Lybra Finance is an LSDfi stablecoin protocol. Its main business model is to mortgage ETH or stETH to mint the stablecoin eUSD. It can hold stablecoins to earn interest by repurchasing eUSD through the proceeds of LSD. The annualized income is between 7% and 9%. The interest of stablecoins comes from the interest of ETH pledge, so the higher the mortgage rate, the higher the interest will be. eUSD is maintained stable by over-collateralization, liquidation, and arbitrage.
1. Basic overview
1. Project Introduction: Lybra Finance is an LSDfi protocol focusing on stable currency interest generation. The core concept is to mint the stablecoin eUSD by mortgaging ETH or stETH, and use the proceeds from LSD to repurchase eUSD, thereby earning interest from holding the stablecoin. This model allows the annualized return of eUSD to be between 7% and 9%.
2. Basic information: Lybra Finance is currently the LSDfi protocol with the highest TVL. The first interest-bearing stable currency eUSD has a certain attraction for funds in the market, so this product deserves attention. The LSDfi track has relatively good fundamentals, narrative value and user needs, and Lybra Finance is the leader among them.
2. Project details
1. Team: In Discord, the administrator stated that Lybra Finance is an anonymous team. This may raise some security risks, as anonymous teams have less transparency, making it difficult to assess their credibility and security.
2. Funding: Lybra Finance did not conduct risk financing, but sold 5,000,000 tokens at a price of 0.3U IDO, with a total value of 1.5 million US dollars. 20% of the funds raised by the IDO will be used to provide LBR/ETH LP, 40% will be used to mint eUSD, 20% will be used to provide eUSD/USDC LP, and the remaining 20% will be used for market making and operating expenses.
3. Code The Github code page of Lybra Finance is: Lybra Finance Github. The code page has less information and cannot generate a code report. The project has five libraries, and the V2 mode code will start in May 2023.
4. Product: Lybra Finance is an LSDfi protocol in which users can act as minters, holders, liquidators, and redeemers. Users' income mainly comes from holding eUSD and earning income, minting eUSD and earning LBR tokens, staking LBR and sharing protocol income and LP rewards.
Currently, stablecoins in the cryptocurrency market can be divided into three types:
Legal currency-collateralized stablecoins: such as USDT and USDC, are issued and managed by centralized institutions and maintain a 1:1 mortgage ratio.
Cryptocurrency-collateralized stablecoins: Mined with Bitcoin or Ethereum as the underlying asset, and the mortgage rate is usually higher than 100%.
Algorithmic stablecoins: Use algorithms to keep stablecoins price stable, with a greater risk of zeroing out.
The Lybra Finance team believes that one drawback of stablecoins is the lack of interest income. With the upgrade of Ethereum Shanghai, stablecoins can have interest income. Utilizing liquid pledged derivatives will provide stablecoins with stable prices and stable interest rates. Lybra Finance utilizes ETH and stETH as the main underlying assets to generate the stablecoin eUSD.
3. Stability mechanism of eUSD
eUSD is a stable currency pegged to the US dollar. Interest comes from the LSD income generated by depositing ETH and stETH, with an annualized rate of return of approximately 7%~9%. The interest income of eUSD comes from the pledge income of ETH. The current annual rate of stETH is 3.8%, and the minimum mortgage rate of Lybra Finance is 160%, so the annual rate of eUSD is between 7% and 9%. The higher the overall mortgage rate of the project, the more beneficial it is to the income of eUSD holders, and the less beneficial it is to the income of eUSD minters.
1. Over-collateralization: Each 1 eUSD requires at least $1.5 worth of stETH as collateral. Over-collateralization helps maintain stability by ensuring that the value of the underlying collateral is greater than the value of the eUSD issued.
2. Liquidation mechanism: Lybra adopts a liquidation mechanism. If the user's mortgage rate is lower than the safe mortgage rate, any user can voluntarily become a liquidator and purchase the liquidation part of the mortgaged stETH. Liquidation is divided into regular liquidation and comprehensive liquidation.
3. Arbitrage mechanism If the price of eUSD exceeds one dollar, users can mint new eUSD by depositing ETH as collateral, and then sell eUSD. As eUSD is sold, the price of eUSD will gradually return to 1 dollar. If the price of eUSD is lower than $1, users can buy eUSD at a discount in the market and then exchange it for $1 worth of ETH in the Lybra protocol. Users’ purchasing demand will increase as the price difference expands, thus pushing the eUSD price back to $1 Dollar. Because eUSD carries interest income, this arbitrage model may not hold true. In fact, eUSD is often at a positive premium.
4. Advantages and Disadvantages of Lybra Finance
1. Advantages: The issued stable currency eUSD automatically earns interest and can attract LSD funds in the market.
It is currently the leader in LSDfi and attracts the attention of investors.
2. Disadvantages: There is no risk financing for the project, the team is anonymous, code information and other disclosures are low, and there may be security risks.
The development of the project depends on the development of ETH derivatives.
The interest of eUSD essentially comes from the income from ETH staking. In the early and intermediate stages of the project, mining rewards need to be continuously invested to achieve continuous growth of TVL.
The eUSD holder balance appreciation operation is not transparent enough and may pose potential security risks.
in conclusion
As an LSDfi stablecoin protocol, Lybra Finance mints the stablecoin eUSD by mortgaging ETH or stETH, and uses the proceeds from LSD to repurchase eUSD to earn interest from holding the stablecoin, with an annualized return of between 7% and 9%. Although the project carries certain risks, its innovative interest-earning stablecoin model and leading position in the LSDfi track make it somewhat attractive in the market. In the future, the development of Lybra Finance will depend on the development of ETH derivatives and how the project team responds to potential security risks.