Increase LP interest rates from 2% to 18% — How Advias Protocol Works
Advias is an Optimized Money-Market.
It is quite simple, yet quite complex, let us get intoo it!
Twitter: https://twitter.com/adviasprotocol
Whitepaper: https://advias.gitbook.io/
Twitter thread on this subject: https://twitter.com/adviasprotocol/status/1506888471906037764
Our algorithm does a few things; yield optimizing, asset routing & aggregating, and asset balancing.
Let’s start with Yield Optimizing:
Issue:
Low utilization or demand = low interest rate
When protocols like AAVE, Compound, etc. have 100,000 borrowed at a 20% interest rate with a total deposited lending pool of 1,000,000 , the depositors are receiving a mere 2% APR.
This is 2% = (100,000*20%)/1,000,000
Their utilization ratio is 10%.
At this point, there is 900,000 sitting in a smart contract waiting for borrowers to come in.
Solution:
Increase utilization
How about we take that extra 900,000 and put it to work.
It is important to note, AAVE, Compound, etc. doing it this way is important for defi and we cannot exist without them. They should be locking deposits.
How this works is our protocol has a routing system that aggregates funds to other liquid protocols, like AAVE, or Anchor, in order to achieve a higher utilization ratio, thus resulting in a higher APR.
As you see in the image above, all deposits are either routed to our routers, which aggregate them to other protocols, or they are sent into our own lending pool, or, and very likely, split between both based on what our algorithm tells it to do.
By doing this we will have the highest interest rate of all money markets.
Routing:
What if we take the 900,000 and deposit 800,000 into our routing system which is currently able to achieve a 20% APR through Anchor.
This would increase our interest rate from the 2% to 18%.
What about liquidity?
Ongoing the previous example, the 800,000 is sent to other liquid protocols. The protocols we send to are set or removed by governance, determined by our algorithm.
Semi-liquid is the amount sent to other yielding pools and assuming it were to be Anchor, they currently have a utilization ratio of less than 10%, meaning that semi-liquid section is 90% liquid.
We also have a maximum percentage of funds that can ever be routed that is different per asset.
How deposit interest rates are determined:
Our interest rates are both determined by our pools utilization ratio and the weighted average of all the protocols we are aggregated into.
Meaning, our interest rates are likely to be the highest on the chain we are deployed to.
How?
Our optimizing algorithm constantly rebalances assets between our own LP and our aggregated LPs on each tx to ensure the rates ~match the highest interest rate available on the blockchain.
Note: There are some conditionals that may hinder this like a maximum aggregated percentage of the deposits.
Who would borrow at an 18% interest rate?
The debt rate is always about the same as savings or higher depending on overall demand.
Why anyone would borrow at high rates is because their collateral is receiving yield at about the same yield as the equivalent savings asset.
As an example:
100,000 UST as collateral receiving 20% APY and borrowing 80,000 USDC accruing 10–18% APY.
In this example, the collateral would actually outpace the debt to create a probabilistic delta-positive position creating a very good situation for the borrower.
The perfect ecosystem
We are highly competitive.
We are unable to exist without the competition.
While the competition benefits from us.
The perfect interest rates cycle:
Our debt rates are able to be high due to collateral receiving yield and borrow demand, our deposit rates are high due to our debt rate being high and router capabilities, all possible through our algorithmic routing and rebalancing mechanisms.
Twitter: https://twitter.com/adviasprotocol
Whitepaper [β]: https://advias.gitbook.io/
Telegram: https://t.me/adviasprotocol
Discord: https://discord.gg/KgzP9zWGWe
Previous Story: https://medium.com/@advias/how-to-increase-your-anchor-yield-from-20-to-29-e3ba48a1a1a9
