Lybra taps into the growing market for LSDs (Liquid Staking Derivatives) & has created a decentralised stablecoin protocol that enables stETH and ETH holders to mint an interest-bearing stablecoin called eUSD.
This increases their yield, improves asset liquidity and assists with capital efficiency, all while maintaining the value of eUSD. eUSD holders can use their tokens and obtain ~8% APY.
eUSD Minting - How does eUSD generate yield?
Users can choose to deposit ETH or stETH as collateral to mint eUSD, which requires a collateralisation rate of at least 150%. All ETH contributed to the protocol will be converted 1:1 to stETH, which will continue to provide yield over time (~5% on Lido). These inflows will be transferred back in the form of eUSD based on ETH’s price at the time. $LBR and eUSD holders will then share the revenue proportionally, with the latter’s APY at ~8%.
Price Stability Mechanisms
The stability of eUSD is upheld through a combination of strategies including over-collateralisation, liquidation mechanisms, and arbitrage opportunities.
1. Regid Redemptions
Rigid redemptions refer to exchanging eUSD for ETH at face value. In other words, for x eUSD, you receive x dollars worth of ETH in return.
Two parties are involved in this process, namely, the redeemer and the redemption provider. The provider will receive 0.50% of the redeemed ETH as a fee from the redeemer, as governed by the Lybra DAO.
Borrowers (minters) whose collateralisation rates fall below 150% will be liquidated to maintain the eUSD peg. The liquidation process closes once the borrower's reduced debt is paid off, and the value of the remaining collateral equals 110% of the reduced debt.
Three parties are involved in this process, namely liquidators, borrowers & keepers.
3. Arbitrage Opportunities
How can a user earn yield on Lybra?
Dual Token Model: $LBR & $esLBR
3. Use Cases
As a pioneer of an interest-bearing LSD-Fi stablecoin, Lybra has a unique design, where multiple mechanisms have been introduced to ensure sufficient collateral for eUSD. However, its relatively high token inflation, as well as the reliability of the eUSD peg incentives may bring concerns regarding the robustness of the protocol.
While it may still be early for Lybra Finance, it is clear that they have introduced a product that the market wants to utilise.
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