Introduction to Chainlink-powered Price Protection Pools
Saffron is a protocol for peer to peer risk exchange. One of the risks that we are sometimes reminded of in this space is that the price of an asset can change quickly. Users often choose to hold those assets in an underlying lending platform to generate yield. As a result, decentralized finance has mostly focused on providing high APYs for stablecoin pairs, which are attractive to DeFi users because they don’t take on that additional risk of cryptocurrency market volatility. Although DeFi users have earned themselves a variety of nicknames that describe their wanton disregard for risk, in reality, many choose to play it safe with stablecoins. Saffron can change that by making volatile assets more yield-friendly through Chainlink-settled price feed tranches.
Pilot Program
As announced in our previous medium post describing Chainlink-settled tranches, developers who contribute to Saffron have integrated the Chainlink Price Feed oracle system into Saffron to protect against downward price movements in WBTC. This is a pilot promotional program that provides the following benefit to users:
- Chainlink price feed is used to determine the price of WBTC at the beginning of the epoch
- Chainlink price feed is used to determine the price of WBTC at the end of the epoch
- Depending on the change in price of WBTC the pool earns up to +15 SFI rewards. The steeper the drop in WBTC, the more SFI earned, up to a maximum of +15 SFI
- If there is no change in WBTC price or if the price goes up then the reward is +5 SFI in addition to the 10.5 SFI reward already earned by all tranche adapted pools
This significantly offsets the negative outcome of a crash in the WBTC price due to BTC market conditions, failure of WBTC, or loss of confidence in WBTC due to a perceived increase in risk.
Epoch 11 began with the Chainlink Price Feed oracle protecting downside for the WBTC pool: and it has already been proven to work. You can check the wind_down_epoch_oracle function call on etherscan to see exactly how many SFI were awarded due to the downturn in WBTC price.
Saffron V2
In Saffron V2, Chainlink-enabled price protection pools won’t reward users based on emissions, but instead will enable junior tranche LPs to elect to provide price protection to senior tranche LPs. SFI paid to the senior tranche in the event of a downturn will be determined by Chainlink Price Feed enabled smart contracts. It is crucial for Saffron to be able to use external price inputs as an input to the protocol while remaining completely decentralized. This will enable a new type of Saffron V2 pool that gives LPs customized risk and return profiles based on a new metric: price.
Learn More About Saffron
Saffron is a protocol for tokenizing on-chain assets, including contracts that otherwise impair access to utilized capital. Tokenized ownership of on-chain assets gives liquidity providers greater flexibility and uninterrupted access to their underlying collateral while enabling leveraged staking and bespoke risk management.
Web3 app: https://saffron.finance
Telegram: https://t.me/saffronfinance
Discord: https://discord.gg/pDXpXKY
Twitter: https://twitter.com/saffronfinance_
Github: https://github.com/saffron-finance/saffron
