee, allowing users to mint USX against supported collaterals

  2. Initial proposed parameters:

  • Minting Secured Credit Line: 3,000,000 USX (Ethereum); 3,000,000 USX (BSC)
  • Interest Rate: 0% for the first two weeks and resume to 3% afterward
  1. Apply to both Ethereum and BSC.

Evaluation and Analysis:

We believe this is a reasonable proposal with manageable risks:

  1. Liqee is powered by dForce’s lending protocol, which was audited by 4 top-ranked blockchain security firms and is battle-tested.

  2. The secured credit line in terms of USX minting is 6m in total, which is manageable with capped risk exposure and minting rights ultimately controlled by dForce governance.

  3. The minting is secured against collaterals supported on Liqee market, which their risk parameters setting is in line with dForce’s own setting and initial risk parameters and collateral onboarding were jointly discussed and evaluated with dForce team. Click here to view the settings.

  4. Strong interest alignment between the two communities.

Next Steps and Required Actions:

Upon approval, we will proceed to implement the USX new handlers and minting credit line setting.

#2

When opening liqee.io, it is a web site with only a sentence “coming soon”, without any information on what it is, no mention the audit reports. Isn’t it too early to propose the collaboration before liqee itself be online, at least with information available?

#3

agreed that we need more discussion, that’s the reason the proposal came out earlier than official announcement and the voting will start around the time the official website/official announcement come out

#4

Several questions I have:

  1. What is the baseline that we can use to evaluate whether the 3M on Ethereum and 3M on BSC would be appropriate?
  2. Is it restricted on what assets can be used as collateral to mint USX on Liqee in their setting post, or is the collateral will change as Liqee goes with its own governance process? Could the new handler of minting USX in DForce can implement the restriction? Personally I am not willing to see what happened in Venus happens in Liqee again.
  3. The credit means the 6M USX could have no support at the back, suppose if there’re any accident happens in Liqee, what will dforce do to the “un-support” 6M USX? Will it harm current USX holders, as well as any liquidation pair contains USX?
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#6

very good quesions.

*What is the baseline that we can use to evaluate whether the 3M on Ethereum and 3M on BSC would be appropriate?

there is no strict science on the baseline, so our total loans outstanding (borrowing + minting) across our BSC and Etheruem market is around $56.7m, 6m is around 10% of that, I think that’s a manageable level.

* Is it restricted on what assets can be used as collateral to mint USX on Liqee in their setting post, or is the collateral will change as Liqee goes with its own governance process? Could the new handler of minting USX in DForce can implement the restriction? Personally I am not willing to see what happened in Venus happens in Liqee again.

Listing new asset and change of their associated risk parameter are in the domain of Liqee’s own governance, but dForce core team are consulted with regards to that and there is substantial token allocation to DF staker (you will hear more next week), interests are strongly aligned between the two communities.

So, USX minting limit change is what we could enforce from dForce’s perspective, Liqee could not change the limit, i don’t think this is relevant comparision to Venus (which is a market manipulation attack and may very much be an insider job)

* The credit means the 6M USX could have no support at the back, suppose if there’re any accident happens in Liqee, what will dforce do to the “un-support” 6M USX? Will it harm current USX holders, as well as any liquidation pair contains USX?

I think there is a misunderstanding here, it is SECURED CREDIT LINE, not unsecured credit line, meaning it is fully over-collateralized, i.e if you are a Liqee user deposits $100 rATOM there, at 70% LTV, he can only mints 70 USX, it is always over-collateralized, we certainly can reduce or remove the USX minting limit all together via our governance.

#7

In total, it looks fine. However, when view separately in Ethereum and BSC, a 50%:50% split may not seems appropriate.

Sounds good to me, at this initial level. BTW, the Venus incident, what I referred is their first issue, in which huge CAN were deposited and BTC/ETH were borrowed.

I understand in Liqee it is secured, in normal circumstance. What I meant was IF there’s an attack on Liqee, all the tokens are stolen. Then in the market, there will be 6M USX without any backend assets to support (Because USX will need a backend assets to peg to 1 $). That will harm the total USX holder other than the 6M, isn’t it? Then what can DForce do to mitigate the issue

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#8

there is another factor in determining the split, the outstanding rETH from StaFi which is supported by Liqee (Ethereum) is around $35m, so 3m USX is reasonable; on BSC, it’s major market for other PoS tokens (DOT, ATOM etc), 3m is also a good starting point, again, this can be adjusted up or down via dForce governance in the future.

We as eco partner, need to actively participate in their listing process and ensure assets to be listed go through thorough vesting process; their token allocation allows DF holder in a way, to participate in their governance.

In such event, the first line of defense is that Liqee will need to step in to recapitalize their bad debts by using their governance token. Similar incident happened before, it was a hack involving Alpha Finance and Iron Bank collaboration, Alpha recapped the system using their protocol fee and token. I think that’s exactly the reason we need to expand and collaborate with others, so to pool together resources to more vigorously handle such scenario. Of course, as a last resort, DF holders should always be ready to step in to recap undercollateralized USX debt via protocol fee or DF token.

#11

Great, now fully understand.

#12

如果他们Liqee治理代币最后因为受到攻击一文不值，他们该如何对其坏帐进行重组？

#13

I object to Liqee casting the USX for the following reasons:

  1. Liqee is a project independently operated from DForce. If Liqee could also cast USX, it would affect DForce. Liqee and Dforce should be completely independent of each other
  2. Casting USX should not be a core business for either DForce or Liqee. There are already too many dollar anchors, such as USDT, BUSD, and USDC. I think the liquidity created by these currencies is enough, and there is no need to derive another dollar anchor
#15

是的,所以这个很重要,需要参与到资产和风险参数评审中去 : We as eco partner, need to actively participate in their listing process and ensure assets to be listed go through thorough vesting process; their token allocation allows DF holder in a way, to participate in their governance.

#16

dForce is a lot more than a lending protocol. Asset is the foundamental layer of DeFi, and wide adoption of dForce-backed dollar will enhance its capability to earn profits, as well as further promote dForce’s brand awareness.

This can be evidenced by the success of DAI, with economic interest and recognition captured by MKR holders.

#17

we should support this, good strategy to expand through partnership; downsize risk is minimal