The First HodlTree Elastic Module for sUSD Is Out
We are happy to announce the launch of our first elastic module for sUSD with Synthetix and Balancer. The module is available at: https://susd.hodltree.io (you must have Metamask to open).
We would like to thank the Synthetix team for providing liquidity and believing in us and our ideas!
This elastic module is based on sUSD/sETH 75/25 Balancer pool and its liquidity mining program. We want to show hands-on that it is possible to build structured products that are far beyond existing lending protocols.
What are Elastic Modules?
Elastic Modules allow conservative investors (hereinafter Alice) to earn significantly more than existing lending protocols such as AAVE and Compound.
They also offer an investment tool for users with a high risk profile (hereinafter referred to as Bob).
Elastic Modules can be deployed for any benchmark with different configurations by changing profit splits, tokens, hold periods, etc. That’s why we call them elastic.
Some of the elastic modules logic will be used in the interest generating modules that will form the basis of our second generation lending protocol.
How does this Elastic Module work?
Let’s take a closer look at the logic of this module.
Who is Alice?
User Alice wants to earn in sUSD. She places sUSD in the EM-Synthetix pool, and our Elastic Module places these funds in the Balancer sUSD/sETH 75/25 pool. Alice’s funds start generating profits in the form of swap fees and BAL token rewards. In case of sETH falling, Alice’s drawdown will be compensated to the specified range from the Reserve Pool (if there are funds there), for covering the drawdown the Elastic Module takes a part of the profit and gives it to liquidity providers of the Volatile pool.
Who is Bob?
Bob wants to gain +50% of his funds in sUSD, and he is ready to take risks. He places funds in sUSD in the Volatile pool, and our Elastic Module places them in the Reserve Pool to cover drawdowns in the EM-Synthetix pool and mints Bob VPT tokens at a 1:1.5 ratio. Bob gets a part of EM-Synthetix pool profit for providing liquidity to the Reserve Pool. The profit intended for Bob goes to the Storage, where he can exchange his VPT tokens to sUSD at a 1:1 ratio.
What is EM-Synthetix pool?
This is the main pool for Alice, where she provides liquidity.
What is a Volatile Pool?
This is Bob’s main pool, where he provides liquidity.
What is a Reserve Pool?
This pool is designed to cover Alice’s drawdown when the sETH price falls. All sUSD staked in the Volatile pool by Bob go here.
What is a Storage?
This pool is designed to reward Bob for providing liquidity to the Reserve Pool. 20% of Alice’s profit and 100% of BAL rewards go to this pool.
What is EPT?
EPT is Elastic Pools’ Token. If during withdrawal Alice receives fewer sUSD than she has put in the pool, she will be minted with EPT tokens, up to a certain value specified when creating a contract. In this module, it is equal to 50%.
After that, Alice can exchange them for sUSD, if they are present in the Reserve Pool.
What is VPT?
VPT is Volatile Pool Token. When staking sUSD, Bob gets a certain amount of VPT, depending on the ratio specified when creating a contract. In this module it is equal to 150%.
Bob can change his VPT back to sUSD in the Storage, if they are available.
All exchange requests have a hold period of 1 day starting from the first exchange request. In case the amount of sUSD in the Storage is smaller, they will be proportionally distributed among the participants who submitted the exchange request.
Further iterations will be repeated when new exchange requests are received.
What is Hold?
The time during which Alice cannot withdraw sUSD from the pool. It is necessary to accumulate certain income from swap fees and Balancer pool rewards. When adding funds, the Hold period begins all over again for the full amount.
Hold period: 90 days.
Possible Scenarios Examples
- Let’s check different scenarios in case Alice invests 100 sUSD (6 months hold) and Bob invests 8.52 sUSD (to cover Alice’s 30% drawdown).
Thus, Alice gets a return of ~2.4% in sSDC even if sETH token falls by 30%.
If Bob places 5.82 sUSD in the insurance pool instead of holding sETH, then with a 100% increase of sETH price he gets ~21.9% higher return*, and even if the price remains the same — he gets ~106% profit*.
2. Let’s check different scenarios in case Alice invests 100 sUSD (12 months hold) and Bob invests 8.52 sUSD.
If Bob places 5.82 sUSD in the insurance pool instead of holding sETH, then with a 100% increase of sETH price he gets ~127.5% higher return*, and even if the price falls by 30% or remains the same — he gets ~183%* profit.
The longer the holding period is, the more profitable it becomes for Bob because the expected swap fees and Balancer rewards become higher. This motivates him to invest more in the reserve pool, which increases the safe range that he compensates for Alice.
How does this benefit users?
Depending on the amount of money in the EM-Synthetix pool, users can get arbitrage opportunities. For instance, if the value of sETH goes up, the total value of the pool increases, which entails an increase in swap fees and the possible number of Balancer rewards.
Also if the value of BAL token goes up, arbitrage opportunities will arise from time to time based on the fact that the amount of rewards in sUSD goes up. So Bob can take advantage of that and get a good return by investing sUSD and exchanging them to VPT on the day of the Balancer rewards distribution.
The balance between the amount of funds in the Reserve Pool and the Storage will constantly change over time, which will bring opportunities for both Alice and Bob.
If the amount of funds in the Reserve Pool grows, it makes it profitable for Alices to invest in the pool, because the range in which their funds are protected from sETH drops grows.
If the amount of money in Storage grows, then there will be arbitrage opportunities for Bob (for example, to exchange 100 sUSD to 150 VPT and then exchange those 150 VPT back to 150 sUSD during one day). Which in return will lead to greater coverage for Alice from the sETH price drop.
Any user can call the BAL rewards distribution function in the Storage. There is a 1 day hold to prevent instant exchange of VPT for sUSD so that all Bobs can exchange their VPT.
Stay tuned
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Disclaimer
All calculations are estimated and based on the historical data.
* Bob’s possible profit is limited by VPT ratio, in this module it is 150%. He will be able to exchange his VPT at a 1:1 ratio for sUSD for any amount of time, as long as there is enough sUSD in the Storage.
Alice’s drawdown is covered only up to 50% in case there is enough sUSD in the Reserve Pool. Alice will be able to exchange her EPTs for any amount of time.
