As an innovative blockchain project, the Lybra protocol provides an interest-bearing stablecoin called eUSD and provides users with multiple income opportunities through a series of business models and token designs. This article will provide a detailed explanation of the business model, token economic model, and its advantages and disadvantages.
1. Lybra’s business design
1. Business model: Lybra’s core business is the interest-bearing stablecoin eUSD, which allows users to over-collateralize ETH (automatically converted to stETH through the protocol) and stETH as collateral to mint eUSD. The eUSD obtained by the user's mortgage gives up the interest income of the LSD asset. At the same time, the project party will purchase the interest income of stETH into eUSD in the market and distribute it according to the user's eUSD position. The agreement will charge an annual management fee of 1.5% of minted eUSD as business income.
LSD (Liquid Staking Derivatives) is one of the industry solutions derived based on the pain points of the minimum 32ETH pledge requirement and the high operating threshold of nodes after ETH was converted to POS mechanism. It specifically refers to the joint pledge method that allows small amounts of pledged ETH to enter the chain. 1:1 pledge certificate in exchange for the above agreement.
The stETH mentioned in this article is the ETH pledge certificate issued by Lido, the head project of the joint pledge method. Lido accounts for 32% of the total POS pledge share. The business model is to self-screen qualified node operators and allow users to pledge small amounts to StETH is obtained in its agreement and 10% of the user's staking income is charged.
2. Rigid redemption: The value of eUSD will fluctuate due to market transactions. When the price of eUSD is low and lower than 0.995, the protocol will provide a rigid redemption service with a deduction of 0.5%, that is, users can choose the rigid redemption service. The eUSD will be redeemed back to ETH in a rigid manner at 1:0.995, so that the price of eUSD will not continue to be decoupled.
This part of the exit liquidity is provided by the mortgage assets of users who choose the rigid redemption function in the protocol. When the rigid redemption occurs, users who provide exit liquidity receive a 0.5% redemption fee and an additional 20% annualized LBR reward.
3. Liquidation mechanism: The healthy mortgage rate of the protocol's collateral is above 160%, and the liquidation line is 150%. When a user is liquidated, up to 50% of the collateral will be liquidated from the liquidator's balance to repay the debt. In return, the liquidator receives collateral worth 109% of the repaid eUSD value, and 0.5% of the collateral belongs to Keeper (a monitoring project run by a third party). If liquidation is initiated by Keeper, Keeper can receive 1% income. When the global mortgage rate is lower than 150%, users lower than 125% will be fully liquidated.
4. Micro-innovation in design
The mechanism of eUSD refers to the code base of the Liquidity protocol and makes some micro-innovations based on Liquidity’s liquidity pool:
Liquity will charge a one-time minting fee but no other fees after that. This situation will allow Liquity to obtain a large amount of protocol revenue in the early stage, but it will experience sluggish growth in the later period; eUSD does not charge a minting fee but will charge 1.5%. The eUSD management fee will provide a more sustained protocol income than Liquidity in terms of income.
Liquidity will incentivize users to provide redemption funds into the liquidity pool, while continuing to reward LQTY tokens; Lybra has removed the liquidity pool function and replaced it with Liquidator providing liquidation. On this basis, an additional 20% LBR annual reward has been added.
Liquity’s collateral is single, and only ETH. This is also the reason for the current slowdown in growth. On this basis, Lybra supports stETH as collateral. At the same time, after v2, it will also support more LSD assets and expand The sustained scope of the asset is increased and more increments are obtained.
1.5 Potential problems in the current business of the agreement
The price of eUSD has been at an upward premium. The reasons are as follows: the interest-earning attribute of eUSD will be regarded as a premium by users for long-term positions, reducing potential selling pressure and making it difficult to decouple downwards; business logic will purchase stETH earnings into eUSD to form cyclical buying orders.
The eternal problem of all stablecoins is application scenarios. At the current stage, eUSD has no other application scenarios except the two trading pairs of Curve and Uni. The long-term development of stablecoins is severely limited.
2. LBR Token Economic Model
The distribution mechanism of the current protocol's token LBR is as shown in the table below, in which the IDO part sells 5M LBR at a price of 0.3U, with a value of 1.5M.
The Lybra protocol also adopts the economic model of ve. The Ve tokens in the protocol are converted back to LBR using a linear release mechanism instead of being released once upon expiration. The ve token in the current agreement is esLBR, which cannot be traded or transferred, but it has voting rights and can share the proceeds of the agreement. Mining rewards are the main source of esLBR, which linearly converts to LBR within 30 days.
According to its May esLBR release model, the total amount of esLBR released daily will be between 54,618 and 126,277, and the release proportions are: eUSD reward pool: 78%, LBR/ETH Uniswap V2 LP pool: 15%, eUSD/ USDC Curve LP pool: 7%.
3. Current agreement-related data (August 25)
1. Stablecoin market structure: According to data from defilama, Lybra ranks 12th in the stablecoin rankings.
2. LSDFI market structure: According to Defimochi’s dune data, the current volume of the LSDFI track is about 660 million, and Lybra accounts for 51.2% of the LSDFI market and is the absolute first-mover project.
3. Lybra’s in-protocol interest rate calculation: eUSD is an interest-bearing stable currency. According to the official website data, the interest rate of eUSD is 8.40%. The author tries to estimate the income gained by users participating in the minting: the actual calculation of the current global mortgage rate is 198%, and Lido’s current The stETH interest rate is approximately 4%. After deducting the 1.5% annualized protocol fee (deducted based on the eUSD scale), users who pledge according to the global mortgage rate will receive approximately 6.42% of their income, which is somewhat different from the official data.
The actual eUSD income issued on the chain can be understood through the dismantling of Loki's Lybra mechanism. Detailed mechanism breakdown
4. Official website interface: The picture below shows Lybra’s official website income operation interface. First, let’s look at the Mint pool part of eUSD. The APR16.39% here is the annualized income of the subsidized esLBR. The additional income of this part is the flywheel logic of the agreement. key.
After users participate in the mint mechanism of eUSD, although they will be charged an annual management fee of 1.5% by the agreement, that is, after minting and holding eUSD, users will lose (1.5%/198%) ≈ 0.76% of the total income compared to stETH. , but you will receive an annualized reward of 16.39% linearly released on a monthly basis in esLBR. The additional income and the expected income of esLBR are more attractive than holding stETH.
In other words, although part of stETH's income will be drained by the protocol, the protocol will additionally subsidize more linearly released esLBR for users holding eUSD positions, increasing protocol funds with future revenue expectations and potential selling pressure.
Another piece of information in the picture is the optional Boost mechanism in the upper left corner. Users who turn on the Boost mechanism will obtain esLBR in a delayed manner.