Amulet is a pioneering staking and lending protocol designed to unlock capital on Cosmos while protecting users. Through smart contracts deployed on Neutron and Interchain Accounts, Amulet will enable ATOM and other L1 and L2 tokenholders to stake and spend their assets with self-repaying loans against their future staking rewards and DeFi yields.
Launching on Neutron in 2023 with the support of the ATOM Accelerator DAO and the Interchain Builders Program, Amulet will open up exciting new avenues for DeFi users to deploy their capital on Cosmos.
The Problem
Cosmos is one of the largest blockchain ecosystems but only has a fraction of the DeFi TVL in crypto.
Empowering DeFi users on Cosmos will unleash the value of interoperability. Leveraged finance is the reason we have skyscrapers, bridges and planes. Development and growth in Web 3.0 requires financial tools that improve upon TradFi and address the following hurdles to unlocking capital:
- Exploiting capital with leverage in crypto is a high risk strategy due to price volatility
- Trusting centralised entities in finance entails significant risk from rehypothecation — not your keys, not your crypto
- Depositing assets and borrowing against them usually entails opportunity cost as the assets are locked up. The yields on proof of stake tokens are in competition with the liquidity needed for viable DeFi applications to thrive.
The most established cryptoasset in Cosmos, ATOM, is heavily tied up in staking — currently 70% of all circulating ATOM is staked — as are many other tokens across the ecosystem. Whilst this enables high levels of security, at present there is no means of accessing value directly from a staked token, which limits the scope for powering growth of the Cosomos ecosystem.
Liquid staking derivatives can offer an effective solution to these issues, but many users are reluctant to swap their native assets entirely for a derivative, particularly if this involves a taxable event.
The Solution
Amulet users do not have to choose between staking and spending their favourite tokens, nor risk being wiped out with liquidations.
How does Amulet do this?
Amulet users will be able to:
- Stake their tokens to earn rewards in a range of clear and transparent strategies including Proof of Stake for L1 tokens and yield farming for L2 tokens (“Stake”)
- Get an advance against their future yields in minted synthetics (“amAssets”) that the protocol treats as 1:1 with the native assets (“Advance”)
- Swap or yield farm their amAssets on a secondary market, or deploy them in other protocols where they may be accepted as collateral for stablecoin or other borrowings (“Markets”).
Amulet users will be able to spend, ape, yield farm or hedge with their Advance amAsset tokens, knowing that the debt will be repaid from the future yields as these are earned. As amAssets are treated by the protocol 1:1 with underlying Assets and are therefore never worth more than the underlying locked assets, there is no risk of liquidation. Over time, the user is able to withdraw their assets from the protocol, or leave them in place to continue earning rewards and repaying debt. With inflation of around 20%, an Advance position of 50% amATOM to ATOM will be fully repaid in 2.5 years.
Amulet will enable everyone from the smallest hodler to whales and protocol treasuries to own native tokens and obtain a self-repaying loan, without fear of sudden price movements that could wipe out their position — increasing capital efficiency.
Most importantly, Amulet is designed to protect users and their assets. Assets are not treated as the protocol’s — users remain in control.
The scope for unleashing capital on ATOM and other Cosmos chains is enormous. By comparison, at its peak the Alchemix protocol on Ethereum (which inspired Amulet) had a TVL of $886m, with yields from Yearn of only around 5–8%. Amulet can enable a significant increase in liquidity on Cosmos even if only a fraction of all the tokens in Cosmos are staked through the protocol. Further, by enabling yield-farming strategies involving Cosmos-based derivatives and wrapped assets, Amulet will attract capital into the ecosystem.
Value add to the Cosmos Hub and beyond
ATOM staking via Amulet will be orchestrated from smart contracts deployed on Neutron, using ATOM as the default gas fee. As a result, the Cosmos Hub and the ATOM Economic Zone will benefit directly from the usage of Amulet.
By enabling users to stake their tokens, earn rewards and borrow against them at low risk, Amulet will incentivise ATOM holders to stake their tokens, increasing the appeal and utility of the token, the security of the network and capital efficiency on Cosmos.
The Cosmos Hub community pool itself could deploy ATOM in Amulet to receive advances on the tokens’ future staking yield upfront, enabling sustainable ecosystem-wide development funding with fewer “top-ups” required.
Amulet also minimises sell pressure on ATOM by providing participants an advance in amATOM which can be sold for stablecoins instead of ATOM itself. This could become a widely used feature for DAOs and protocols as it enables them to hold onto ATOM as a reserve asset while benefiting from instant liquidity for their operations. As a smart-contract application on Neutron, Amulet would also be fully composable with other applications and primitives.
Similarly, as Amulet expands across the Cosmos, the availability of amAsset liquidity in other tokens will help power the growth of the entire Cosmos ecosystem.
We’ll be back soon for an in depth exploration of how Amulet works!
© Amulet Foundation 2023
Website: https://amulet.finance | Twitter: https://twitter.com/AmuletFinance | Telegram: https://t.me/AmuletFinance
