Discussing Collateral Options

Important
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EDIT 1: Preliminary Mainnet Collateral List:

  • CNTS: [ MIN, LENFI, SNEK, INDY, ENCS ]
  • STABLES: [ DJED, iUSD, MyUSD ]

Hey. Today I would like to open up discussions around the collateral that could be supported in Butane.

The supported collateral options in each synthetic class on butane is distinct. Deciding whether to support a collateral option depends on a variety of parameters: the synthetic type (and it’s parameters), the liquidity available of the collateral option, how decentralised / distributed the funds of that protocol are.

One reason SNEK & MIN are good collateral options are that the token is very distributed. This means there is less concern or potential for a single whale abusing the system, with tokens they got for free.

Considering New Collateral

When we look at tokens around the ecosystem, many of them can be potentially unhealthy and this could be catastrophic for a particular synthetic class. One reason we split the collateral for each synthetic is to make the whole system resilient to any one class of synthetic being vulnerable.

When we introduce new types of collateral, we should trial them in places where they are less risky, and introduce them with relatively high collateral weights. Some forms of collateral however are totally unacceptable and once governance is in place the DAO needs to avoid these at all costs.

Butane needs to really consider and think about any forms of collateral that we choose to accept. The types of collateral can make or break the project so it needs to be discussed extensively.

An example of collateral we could probably never accept is $HOSKY (not to hate the project). Because 50% of it’s supply is held almost entirely by 1 address, the protocol could never be sure about the real market value and whether liquidity can be swept away by one event. A similar argument can be made for any project where the team holds too high of a percentage of the tokens.

Personal Opinion

Where my personal opinion comes into play may be around source availability and decentralisation. Ultimately the butane governance systems will be able to bypass my reservations but I would like to discourage the community against any tokens which don’t have protocols we can analyse and thoroughly examine. With this understanding, a few tokens I would like to consider but am concerned about: $IAG, $LQ, $SUNDAE, $VYFI, $C3, $OPTIM. Along a similar line of thinking, I would also like to encourage against projects which do not deploy protocols on-chain. Because these are more or less proxies for businesses, they can’t be seen as reliable value stores, unlike protocols which may be. Tokens in this class: $AGIX, $COPI, $BOOK, $HUNT. Tokens that I consider acceptable are $LENFI (perhaps I am biased? need to consider further.), $MIN, even though parts of their treasuries are manually-operated (centrally controlled), they have explicit protocols deployed with functional profit sharing. Probably the 2nd best token we could potentially include is $INDY, as the protocol has a strong commitment to decentralisation, like we do, however they’re excluded for now while we consider the optics of them as a competitor.

The top tokens for the collateral use-case are tokens burnt to pay fees or are used as treasury tokens (ownership of a hyper structure), and have already been distributed heavily to the community. If a token is more or less incentivised to accumulate (without central actors!), it is ideal because we can benefit the butane treasury as a whole via the treasury fee.

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I know some people in the space will not be happy about it, but i would suggest adding WRT as collateral. Some facts:

  • 60% of their token is already in circulation
  • holding their token has real benefits
  • they keep continue building (even for the brighter space)
  • they have a high TVL, 26 mio Ada atm
  • they already have a DAO and build an open source one atm
    They didnt have the best reputation, but I think they working on it. Imo we should create a poll to let the community vote
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Wingriders is too often in the bad stories in Cardano tbh

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yeah they’ve been egregious. It would take a lot to repair their image.

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Regarding the indy optics i would say incorporating them sends exactly the message you want to send especially because they are competitors

If the metrics by which other tokens are judged are found adequate for $indy, and you indeed include them, then you are sending the message that butane is a fair, collaborative platform that stands above those that bicker

You invite competition in the most healthy of ways and open the doors for reciprocity based on merits as butane will be considered an example to follow in the ecosystem

Take the exact opposite approach of those that were critisized by the community for bad manners and practices and position yourselves as the standard to follow

I guarantee you, community will repay such a stance ten fold

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I agree with this take.

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Liqwid is open sourcing their v2 contracts soon. It can be a nice collateral as well.

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We should consider ENCS. Encoins has a product live on mainnet. Only Cardano privacy protocol. 15M max emission (100% on circulation). V2 coming in 2024

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Lenfi feels like it is a MUST have for a collateral on Butane. There are several reasons to whitelist LENFI, here are just a few:

  1. The token is one of the most liquid native assets if we exclude ADA itself (over 6m ADA in TVL on Minswap)
  2. LENFI is among the most decentralized native assets and has over 9200 holders and growing.
  3. Has an AA overall risk rating and AA liquidity risk rating by Xerberus.

I think many in the community would agree with the choice to include Lenfi as a collateral option on Butane, especially with V2 coming soon!!

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Has there been discussion around a minimum TVL for liquidity? There needs to be fast collateral liquidation and ideally with a set slippage amount. So either MCRs need to be high and caps need to be low on some of these CNTs, or we need more TVL in the ecosystem ( that’s always a given lol).

As someone who is part of both Optims and Minswaps DAO, id love to see these tokens as collateral. However, low liquidity (less relevant on MIN side) is always a bit scary. U don’t want massive volatility in ur token due to liquidations on low liquidity

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Ok so I can appreciate how you are proposing Butane only implements “real value” tokens instead of all the crap out here that exists but, I do also think you’re overthinking it in regards to “…against projects that do not deploy protocols on-chain.”

At the end of the day, yes, you want to ensure the collateral tokens are valuable but, this degree of ‘selectiveness’ I believe will actually hurt Butane as it will drastically minimize the options (deeming the protocol too selective and border-line redundant)

As a compromise, what I may suggest would be two things:

Option 1: All ‘real-utility’ tokens (independent of on-chain/off-chain protocol existence).
Select a few sectors such as DePIN, Finance, and say RWA, choose the CNTs in those categories and filter out to only include those in the Top 50 (or 20M FDV<)

Option 2: Strike up a collaboration or just simply leverage Xerberus to determine ‘worthwile’ tokens to include
All tokens with a risk Rating of BB - AA get included, given ‘real-utility’ and 20M< FDV exist.

Simplify the process but maintain the integrity of Butane as a protocol

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I think it is important to keep in mind that additional CNTs can be added/removed later as token holders see fit, however at launch it is important to be selective and even adding “all real utility” tokens this early is extraordinarily risky.

I personally would also not feel comfortable on a blanket approach based on someone elses assessments, especially considering under option 2 $TEDY would automatically be inculded if we went in this direction.

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Aren’t all DePin tokens on-chain ? What happens to tokens that get locked for nodes such as WRT and IAG that have time locked policies? Will these have any affect on the synthetics? That liquidity is locked and wouldn’t be subject to volatility.

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WRT/IAG are pretty much black boxes in this respect so can’t rely on their on-chain activity.

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Yeah this is spot on, we don’t want to be delegating any of our selection process (although we can consider the ratings of other systems) because they do all have their own flaws that we will want to avoid.

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Ok yeah I see the concern, and it’s 100% valid.

My only worry is that, by having extremely strict parameters at the start, you’re limiting the number of users that are capable of using the protocol.

Seeing that Butane is already building itself to be a far superior synthetics protocol, don’t limit the number of initial users you can get in via the door.

In lieu with the understanding that CNTs can be added/removed later, how about a ‘combined’ approach such as:

  1. Launch Butane with an approach to onboard as many users as possible.
  2. Set deadline at which point the team internally will decide which tokens to retain going forwards and which to discontinue. Any open positions will be allowed to continue till expiry/liquidation
  3. Given actual market data on liquidations/profitability/usage of Butane with certain tokens, the team can then amend which tokens are allowed
  4. Only after ‘step 3’, the process to “choose which tokens” are handed over to the DAO

I really do respect the Butane team for wanting to have higher standards than alternatives on the market.

But having high standards on a great protocol where the userbase doesn’t pick up due to those standards in the first place is redundant in my opinion.

I agree with Micah btw on WMT/IAG not having any on-chain verifiability for those tokens’s ‘usage’ but, that’s only one metric to consider under the parameter of “safety of the token”

Another parameter that is equally important for a protocol like Butane to consider would be “holder amount” as this would enable Butane to be in a position where those holders can become users of Butane.

A good ‘starting point’, apart from manually filtering out which tokens to begin with is to consider looking at a protocol like Levvy to understand which tokens are being lent (I know it’s not the exact same as opening a CDP with the tokens but it’s the closest starting point for users to understand what synthetics are) and borrowed.

A refined list from my side (as a user) would be to consider including:
SOC, INDY (can look into synthetics to but with the horrible peg stability, i’d rather Butane doesn’t), HUNT, WMT, LENFI, MIN, IAG, DJED, FACT.

Apart from WMT and IAG, all these tokens have a good combination of holders as well as “price stability” to say the least to make them suitable to use in a synthetics protocol such as Butane.

From that initial list (subject to further scrutiny), Butane will be able to launch with enough reach to acquire real-market data to more accurately deduce which tokens should and shouldn’t be allowed for use.

Rationalizing to the community why certain tokens are not included then becomes data-driven more than “personal opinion” such that when handing the ‘authority’ over to the DAO, the understanding is there.

Think an approach like this works for the team?

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The tokens themselves are onchain but their ‘usage’ is essentially off-chain or just a “lockup/staking” feature which is something that affects price erratically which makes them dangerous to use as a collateral token

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Need to make sure everyone is aware of this as an assumption: it is far more annoying to remove than to add, so better to limit removals

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And yeah looking at usage on other lending platforms is a good point

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Peg for Indy doesn’t matter: if iUSD is at 80c but its relatively stable at 80c then it’s perfectly fine for collateral use cases

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