I’d like to share the current launch plan for Silk and ShadeLend with the community, open the floor for feedback, and provide some transparency about how the backing of Silk will be handled going forward.
First, please make sure you are intimately familiar with the ShadeLend documentation. CDP-backed tokens like Silk are fairly complex, and we have iterated considerably on existing CDP models to vastly increase the reflexivity of Silk – the ability for Silk to respond to changes in supply and demand. The documentation can be found here: Lend - Shade Protocol
In addition, Silk has comprehensive documentation available here, which also provides necessary background knowledge for the topics discussed in this post: Silk - Shade Protocol
At launch, ShadeLend will provide the following vaults to the market:
- stkd-SCRT - 40% max LTV
- stATOM - 60% max LTV
- stOSMO - 45% max LTV
- stLUNA - 45% max LTV (if Stride makes it available in time for launch)
- IST - 85% max LTV
- DAI - 85% max LTV
- FRAX - 85% max LTV
- USDC - 85% max LTV
All vaults will offer introductory rates of 0% interest and 0% base borrowing fee. Borrowing fees have a fixed component, which is the minimum borrowing fee, and a variable component, which is based on redemption volume (more redemptions implies excess supply = higher variable borrowing fee to discourage further minting of Silk), so you may still be charged a borrowing fee if there is any redemption activity. These introductory rates will persist for two weeks, at which point fees will begin to increase once a week until they are at their final rates. These target rates will depend on vault utilization, so we are unable to provide that information at this time. For example, a vault that is not seeing a lot of borrowing activity will not have its interest raised as high as one that is seeing a lot of borrowing activity. In addition, a riskier collateral will have a higher target interest rate than a lower risk collateral.
Please note that if you borrow during the introductory period, you will not pay any fees upfront (other than the potential variable borrowing fee), but once fees begin to increase after the introductory period, your loan position will begin to accrue interest. You will not be subject to the additional borrowing fee unless you take out a new loan after the borrowing fees are increased.
The approximate range for interest rates will be 3-5% for volatile collateral, and 0.5%-2% for stable collateral. Per the documentation, interest rates can only change once every 7 days, and can only change by a maximum of 1% per 7 days. Any fee changes will be communicated on Discord, Twitter, and the Shade Forums.
Over time, the LTVs of these vaults may change as well. LTVs can be adjusted by the governance admin, but they can only be increased, not decreased. The LTVs are intentionally conservative at launch, but as liquidity on ShadeSwap and the Stability Pool deepens, we will raise the LTVs in accordance with the relative risk of the collateral to provide more capital efficient borrowing opportunities for users.
Going forward, we would like to add the following collateral to ShadeLend in a second phase post-launch:
- ShadeSwap LPs
For XMR, ETH, and BTC, ShadeSwap does not support these pools at launch, so it does not make much sense to support them as collateral on ShadeLend until we have pools available on ShadeSwap.
For the other Stride staking derivatives, these are lower liquidity tokens, and fundamentally staking derivatives are higher risk than non-derivative tokens. It would be preferable to put off incorporating these derivatives until liquidity on ShadeSwap deepens and the market shows demand for these tokens.
For ShadeSwap LPs, LP vaults are slightly more experimental and require a little more development work to fully flesh out. In addition, there are some other risks associated with using LP tokens as collateral that we haven’t fully modeled yet. Using LP tokens as collateral is also dependent on pools having deep liquidity from a variety of LP providers to prevent large swings in LP value. As a result, we have to see how liquidity develops on ShadeSwap before we commit to accepting ShadeSwap LPs as collateral.
This is the current plan for the two-phase rollout of ShadeLend vaults. Beyond this, we would like to begin the governance handoff by empowering the community to make further adjustments beyond these initial conditions. The first phase of this would be signaling proposals where SHD holders can vote to change collateral parameters and launch new vaults. Fully automated governance functionality is considerably more development effort, which is why the first phase will be signaling proposals to introduce the ability for the community to impact the protocol directly. This initial signaling proposal functionality is expected to be rolled out in a couple of months after the launch of Swap and Lend, and after they have had some time to settle.