[Serenity Premium] Lybra and eUSD [Initial Review Jul 2023]
Lybra Finance is a LSDfi protocol that allows users to collateralised stETH to mint eUSD. The protocol retains the stETH yield from these collaterals and splits it amongst the protocol and eUSD borrowers. Therefore, eUSD is an interest bearing stablecoin.
The Strategy in this Article
This strategy is collateralising ETH to mint eUSD and providing liquidity to Curve eUSD-USDC. This principal here is ETH and not hedged.
Current yield: 41.9% (17 July 2023). This yield is denominated in eUSD, not factoring into consideration ETH-to-eUSD utilisation.
Our risk assessment: Medium
Our yield projection based on this week's Benchmark Yield: Not comparable.
The Concept and How the Protocol Works
Overview
Lybra Finance (V1) is a plain vanilla collateralise-mint system like Liquity. Instead of accepting ETH, the staking version of ETH with Lido, stETH, is accepted as the only collateral for Lybra. You can then generate eUSD against your collateral up to a maximum collateral ratio of 170%, and when the collateral ratio follows below 150%, liquidation will be triggered.
As of 17 July, a total of $382m worth of stETH is collateralised in Lybra, making it the largest LSDfi protocol by TVL. $189m eUSD are minted against these collaterals.
Yield Split
Lybra will retain all yields from stETH, and splits it amongst the protocol and eUSD minters (borrowers).
Based on the latest stETH yield of 3.8%, Lybra receives $381.6x x 3.8% = $14.5m per annum.
The protocol takes 1.5% of the total borrowed value as a service fee, which is $189.1m x 1.5% = $2.8m
The balance of $14.5m - $2.8m = $11.7m is distributed via rebasing to all eUSD minters on a pro rata basis. Against $189.1m, the APR is about 6.2%.
Farming
Currently, there are two ways for farming with eUSD. First is to mint eUSD and do nothing; you will receive the eUSD rebase as well as esLBR, the escrowed version of the platform token. Alternatively, you can provide liquidity in Curve for the eUSD-USDC pair, for which you will sacrifice about half of the rebase eUSD earning, but the you will receive additional esLBR in return.
The yield comparison of the two farming methods:
Mint eUSD and do nothing: the yield is eUSD rebase of 6.2% as computer above under section Yield Split, and 25.5%, a total of 31.7%;
Mint eUSD and provide liquidity in Curve eUSD-USDC (where 44% of the pool is eUSD): the yield is 25.5% + 44% x 6.2% + 13.7% = 41.9%
The trade-off of choosing minting and LPing will be a reduction in the quality of the yield, which is effectively using 13.7% esLBR to trade for about 3.5% of eUSD yield. esLBR takes 30 days to vest linearly into LBR.
There's also a Boost feature for the farming pools. If you choose to Boost by delaying your esLBR harvest by 1 month to 1 year, you will receive an additional 20% to 100% esLBR from these farms. For the avoidance of doubt, the current APR displayed in the above screenshot is likely to be the average APR, e.g. Total LBR rewards over total eUSD minted, not taking into individual boosting factors or redemption provider opt-in.
The Valuation of LBR
LBR is the platform token of Lybra Finance. It has a maximum supply of 100m, of which 60% will be mining rewards, making it a farm token. On the other hand, esLBR is also entitled to receive the 1.5% service fee charged on eUSD minted, so it provides intrinsic value or fundamental valuation support for LBR.
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