Use Cases
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The creation of individual strategy vaults on Demex will enable users to earn a yield on value-accruing assets (e.g. Liquid staked assets) through one-click swaps by simply depositing USC: Deposit USC --> Enjoy rewards.
The following explains how the USC Vault works behind the scenes:
Deposit USC -> Borrow ATOM -> Swap into liquid staked ATOM -> Enjoy rewards
Liquid-staked ATOM (lsATOM), the value-accruing, liquid-staking version of ATOM, is used for this example. We assume that lsATOM earns a 20% auto-compounding APR from liquid staking rewards.
Deposit 10,000 USC into the USC delta-neutral strategy Vault. Based on the deposited amount, the amount available for borrowing, the estimated APR for earning, the estimated health factor, and slippage is calculated.
The Vault deposits the USC amount into (money market on Demex) and borrows 7,000 ATOM against the USC.
Next, the ATOM borrowed is swapped/staked into 7,000 lsATOM. This is similar to longing 7,000 lsATOM, which earns an annual 20% against ATOM.
Looping occurs. The Vault then deposits 7,000 lsATOM and borrows 3,500 ATOM at the maximum LTV of 50% - rinse and repeat - acquiring more lsATOM in the process.
The number of times this looping process occurs is determined by the looping parameter set by users.
To exit the Vault, the process is reversed e.g. the lsATOM will be swapped into ATOM and used to return the ATOM loan, until all ATOM borrowing is paid off. This leaves lsATOM as profits, which earn staking rewards.
The USC Vault streamlines the process, bypassing the in-between steps, such that users need only deposit USC to enjoy staking rewards from lsATOM.
Demex's upcoming multi-asset collateral feature will allow for multiple accepted assets to be used as collateral for trading, and take all accepted collateral in an account balance as margin. This means USC will be available as collateral for trading, to be lent out to others who need it for margin.
This feature is expected to be highly sought after for borrowing stablecoins and LSDs.
For example, it allows for the
Deposit of USD to mint USC at nearly full LTV, making it simpler to maintain the $1 peg for USC when it trades above $1.
Deposit of Liquid Staked Derivatives (LSDs) such as rATOM, stATOM, or stkATOM - and borrowing of the native token, such as ATOM, at near 100% LTV. Users can stake ATOM again to leverage the loop.
(βE-Modeβ) allows borrowers to extract the highest borrowing power out of their collateral, resulting in increased capital efficiency when the price of the collateral and borrowed assets are correlated.