Amulet Finance is an innovative cross-chain DeFi lending protocol built on Cosmos and launching on Neutron that will allow users to obtain a self-repaying loan on the rewards earned from staking Proof of Stake cryptoassets and from generating yields on DeFi strategies.
For a quick summary of the Amulet project, see here: https://medium.com/@amuletfinance/introducing-amulet-unlocking-defi-on-cosmos-7449a88c1a60
Stake and spend with Advance
Stake: Users of Amulet will be able to deploy cryptoassets via smart contracts to generate Proof of Stake rewards.
Example: Alice deposits 1,000 ATOM into the Amulet vault for staking ATOM, earning ~20% staking rewards. If she doesn’t need a loan yet, over time Alice can claim her rewards and restake or spend them, or she can build up a positive credit balance to draw upon as and when required.
Advance: By staking their assets, users are then able to mint a loan — termed an “Advance” — worth up to 50% of the value of their staked assets, effectively receiving an advance on their future yields.
On Advance, the loan is minted in a synthetic asset, called an amAsset, which is always treated by the Amulet smart contracts as equivalent, or 1:1, with the original Asset. Accordingly, the Advance is overcollateralised by the staked assets and there is zero risk of liquidation by the protocol.
As staked assets are not at risk of liquidation, users can enjoy using amAssets in many ways, knowing that their collateral will continue working for them over time, paying down their loan.
As yields are generated via the protocol smart contracts, the debts of Advance users are reduced accordingly. Users may choose to withdraw their staked collateral assets, or continue to earn yield and obtain a fresh Advance up to the permitted LTV ratio. At any time a user can also voluntarily close their position by paying off outstanding debt with their collateral, and receiving the balance, subject to unbonding.
Examples:
Alice wants to borrow against 10,000 ATOM to invest in another crypto. Alice borrows 5,000 amATOM and sells it. Over time, her loan of 5,000 amATOM is paid off from staking rewards on her ATOM. At any time, she can repay early using ATOM or amATOM, or self-liquidate.
Bob also wants to borrow against 10,000 ATOM, but he wants a stablecoin loan without getting liquidated. Bob borrows 5,000 amATOM and provides it as a collateral on a CDP to borrow, say, IST, USK, USDC or USDT. Even if amATOM falls in price, Bob’s amATOM loan will be repaid automatically. If he is liquidated on his amATOM CDP, his native 10,000 ATOM is still safe.
Charlie wants to earn farming yields on his ATOM tokens as well as staking them, without risk of impermanent loss. Charlie can stake his ATOM on Amulet, obtain amATOM and provide liquidity on a dex for amATOM/ATOM to earn liquidity provider rewards. As amATOM and ATOM are likely to trade close to 1:1, Charlie earns farming yields at low risk.
Alice, Bob and Charlie are empowered to deploy the rewards on their staked capital without risk of liquidation on Amulet.
Strategies for staking derivatives rebases: Amulet will also enable users to obtain loans using autocompounding staking derivatives, such as stATOM and wstETH. This will work slightly differently to the above as the yield is not generated from directly staking the asset, but from the increasing redemption rate on the derivative.
Users will have the option to deposit autocompounding LSTs into vaults which monitor the redemption rate in order to split the ongoing yield from the principal amount determined upon entry. This will allow users to mint an Advance in the native synthetic asset, such as amATOM for stATOM. Over time, users’ stATOM rebases will be applied to repay the Advance, keeping their baseline ATOM position the same as when they entered the protocol. A similar approach will apply to wstETH.
Other strategies that may be deployed on Amulet involving staking derivatives could also include LP tokens where a staking derivative is paired with a native token, for example a pairing of ATOM and stATOM, or wstETH and axlwETH. In that case, it is likely that the asset used to enter the strategy will need to be a non-autocompounding asset.
Reserves: Yields are received by the protocol in the form of Assets. After deduction of the protocol’s fee, these Assets are held in the protocol’s Reserves and are available, subject to unbonding, for redemptions of circulating amAssets. The Reserves can be used to earn additional yield for the protocol, subject to governance, supporting the sustainability of the ecosystem.
Treasury: Amulet offers users significant benefits in exchange for a small fee upon taking out an Advance and a commission of 10% on the rewards generated via the protocol’s smart contracts. There is also a small fee for redemptions. These fees are directed to the Treasury, which will be mandated to support the security and operations of the protocol. There are no fees on adding assets, withdrawing assets or repaying loans early/closing a position.
AMLT token: holders of the AMLT token who lock up their tokens will have governance rights in respect of the protocol, and will have access to other privileges. There will be a future post dedicated to the tokenomics of the AMLT token.
Advantages of Amulet
Capital efficiency: Users can exploit the value of assets that are otherwise tied up in a POS or other strategy, benefiting from both the rewards on their collateral and the usage of their Advance tokens.
Non-custodial/no rehypothecation: Users retain control of their assets at all times, choosing their strategy and interacting only with the protocol’s smart contracts, not a centralised entity. As such, their deposits are not at risk of being rehypothecated.
No swapping of original assets: Borrowing an Advance against the ATOM Proof of Stake strategy will not involve swapping original assets for another token, such as a derivative. This means that users retain exposure to the original asset, and subject to their tax jurisdiction may not incur a taxable event upon making a deposit or withdrawal.
No protocol liquidations: Given the volatility of crypto markets, conventional lending protocols involve significant risk of liquidation. As Amulet does not liquidate users’ original assets, users who want to retain exposure to their original assets and make use of their capital for short, medium or long term purposes can do so without the risk of being liquidated. In the event of a downturn in prices, users of Amulet would be able to purchase Assets/amAssets to repay their loans at a reduced price. Alternatively, they can simply wait for the market to recover while their collateral continues working for them to repay their loan.
Composability: The strategies that may be deployed on Amulet are as varied as they may be for an individual. As such, Amulet is ideally suited to build upon other protocols, enabling combined strategies across the ecosystem.
Sustainability of Amulet
There will be incentives for liquidity providers to provide liquidity for amAsset pools on external exchanges. However, it is not sufficient simply to incentivise liquidity via a farming token, which leads to a downward cycle of selling pressure and the exit of mercenary liquidity. Instead, the success of the protocol will depend on the ability to ensure that the growth of the ecosystem is sustainable and scalable.
The generation of external revenues by the protocol is fundamental to this. As the protocol grows, the Reserves are likely to generate significant yields for the Treasury, which may be directed in a number of ways to support the protocol. Methods envisaged at this stage, but which are subject to governance, include:
· Deploying yields on Reserves as protocol-owned liquidity
· Providing liquidity for the AMLT token
· Providing incentives to users, liquidity providers and stakers of the AMLT token
Other methods of supporting the protocol are likely to emerge as the community of Amulet stakeholders takes control of its future direction and as the ecosystem develops.
Risks
Smart contract risks: There are risks of smart contract failures. The smart contracts will be thoroughly audited by reputable auditors to minimise such risks, and the code will be made source available (subject to a period of restricted use for commercial purposes) and ultimately open source to enable peer review.
Strategy ceases to generate yield: There may be situations in which a given strategy ceases to generate any yield, such as if a POS asset goes to 0% inflation. In such an event, users will be given the option, and plenty of time, to migrate to a new strategy for that asset or to close their position. If they do not do so, and if the position threatens the stability of the protocol, it is envisaged that governance may ultimately decide that users’ collateral deployed on a non-yield generating strategy should be made available for redemptions by payment of their amAsset debts by third parties. Any user subject to such redemption will not be worse off than if they had closed their position, and will still be able to migrate or withdraw any remaining staked assets.
Strategy failure (partial): In the rare event that a given strategy sustains a partial loss, further Advances will be unavailable and users’ positions will be able to self-repair over time as yields are generated by their remaining collateral.
Strategy failure (total): In the exceptionally rare event of a total loss on a given strategy, users will be in no worse a position than if they had deployed their assets directly with that strategy, and will at least have had the benefit of their amAsset Advance. The loss on a particular strategy should be confined to the users of that strategy, but the governance of the protocol will be expected to take steps to protect the stability of the protocol as a whole if necessary.
Launch on Neutron and the ATOM Economic Zone
The launchpad for Amulet is Neutron — the alignment between the technical capabilities of the Neutron network and the requirements of the Amulet project is ideal, and the Neutron network has been providing exceptional support to the project. Neutron is the network on which it will be possible to stake users’ ATOM cross-chain on ComosHub, and mint an amATOM Advance on Neutron, using ICAs/ICQs.
The team designing and building Amulet self-funded the project from conception until it was awarded a grant from the ATOM Accelerator DAO. As a result of this grant, the team has been able to make significant progress and the project will soon be proceeding to an incentivised testnet and mainnet launch.
The mission of Amulet, namely to open up the ability to stake assets and borrow against them at low risk, is calculated to free up staked capital on CosmosHub — presently approximately 70% of ATOM is staked, meaning there is a vast amount of capital that could be made available to power the ATOM Economic Zone.
Partnerships and expansion
One of the aims of Amulet is for amAssets to be readily accepted and used in place of the original assets, as this means that users will be able to make the most of what Amulet can offer. The team welcomes discussions with networks and protocols across Cosmos and beyond that will help grow DeFi on Cosmos.
Next stages
The team behind Amulet has been working on the project for a significant period of time, and it is now approaching launch. Audits have taken place for the main contracts, Hub and Vault, with further smart contract development and audits outstanding for the Proof of Stake strategy for ATOM and the Rebases strategies for stATOM and wstETH. Final work is also in progress on the front end development. All developments will be announced on the official Twitter/X — please be careful of any other sources of information.
The team welcomes contributions and feedback regarding the development of the project and looks forward to sharing much more in the coming weeks in the runup to launch.
© Amulet Foundation 2023
Website: https://amulet.finance | Twitter: https://twitter.com/AmuletFinance | Telegram: https://t.me/AmuletFinance
