Hey everyone, it’s time for an in-depth explanation and formal announcement of the Creditum protocol. We are very excited to finally embark on this journey together.
First of all we wanted to give a big thank you to all our users for their patience and messages of support, because without you this wouldn’t be possible at all. Secondly the team has decided to launch Creditum with only the core functions available at first. Not all of the smaller features will be available initially but you can expect many improvements the first few weeks after launch. The reason for this is for users to get used to the protocol before we start getting too fancy.
So what is Creditum all about?
Creditum will be another attempt at bringing the Fantom network a functional native stable coin, cUSD (Creditum USD).
Some people may be wondering what is going to happen to old fUSD. Are we just giving up on the old fUSD? In short, no we are not giving up on old fUSD. In fact, cUSD is meant to replace old fUSD with a new liquidation model that works. We want to release cUSD independently at first to prove that the new model will keep our stable coin pegged. Additionally, a migration from old fUSD requires cooperation from the Fantom Foundation, and having a proof of concept in cUSD will instill confidence in the Foundation to let us roll out the migration plan, which we already have an idea of how to do. Further details will be released once cUSD has proven its consistency in holding peg and upon the cooperation of the Foundation to help us with the migration
For now, let’s explain in detail the way Creditum works. Examples will better illustrate the functionality of the product and ultimately be less confusing than trying to explain everything abstractly.
Creditum uses over-collateralized deposits to mint debt tokens at a fixed interest rate, but only one will be available at launch, specifically cUSD. What this means is that in order to mint $1 of cUSD the user will be required to put more than $1 worth of their chosen collateral. The different collaterals that Creditum supports will have different loan to value ratios (LTV). The LTV of each collateral will be based on a number of criteria and ultimately determined by the team.
The criteria to determine the LTV of collaterals are as follows:
- Volatility of an asset — so that users can mint without too much fear of liquidation. More volatile assets will have lower LTV
- Liquidity — so that users will liquidate positions collateralized in this asset and have confidence that they will be able to dump the underlying tokens. Lower liquidity will mean lower LTV
- Safety — tokens without a proven track record of safety will have a lower LTV
Before we dive into this example let’s establish a few factors that will affect this position.
Factors: All the factors are set by the developers initially (but will be changed later on through community governance) and based on the criteria described above. Here are the ranges for these factors.
- Mint Fee: This is a fee that goes to the protocol upon minting cUSD. [0–5%]
- Max debt ratio or LTV: this essentially defines how much of an asset someone can borrow based on their collateral choice. [10–95%].
- Mint Limit: This is a limit set on the amount of cUSD the protocol will allow to be minted based on the asset. [0, infinity).
- Liquidation threshold: This is the max debt ratio plus a small buffer provided to users so that liquidation can’t happen immediately after the LTV is reached. [1–100%]
- Liquidation penalty: this is a fee that goes to the protocol when a position is liquidated. [0–25%] The rest of the liquidated amount goes to the liquidator
- Depreciation Duration: This is the amount of time that a position is liquidatable for, during this time it will become more and more profitable to liquidate said position as the protocol depends on liquidations to remain solvent . [10min -1hr]
- Stability Fee: This is essentially interest that is paid upon closing one’s position, goes to protocol. [0–25%]
With those factors defined we can jump into our example.
Factors for this example:
Collateral: FTM for simplicity let’s say it’s at $1 (god forbid!)
Mint Fee: 1%
Max Debt Ratio: 75%
Mint Limit: Although it won’t affect this example let’s set it at 1 million. This means 1 million cUSD can be minted with FTM as collateral.
Liquidation Threshold: 5% so in total 80% required for liquidation
Liquidation Penalty: 3%
Depreciation Duration: 30 minutes
Stability Fee: 4%
Okay, with the basics out of the way let’s go over a quick example — the life cycle of a creditum position:
- Underlying asset is locked into the site. This user is risk averse so they deposit 2 FTM to mint 1 cUSD.
- He is now checking his health factor, which will be available on the site, but let’s see what the calculations look like. A health factor below 1 is liquidatable and it is calculated by $collateral* Liquidation Threshold/ $ borrowed
Health Factor = $2*80% / $1 = 1.6 Healthy!
In the case of liquidation:
- The market takes an unfortunate hit and FTM drops to 60 cents. Uh oh. Health factor = $1.2*.8 / $1 = 0.96. 0.96 < 1 so this position is officially liquidatable.
- We will have bots running at all times to tag liquidatable positions. This position will be tagged and now awaits liquidation. During this maximum 30 minute period the user cannot touch their position or open a new one using FTM.
- A different user would perform the liquidation by paying off the $1 debt in cUSD. The liquidation penalty would then be given to the protocol 3%*$1.2 = 3.6 cents and $1.164 of the underlying FTM is awarded to the user who performed the liquidation. (The mechanism is slightly more complicated than this and based on the time more and more of the underlying asset will be rewarded. If the buyout was performed earlier there would have theoretically been some FTM returned to the original user).
- The position is now closed and the original user is free to open a new position. Note: Positions cannot be partially liquidated.
In case of no liquidation:
- Once the user wants to redeem their cUSD for their collateral they simply repay the 1 cUSD and will get back the 2 FTM. (They will also pay the stability fee upon closing, if the position was open for 6 months for example they would pay 2 cents).
To properly illustrate this example, here is a visual representation of this position.
What happens if cUSD gets off peg?
In the scenario that cUSD is trading ABOVE $1, there is a function called stabilizerMint where users can deposit USDC to mint cUSD 1:1. Users can then sell their minted cUSD on the market until this arbitrage is no longer available. Example: cUSD trading at $1.05, user deposits 1 USDC for 1cUSD, user then sells cUSD for 1.05 USDC, and can then deposit USDC again for cUSD to take advantage
In the scenario that cUSD is trading BELOW $1, stabilizerRedeem allows users to redeem 1 cUSD for 1 USDC in order to take advantage of the arbitrage opportunity again. Example: cUSD trading at $0.95. Users can buy cUSD on the market and redeem it on the market for 1USDC for a 5 cent profit. The buy pressure will then bring cUSD back to peg.
Why should we mint/buy cUSD?
At launch, users will be able to deposit cUSD and create LPs on Curve with USDC and DAI. These LP tokens can then be used to farm CREDIT, the governance and fee distribution token of Creditum. cUSD-DAI-USDC LP can also be used to buy Creditum bonds at a discounted rate.
In the future, cUSD will be the main pairing/routing token in Singularity Swap, just like how FTM is the main routing token for most DEXes on FTM. This means plenty of farms for cUSD in the future!
Why should we buy CREDIT?
CREDIT earns the revenue generated from users borrowing against their collateral and liquidation fees. CREDIT can be staked for xCREDIT to take advantage of the revenue.
Again, the improvements will be constant but we wanted to release something for you all to play with and get ourselves back out there after being away for so long! Launch date will be on Sunday 12/26, and initial liquidity will be given to RVNT holders.