No doubt, we played a significant role in bringing Lybra at the early stages of the protocol’s development to your attention, and ever since, we’ve remained quite keen on the progress of this one.
Lybra V1 was as interesting as it could be, amassing a significant TVL, arguably the biggest stablecoin LSDfi protocol, and although few challenges were encountered, it was fun for the most part. Now, if you are new to Lybra, you can do yourself a favour and check out our previous articles and catch up.
With Lybra V2 Mainnet being imminent, it’s important for certain questions to be asked and answered. And as fate weaves its tapestry, we pounce upon the chance to roast the team with scorching queries, much like ravenous wolves feasting upon the succulent marrow of info.
This fireside chat session follows a question-and-answer format to cut across the experience of the team so far, asking unique questions about v2, and important conversations surrounding user satisfaction and security.
Let’s dive in:
Q & A:
Q- Let’s start with this… $370m worth of staked ETH later, would you mind describing the Team’s reaction to how the public has received the Lybra protocol and what you feel has been the most significant moat behind this.
- We're incredibly thrilled and appreciative of the community's overwhelmingly positive response to the Lybra protocol, as evidenced by the $370m worth of staked ETH. Reflecting on the primary factors driving this success, several key advantages come to mind:
- First Mover Advantage: As an early player in the field, Lybra has been able to establish a strong foothold and build credibility within the community.
- Community Driven: Unlike many projects that rely heavily on Venture Capital, Lybra is community-driven. We believe this fosters a more democratic and engaged user base, which has significantly contributed to our growth.
- Continuous Innovation: We have remained committed to innovation, continually enhancing the Lybra protocol. With the launch of V2, we'll introduce support for more LST collateral, native cross-chain functionality powered by OFT standard by LayerZero, dLP (Dynamic Liquidity Provisioning) and Stability Fund mechanisms as well as Lybra Wars. These enhancements highlight our unique strengths, positioning us distinctively in the market, and setting us apart from the competition.
- Experienced Team: Our core team and advisors boast years of experience in the industry. They have a deep understanding of DeFi and maintain healthy relationships with other top-tier protocols in the industry.
- Future Focus on peUSD Utility: Looking to the future, our strategy for sustained growth centres on building more utility around peUSD (and thus eUSD). By creating more use cases to encourage peUSD adoption, we aim to drive the long-term development of the platform, ensuring holders of eUSD can spend their holdings (in $ terms) as peUSD, without ever giving up their yield on their deposited collateral.
So, we’ve seen countless threads and articles from your end on V2 features and things look promising, what would you consider a major flaw in V1 that’s gonna be fixed in V2 — the most significant for the team?
- One significant issue we noticed in V1 was the limited scalability of eUSD. Its rebase nature unfortunately made it less compatible with DeFi, which we recognized could impede the growth and broader adoption of eUSD.
- In recognizing this, we set about designing V2 with the aim of addressing this issue head-on. We are proud to introduce peUSD, a DeFi utility version of eUSD. peUSD fundamentally alters the dynamics of our protocol by providing holders the freedom to spend or swap their peUSD holdings for a variety of DeFi uses.
- What's even more exciting is that the accrued eUSD yield can be realized immediately upon converting back to eUSD. This effectively liberates eUSD from its previous constraints and opens it up to a wider range of applications. We believe that this is one of the biggest innovations in V2.
- We're confident that this innovative design will make our platform much more attractive to native DeFi users. This should significantly increase the adoption of eUSD and peUSD, ultimately leading to an overall improvement in the protocol's performance. The anticipation for the impact of this change is what truly makes the work we're doing on V2 so fulfilling.
Q- One thing is not quite clear in terms of peg maintenance in V2. Quite interestingly, you guys have mentioned an eUSD/3CRV pool and that’s a step in the right direction in integrating with the Curve ecosystem, but we are still a bit confused about the “Stability fund”. How would such a fund function and where will the liquidity come from?
- To explain the source of liquidity for our Stability Fund, we need to discuss two related aspects: our Dynamic Liquidity Provisioning (dLP) and advanced vesting.
- 1. We are implementing a requirement where users must maintain a minimum of 5% in locked Dynamic Liquidity relative to their total loan value to qualify for mining emissions. If this condition is not met, the emitted esLBR rewards will be channelled into a bounty program, whereby other users can purchase these tokens at a 50% discount using LBR or eUSD.
- 2. LBR stakers/esLBR holders have the option to exit their vesting process early. However, doing so incurs an advanced vesting penalty charged in esLBR. These penalties are placed in a bounty program as esLBR, which again can be purchased by other users at a 50% discount using LBR or eUSD.
- The eUSD collected from these two bounty programs is then used to establish the Stability Fund, which aids in maintaining the eUSD peg.
- So how exactly does this fund operate?
- In simple terms, the Stability Fund actively manages the eUSD peg. If the eUSD premium rises above 0.5%, eUSD from the fund will be used to swap for USDC, thereby exerting downward pressure on the peg.
Q - Considering that the dLP token is backed by the LBR/ETH pair, is there an automated mechanism in place to monitor the dLP threshold, or do depositors have to manually keep track of the threshold?
- There isn't an automated mechanism in place for monitoring the dLP threshold. Instead, users have the option to over-collateralize, depositing far above the required threshold. This acts as a safety net, preventing insufficient dLP, similar to how users in stablecoin protocols choose to maintain a collateralization ratio that is significantly higher than the liquidation threshold.
Q - Is there any reason why the eUSD wasn’t migrated to an OFT rather a new token “peUSD” is being issued? Will such a situation not result in fragmented liquidity or a struggle to hard peg both tokens?
- eUSD by its nature, is an interest-bearing stablecoin that's closely tied to the rebase of underlying LST. This means it can only accrue interest automatically on the Ethereum mainnet. The design of peUSD is not just to satisfy the real utility of eUSD; it is also the native stablecoin minted against non-rebase LST vault (wstETH, WBETH, etc). This makes it inherently suitable for cross-chain usage.
- The pegging of these two stable assets is set by Lybra contract, and we are confident that there won't be significant depegging situations. The two serve different purposes and are designed to work in tandem, rather than compete against each other. This ensures no fragmented liquidity or struggles to hard peg both tokens.
- One thing to add here, is that eUSD and peUSD are in a way designed for different use cases/different users. eUSD is for large institutions to swap their existing stables (USDC) to eUSD acting as their new savings account, or putting their treasuries to use in earning interest. peUSD is designed to be used, traded, swapped to further enhance yield for DeFi natives.
Q- V2 enables flash loans and thus creates an opportunity for MEV transactions. What are some of the security features put in place to prevent a flash loan attack on the protocol and to ensure that things don’t go comic?
- First and foremost, we need to ensure that all eUSD stored in the peUSD contract must be fully returned after the flash loan, which ensures the safety of funds.
- Secondly, a fee will be deducted from the caller's address after the flash loan is executed. This avoids uncompensated use. The original intention of providing flash loans was to execute liquidations, which naturally yield higher profits. Thus, the fee ratio for flash loans is high (5%), making it unviable for many small arbitrage operations to use this function.
- Lastly, with the flash loan feature, our priority is to ensure the safety of funds and the absence of vulnerabilities. Users might use this feature for clever arbitrage operations, which is permissible. We have designed our protocol with these potential use cases in mind and implemented robust security measures to mitigate any risk associated with them.
Q- Are there any interesting changes to the LBR tokenomics as we approach V2 Mainnet?
- We have adjusted the proportion of token distribution for various parts, please refer to our V2 docs for the updated tokenomics. This is done to ensure the long-term development of the protocol and also to incentivize the community to actively build within the Lybra ecosystem through the ecosystem treasury.
- V2 has introduced various token burn mechanisms, which will be beneficial to LBR holders in the long run. The previously mentioned token allocation for VC remains, but we will only consider the necessity of introducing VCs in the future based on our needs. If we decide not to involve VCs in the future, a portion of these tokens could be burned.
Q- Protocol-owned liquidity is a big deal in DeFi 2023. Will V2 bring extra sources of revenue or bump up existing ones?
- LBR stakers can expect to earn revenue from both eUSD circulation service fees and peUSD borrowing fees. These income streams will grow substantially as the total value locked in Lybra increases. Additionally, we plan to include rebate fees from our collaborating LST providers into the revenue stream for LBR.
Q- Lastly, give us a spill.. maybe not the exact time but if you could do us a favour here… when’s v2 Mainnet .. and you don’t have to be ballpoint precise to be honest.
- Our priority right now is to ensure the safety and security of our V2 protocol. We are currently undergoing our second and third audits with ConsenSys and Halborn, and we expect to receive the report by August 23rd. We won't compromise on time or money when it comes to the security of our protocol. Once we've received the audit reports and addressed all identified issues, we will then proceed with the launch of V2. Although we can't provide an exact date right now, we assure you it's a top priority and will happen as soon as we've ensured the protocol’s security and stability. But will V2 launch in August? Yes.
More LSTs, incentive wars, and a composable approach make Lybra V2 sound super interesting. We’ve covered some of the features to expect with V2 in our previous article, however, hearing from the team consolidates how promising things really are.
Ahead of V2 Mainnet Launch, you can either choose to accumulate more LBR and stake them to bolster your voting weight ahead of the Lybra wars or participate in the ongoing Lybra quest by interacting with the testnet and following the rules.
Our goal is to ensure that you’re well-positioned for Lybra V2 and so if you have any more questions for the team which we haven’t covered here, feel free to tag us on Twitter using the hashtag #LybraV2 and $LBR alongside your question.