BIP-0007: Lending Out DLLR to Generate Yield
Introduction:BabelFish is a stablecoin aggregator and meta-stablecoin issuer. One of our goals and one of the very first ideas when BabelFish was born is to generate revenue for FISH stakers and XUSD users by lending out a portion of collateral. This proposal takes the first step towards achieving that goal by leveraging the opportunity to lend out a portion of Sovryn Dollar (DLLR) on the Sovryn platform.
Motivation:This proposal represents a significant milestone for BabelFish as it's the first time we're taking this kind of action. It's an opportunity for us to learn and implement the best practices for managing aggregated stablecoins. By collaborating closely with Sovryn, a trusted partner that shares our values, we can ensure that we're lending out the aggregated collateral in a safe and secure manner.
Initial amount to lend out would be not greater than 5%. It would be also actively managed by BabelFish Multisig signers, until an automated solution would be implemented.
Implementation:1. Create a new ERC-20 token contract called “slDLLR” with the following features:
- A role called OWNER. Only the OWNER can change the address currently assigned the OWNER role.
- A mint function that can mint a specified number of tokens to the caller’s address. Only the OWNER can call the mint function.
- A burn function that can burn a specified number of tokens owned by the caller’s address. Anyone can call the burn function.
- All other basic ERC-20 token functions e.g. approve, transfer, etc.
- slDLLR will be added as supported bAssets to the BabelFish Aggregator
- An amount of slDLLR equivalent to the 5% of DLLR held by BabelFish will be minted and deposited into BabelFish in exchange for DLLR used to lend out on Sovryn platform.
- The corresponding amount of DLLR will be deposited in the Sovryn’s lending pool.
- Funds withdrawn from the lending pool will be deposited without delay to the BabelFish aggregator for corresponding slDLLR amount, which will be then burned.
- By default yield generated by lending out DLLR would be left as an insurance pool used in case of under collateralization or any other problems - unless decided otherwise by the community. It is suggested to have a bitocracy vote on this every quarter.
Risk:There are two main risks associated with this proposal.
- Liquidity risk associated with the lending pool. If there isn’t enough liquidity in the lending pool, DLLR may not be immediately available for withdrawal. This could cause inconvenience to users as it might require patience until funds will be available again.
- Smart contract risk associated with the Sovryn lending protocol, which had an exploit just a few months ago. If something like this were to happen again and impact the DLLR pool, it could leave BabelFish undercollateralized.
To mitigate those risks, BabelFish will monitor the liquidity and the security of the lending pool and take necessary actions to mitigate those risks.
It is also worth noting that the current practice shows that Sovryn is a serious entity that places great emphasis on the security of funds entrusted to its smart contracts, and the losses caused by the aforementioned exploit did not ultimately affect the users of the platform.