Lybra Finance
Disclaimer: This article is purely informational and does not constitute financial advice. The author of this article has personal investments in the mentioned token. Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
A stablecoin is a type of cryptocurrency that is designed to minimize price volatility and maintain a stable value. They can provide stability and predictability in transactions, making them suitable for everyday use as a medium of exchange. You can think of it as the crypto equivalent of our everyday dollar bills.
There are a few different types of stablecoins in the market:
Fiat-backed Stablecoins
USDT and USDC are famous examples of fiat-backed stablecoins. They are often backed 1:1 with the respective fiat currency. For every 1 USDT/USDC on the market, there is 1 USD in the reserve backing it.
Crypto-backed Stablecoins
DAI is a popular example of a crypto-backed stablecoin. Given the volatility of cryptocurrencies, more cryptocurrency is needed to back a dollar worth of DAI. An example would be the 1:1.5 collateralization ratio for Ethereum. For every 1 DAI on the market, there is $1.5 worth of Ethereum in the reserve backing it.
Algorithmic Stablecoins
The late stablecoin UST was an example of an algorithmic stablecoin. Next in line would be FRAX. Algorithmic stablecoins have different price mechanisms to maintain the dollar peg. It can be very complex and is worth another topic altogether.
Lybra Finance
Lybra Finance is a decentralized protocol that is run by Lybra Foundation and LybraDAO. It introduces a new type of stablecoin, eUSD. eUSD is an interest-bearing, crypto-collateralized stablecoin that is pegged to the US dollar.
Leveraging LSD (Liquid Staking Derivatives), Lybra is able to achieve a stable interest for its stablecoin holders. For every eUSD, there is $1.5 worth of stETH collateral. By having users deposit ETH/stETH to the protocol in exchange for eUSD, Lybra distributes the income from stETH to eUSD holders.
Price Stability Mechanism
The eUSD peg is maintained through arbitrage.
If eUSD rises above 1 USD, traders can mint eUSD and sell the eUSD for profit. This increases the market supply of eUSD, hence pushing the price back to 1 USD.
If eUSD falls below 1 USD, traders can purchase eUSD and redeem it for ETH/stETH. This increases the demand for eUSD, hence driving price back to 1 USD.
$LBR
The native token of Lybra Finance is $LBR. By staking $LBR, holders receive $esLBR.
$esLBR is used for:
- Governance: token holders are able to participate in governance through voting of proposals
- Rewards: $esLBR is primary form of reward for sharing of protocol revenue, mining, developers, ecosystem participants, and more
- Yield Boost: $esLBR holders receive varying percentages of yield boost depending on the lock-up length of $LBR
$esLBR can be redeemed for $LBR through a linear vesting process of 30 days.
Tokenomics
$LBR has a maximum supply of 100 million tokens. They are allocated as follows:
At the time of IDO, the price of Ethereum was approximately $1940. Given that 1 ETH = 20k $LBR, each $LBR sold at IDO was ~$0.097. IDO participants (5% or 5 million $LBR) are approximately 41x up as of 29 May ’23.
Roadmap
Thus far, the team has been achieving their roadmap milestones. In Q3, they plan to further expand into more chains and lending protocols.
Thoughts
Upon reading about eUSD, my first thought was how it was similar to Beanstalk Protocol. Beanstalk is a credit-based stablecoin protocol. You were able to earn yield on your $BEAN as well. Unfortunately, it suffered an exploit and is still recovering from it. It wasn’t the best model, but I’ve been looking forward to the next improved stablecoin protocol that allows me to earn yield by holding my stablecoin.
Arthur0x recently tweeted about the two sectors in crypto that have been growing rapidly despite the bear market. One of which is LSDs. This ties in nicely with the foundation that Lybra is built on. The LSD market is expected to continue growing, and so will Lybra. Furthermore, eUSD enhances the advantage that crypto has over tradfi — capital efficiency.
$LBR has a maximum supply, low team allocation with majority of the tokens being distributed through mining which is fair. I also like how the redemption of $esLBR is vested over 30 days which decreases dumping pressure. This mechanism is also seen in GMX (and it works!).
The team has achieved all of its intended goals thus far and they are working their way through their Q3 goals. I believe that if Lybra goes omnichain, the network effect would be huge. It’s a proven concept (stablecoins) with an additional perk of it being interest-bearing. The yield concept is sound as well. Hence, I do not see why investors would not allocate some of their stables into eUSD should it go omnichain. Given the same reach across chains as the popular stables USDT and USDC, its worth to hold some stables in eUSD to improve capital efficiency.
However, SOME and not all of your stables should be allocated because there are always risks involved w DeFi projects like contract risks. The price stability mechanism is similar to that of Luna/UST as well and we’ve seen that it IS possible to fail.
Currently, there are 83 million eUSD in circulation and 166 million ETH/stETH staked on the protocol. Lybra’s marketcap sits at 31 million, with a lot of room to further grow. The protocol has also seen a 10x increase in TVL over the last month signifying increased traction and approval of the protocol. I’d think that its still relatively early.
A stablecoin protocol built on LSDs with increased capital efficiency. Alternatively, a familiar concept built on a proven growing sector with an added benefit of interest-bearing.
With Lybra being easy to understand and mint/redeem, all that is left is for it to be easily used (omnichain). For me, it is to sit back and watch it potentially become another DeFi bluechip.
/grabs popcorn/
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