**[POLL CLOSED]** - Index Coop FUSE Pool on Rari Capital

Growth Business Development
1

Owners: @Mringz / @BigSky7 / @oneski22 / @reganbozman [Discord: @Mringz | Index, @TrotNixonLine, @BigSky,]

Channel: Business Development

Hypothesis:

We have an opportunity to increase extrinsic productivity for DPI, MVI, FLIETH, FLIBTC and INDEX by creating a community governed Fuse Pool on Rari capital. The Fuse pool collateral management will be governed by INDEX holders with decisions executed through a multisig controlled by members of the product team.

The FUSE pool will enable users to:

  1. Earn interest on Index Coop products and our governance token
  2. Enable users to create leveraged exposure (CDP’s) on our products and governance token

Context:

Rari Capital is a multi-purpose DeFi platform that enables users to unlock enhanced productivity for their crypto assets through three of their products namely Earn, Fuse and Tranches. The protocol is governed via a DAO structure which is represented by the RGT governance token. As of this post Rari Capital platform has attracted over $100 million in TVL.

Fuse is a lending and borrowing protocol based on Compound protocol. It enables DeFi protocols, projects and DAO’s to create and manage their own lending and borrowing markets.

For Index Coop this pool offer the following benefits:

  1. Increase the extrinsic productivity across our product line including our governance token
  2. Enable us to develop new products using the FUSE lending and borrowing protocol
  3. Enhance governance utility for INDEX
  4. Build a unforkable relationship with a reputable DeFi protocol

*Rari Capital yield aggregator Earn will divert liquidity in the form of ETH, DAI & USDC based on the APY’s of the pool.

We propose that we seed liquidity for the pool with assets in treasury:

Assets Value
INDEX $500,000
DPI $100,000
MVI $50,000
FLIETH $50,000

We will engage with the Treasury Working Group (TWG) to decide on the best method to seed liquidity for the pool.

The Fuse pool will be created with the following specifications parameters:

Upgradeable: Yes
Close Factor: 50%
Liquidation Incentive: 30%
Platform Fee: 10%

Collateral Collateral Factor Reserve Factor
INDEX 50% *15%
DPI 50% *15%
MVI 50% *15%
2xETHFLI 50% *15%
*2xBTCFLI *50% *15%
USDC 10% 75%
DAI 15% 75%
ETH 20% 75%

The above parameters were recommended by the Rari Capital Team.

Management of the fuse pool will be initially handled by Samuel Shadrach who leads fuse pool management for Rari Capital team. The process will gradually be handed off to members of Index Coop.

Risks:

Smart Contract Risk:

Rari Capital Smart contracts have been audited by Quantstamp.

Liquidation Risk:

We will be working closely with the Rari Capital team to ensure that the pool parameters are responsibility set to reduce risk of liquidations.

Technical Requirements:

Index Coop - Create and manage TWAP or chainlink pricing oracles for FLIETH, FLIBTC and MVI

Rari Capital - Will create the Fuse pool based on the above parameters

Marketing Requirements:

  • Social media announcement to create awareness of the pool through both parties’ media channels
  • Article and twitter thread about the use cases of the pool

Rari Capital marketing channels:

Twitter: 20.3K Followers
Youtube: 308 Subscribers
Discord: 7,152 Members
Medium: 311 Followers

Analytics Requirements:

KPIs:

  • Pool liquidity
  • Average utilization rate

Targets:

  • $10 million liquidity
  • Average utilization rate of 50% across the pool

Future avenues of development:

  • Rari Capital as a methodologist for structured products
  • Incentivising borrowing and lending demand with INDEX
  • Treasury investment account can earn yield from a lending & borrowing pool controlled by Index Coop

Way forward:

  1. Create an IIP for treasure to fund seed liquidity for the pool
  2. Set up a multisig to control the parameters of the pool
  3. Create a snapshot on Rari Capital DAO to create the pool

I will create a poll for whether or not we should seed the liquidity for the pool with the treasury after initial feedback.

The original Index Coop Fuse pool proposal can be found here: Add Index Coop Fuse Pool - Rari Governance Forums

Please note the proposal has changed based on the below recommendations from the Rari Team, changes shown with a (*)

  • Launch pool with seed liquidity from treasury
  • Launch pool without seed liquidity from treasury
  • Do not launch the pool

0 voters

10 Likes
2

Love this idea, will be important that we seed liquidity (perhaps even incentivize borrowing) to make sure the pools always remain liquid.

3 Likes
3

Very good mringz and everyone involved. I know Rari capital for quite some time by name. But never had a deeper look into their products.
Like some of you know well, I am not a fin tech guy, so won’t comment any specific here.
But the idea in general, I do like a lot.

2 Likes
4

Hi all!

This is a really exciting proposal, I am looking forward to the future of this collaboration. Few things I will just chime in on:

  1. The seeding of liquidity from the yield aggregator will be based on APY offered to suppliers. In order for the yield aggregator to come into this pool, it will require higher APY than other pools. The coop needs to consider what it can do to effectively create borrow demand (could be via creating an FLI like product on top of the pool)
  2. The reserve factors are extremely high. Also the CF for 2xETHFLI seems high. I will share this with Samuel and defer to his knowledge regarding final pool parameters.
  3. Management of the pool should be done by your DAO, Samuel will be here to advise y’all throughout the creation of the pool on all variables though. Additionally, it later says that we will create the pool but your governance proposal in our forum should just be for whitelisting your address to build a pool. You all will be the ones to do the final pool deployment, ideally under your DAO.
  4. I would be aiming for a much larger % of average utilization across the pool. Interest rates will be nothing at low rates, that would mean there will be little liquidity inside.

Let me know how else I can be helpful here! Again, really looking forward to this.

7 Likes
5

Great idea in IMO. I am a discord member of RARI. From what I observed, the community is hardworking and smart (They are backed by Crypto OGs as far as i know).
My concern is the SC risks. Is it possible to audit it again before deploying the capital? What we are planning to deploy is huge and RARI is quite new in the space. Just my thoughts, I am not a dev.

5 Likes
6

I want to echo Jai’s sentiment here - I am really excited about the possibilities for the Coop partnering with Rari Capital and the create of a Fuse pool. However, before I would feel comfortable moving forward on anything, I think there are some questions that need answered and some confidence that needs to be built - I think this is illustrated in Jai’s responses:

How are we thinking we will create borrow demand? Will there be borrow demand for our products considering there aren’t many extrinsic productivity options with Coop products at the moment? Could we actually build a FLI product on top of a Fuse pool - what would that require and could we actually achieve it? What needs to happen to see the utilization % we are targeting?

I am also sensing there is an education/knowledge gap surrounding Fuse that may be limiting us as a community. I may just be missing something, but I have spent some time trying to find good documentation on how Fuse works so I could add more here, but I can’t find much? @jaibhavnani can you point to where we can level up on our understanding of Fuse?

3 Likes
7

Just a heads up: Apparently Rari got rekt a few moments ago, I’m too dumb to figure out if this has any impact on the current proposal, so I’ll let the smart people chime in.

2 Likes
8

hack was specific to Alpha Homora integration, other pools aren’t affected

4 Likes
9

Successful DeFi protocols must do three things well.

  1. Create deep liquidity for their products
  2. Ensure that each product is maximally integrated in lending and borrowing markets
  3. Maximize cross-chain and Layer 2 solutions

At Index Coop we are doing a very good of creating deep liquidity. However, this is the standard across all DeFi blue-chips. Almost every project in the top 20 is highly liquid and most are transitioning away from aggressive LM. Having deep liquidity gets you in the game - but if everyone has deep liquidity a protocol like ours needs to do more to set itself apart.

The next two major strategic drivers are lending markets and layer 2 solutions. Lending markets enable users to borrow and lend our products. Layer 2 and cross-chain solutions significantly lower the cost for users. From DeFi standpoint our two most important drivers are onboarding our products as collateral and expanding our layer 2 reach.

This proposal for the creation of a Rari Capital FUSE pool is a major strategic win for IC. FUSE pools enable us to use every IC product as collateral for lending and borrowing. On top of that we can control the parameters such as the collateralization ratio and liquidation incentives.

Extrinsic vs Intrinsic Productivity

Our products can be made productive (yield generating) either extrinsically or intrinsically. Intrinsic productivity uses the underlying assets in our indices to generate yield primarily through staking or lending and borrowing. Extrinsic productivity generates yield by using the product itself for lending and borrowing.

Why collateral is important

Using an asset as collateral creates liquidity without price discovery. This means that a product holder does not need to sell their asset (liquidate) in order to gain access to liquidity. The classic example is a pawn shop - if you own a gold watch you can deposit the watch and borrow against it up to some nominal amount. Neither party needs to know the exact price of the watch, simply that it has some minimal value.

In DeFi collateral works in much the same way. Robust lending and borrowing markets enable users to generate liquidity without selling the underlying asset. For example depositing ETH on AAVE, borrowing DAI, and using that DAI to yield farm. As long as the loan remains over collateralized liquidity can be generated.

When products are listed as collateral it does a few things - increases liquidity, lowers sell pressure, and generates yield. FUSE pools are the prefect use case for using our products as collateral.

This proposal enables us to immediately use every single IC product as collateral. Thanks for the hardwork from the Rari Capital team we will also be able to tailor the risk parameters around our products with a high degree of specificity. Seeding the pool with a loan from our treasury generates a yield on those assets while massively boosting the use cases for our products. This is the exactly the kind of uses we should be aggressively pursuing.

I am strongly in favor of this proposal and excited to move this forward.

8 Likes
10

Agree here. I think it would be prudent for IC to have our own audit of the SCs using a third-party auditing firm that IC engages itself.

Yes, Rari has been audited by a firm that THEY have selected, but IC should obtain a “second opinion”. This should be the standard going forward.

I do not feel like the SC risk has been mitigated to an acceptable level given the amount of seed funding from the treasury that is proposed here. This also poses a risk to the users and ICs reputation (trust).

If there was a SC breach, not only would Rari’s reputation take a hit, but so would IC’s.

2 Likes
11

Hi @Crypto_Texan,

While I think we would love to be able to audit all of our partner’s contracts, from a cost and time perspective it is incredibly expensive. Audits can cost upwards of $50,000 and given the number of projects requesting audits, need to be booked well in advance. Maybe @anon10525910 @puniaviision can provide some more color since I know Set has been through the process.

1 Like
12

I only have** a general confirmation of what you point out – that is,** I don’t have an exact dollar amount, but I do know they cost non-trivial $ and that you do need to book them far in advance.

1 Like