Smart Collateral with Idle Finance
Unlocking Idle tokens as collateral on Pods protocol
TL;DR
We are excited to announce that a new type of smart collateral is now available on Pods protocol by using the interest-bearing tokens from Idle Finance. This is part of our initiative to unlock new ways within money legos and DeFi's composability. 🎉
Our first series will be a MATIC:IdleUSDC Put with strike $1.90 expiring on December 21st. This is a short option as a way of having a showcase of the integration with Idle protocol.
Users can now use idleUSDC from Idle Finance's Best Yield strategy as collateral and benefit from:
- The yield generated by depositing funds to Idle's USDC pool
- Receive premium from options sold
- Receive AMM fees and returns by providing liquidity to pools
How does Idle Finance work?
The idleUSDC token is an interest-bearing token that users get once depositing their funds in Idle's pools and interacting with their Best Yield Strategy.
When the users deposit their funds to one of Idle's pools in the Best Yield strategy, they optimize their returns and profitability by getting exposed to the best rates across different lending protocols, such as Compound, Aave, Fulcrum, without having to manually move them from one another when looking for the best interest rates.
This is possible as users' funds are pooled together in Idle's main contracts, — such as in idleDAI, idleUSDC, idleUSDT — and reallocated together, minimizing the gas fees paid as well as getting the highest aggregated interest rate for all pooled funds.
Understanding the Idle Tokens as Collateral
To understand how we can use Idle tokens as collateral, it is important to understand how the pricing happens at Pods protocol and what type of interest-bearing token Idle is.
Pricing put options at Pods protocol happens in USD terms. The strike asset must maintain its value the closest to 1 USD, which is why the protocol currently accepts stablecoins, such as USDC and DAI, as they have maintained the required pegged historically.
There are mainly two types of interest-bearing token models in the space:
- The one that the value of your current position increases in the number of tokens as interest is generated, such as aTokens from Aave.
- The one that the value of your current position increases in value while the number of tokens you hold stays the same, making it necessary to have an internal exchange rate to keep track of the value, such as cTokens from Compound.
Although the pricing is done in USD terms, the payment of the premium, collateral locked in, and liquidity provided are all done in units of collateral tokens for put options.
Considering that Idle Finance uses the exchange rate model, it means that if 1 IdleUSDC today is worth 1USDC, tomorrow this same token will be worth 1.001 USDC. Having this in mind and considering Pods doesn't yet have an adapter for exchange rate tokens, we can see that there is one main implication of the pricing:
If on day X, the option costs 10 idleUSDC, which is worth 10USDC, on day X+1, the option will cost slightly higher according to the interest rate of the strategy from the pool you have deposited funds to on Idle Finance.
Next Steps
We are currently working on an adapter of exchange rate tokens in order to fully explore the potential of this integration and create options with longer expiry using Idle tokens.
Getting idleUSDC
- Go to the Best-Yield strategy page on Idle Finance's app and connect your wallet:
2. Select the USDC pool to deposit your funds and get idleUSDC:
3. Input the amount you want to deposit:
4. Click on Deposit:
And that's it! You are ready to use idleUSDC as collateral at Pods protocol.
About Pods
Pods is a decentralized non-custodial options protocol. Users can create options and trade them through an Options AMM on the Ethereum Blockchain. Pods is the easiest way to hedge crypto in DeFi.
We invite you to take the first step in your new mission: start testing the app on app.pods.finance
Join the Pods community
app | website | documentation | blog | twitter | youtube | telegram | discord
