Aura protocol, a primer on the most dynamic credit protocol
It all began with Sandclock, the first non-custodial, programmable wealth management platform in the world. With this platform, users are able to program what their principal and yield for a given strategy can do in a rather seamless and intuitive experience.
As the launch of Sandclock approached, we wanted to further cement its position as a crucial lego piece in the DeFi ecosystem.
- What if we could minimize smart contract risk with a thoroughly tested, audited, and formally verified in-house strategy on StarkNet, using the same logic as the one on Mainnet, which would presumably have higher yield due to its extremely low fees?
- How do we allow Sandclock users to access to leverage, in order to grant its users more fine grained control over their risk appetite?
A credit protocol ticks both boxes. Aura! And in return, Sandclock could offer Aura an uncorrelated, yield-bearing, fully decentralized type of collateral—its vault shares.
It was a match made in heaven.
So we started thinking.
(What is it?)
If one had to create the perfect credit protocol, what characteristics would it have? For many sleepless nights we pondered… and pondered. It would,
… allow for cross margin borrowing.
… be autonomous.
… be dynamic.
… be governance-minimized, with a clear path to ossification.
… have built-in protection against governance attacks.
… support decentralized, short tail collateral exclusively.
… have uncorrelated collateral.
… support yield-bearing collateral.
… allow for the credit line to be denominated in any asset with an on-chain oracle.
… feature multiple ways to liquidate assets.
… offer a savings pool option for all of its synthetic assets.
… have positive feedback loops to increase collateralization in perpetuity.
… have clear utility baked into the token.
… be cheap to use.
… offer a clean interface for a bespoke user experience.
This is Aura. An elegant hyperstructure for borrowing any asset with an on-chain source of truth against an asset or a collection of assets, on StarkNet.
It is the culmination of many months of research on how to address existing limitations of DeFi giants constrained by both technical debt and the tech stack they built with.
Every week we will release an article on the ways Aura is the perfect synthetic issuance protocol. Then, let us discuss the first characteristic of this protocol!
Cross Margin Borrowing
You’ve surely heard of isolated margin multi-collateral systems. They support borrowing against multiple types of collateral, in isolation. For instance, using such a system, one is able to mint DAI against wstETH, and also against wBTC, with two independent collateralized debt positions (CDPs). One is, however, unable to mint DAI against both wstETH and wBTC with a single CDP. The latter constitutes the definition of a multi-collateral cross margin system.
Why does it matter?
For one, isolated margin borrowing prohibits hedging, a technique where one borrows against a set of uncorrelated assets with the sole intent of reducing the likelihood of getting liquidated — when done correctly, an asset going down could result in another asset in the same CDP to increase in value, keeping one’s Loan-to-Value (LTV) ratio constant, and the debt position healthy and thus, protected from liquidation.
Strictly speaking, cross margin borrowing also results in a better user experience as it minimizes cognitive burden since you are tracking the health of fewer debt positions.
Aura is such a system.
To reiterate, cross-margin borrowing allows an account to borrow against multiple assets at once, allowing its users to carefully construct hedged debt positions, or simply access leverage against their portfolio with a single CDP. The credit line can be denominated in USD (CASH!) like in the previous image, or any other asset with an on-chain oracle, such as Truflation’s CPI, the S&P GSCI Precious Metals Index, among others.
One CDP to rule them all.
When Aura?
It’s still a ways away. We will be done with the first iteration of the architecture in the coming weeks. However, Cairo will undergo a big upgrade soon and we will have to port our codebase to Cairo v1.0, followed by an audit by Trail of Bits.
tl;dr: you’ll know when we know.
Every week we will release an article on how Aura is the perfect synthetic issuance protocol. So follow us on all of our socials and check back in a week!
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