Collar Improvement Proposals and CIP 1: 3CRV Lending Pool

The Collar core protocol will be launching this year and will enable lending for several pegged asset pairs. Over time, more pairs will be added and Collar’s development will continue by creating, discussing, voting on, and ultimately implementing Collar Improvement Proposals (CIPs), with the final decisions on CIPs being made by COLLAR token holders via DAO governance. CIPs are formal proposals to expand the functionality of the Collar platform beyond the core protocol. We will release more details on Collar’s governance in articles to come, but for now we want to share the outlines for several CIPs that our team has already prepared. We think that the first few CIPs we’re sharing are fairly straightforward changes to Collar that reduce friction and increase value to its users, but we also have CIPs prepared that alter Collar in exciting ways to generate yield for its users and unlock its full potential.

CIP 1: 3CRV Lending Pool to Reduce Pairs and Increase Liquidity

How Collar lending would work for DAI/USDC/USDT after CIP 1.

When the Collar core protocol launches, the lending of the 3 leading stablecoins (DAI, USDC, USDT) will be split across up to 6 pools that cover each possible lent/collateral asset pair. This has the effect of diluting the overall liquidity of the platform and leads to unstable interest as demand shifts between these 3 assets. The Collar team’s proposal to address this issue is to integrate the Curve protocol to instead offer 1 single pool where the lent asset is the 3CRV LP token, which a borrower can redeem for their choice of DAI, USDC, or USDT. This has the benefit of greatly concentrating liquidity to increase stability in Collar’s AMM lending market, but comes with the downside that lenders of any of these 3 assets will have exposure to all 3 of them. Our team believes the success of Curve’s Tri-Pool demonstrates that lenders are comfortable being exposed to this extra risk in return for receiving the extra interest that comes from the simultaneous lending of the 3 most commonly swapped stablecoins.

What is Curve and the Tri-Pool?

Curve is an AMM with high TVL that has low fees and low slippage, especially for stablecoins (see Understanding Curve). The Curve Tri-Pool/3Pool is a liquidity pool containing 3 assets: DAI, USDC, and USDT. Users deposit equal proportions of the 3 stablecoins into the 3Pool (or deposit 1 of them and have the protocol automatically split it up for them) and receive a 3CRV token that represents their share of the 3Pool (see Depositing Into the Tri-Pool). When users want to withdraw their assets, they can use the 3CRV tokens to withdraw equal proportions of the 3 stablecoins, or have the protocol make the necessary swaps for them to withdraw only the single stablecoin of their choice. The 3CRV token can also be staked to receive Curve’s governance token reward, CRV tokens.

How Will This Work in Practice?

  • Lenders deposit their choice of DAI, USDC, or USDT into Collar’s “Tri-Pool”. It is automatically converted into 3CRV, which lenders can then exchange for COLL tokens that represent DAI/USDC/USDT collateral.
  • Borrowers deposit either DAI, USDC, or USDT into Collar’s “Tri-Pool” and receive COLL tokens that they sell for 3CRV. They then withdraw the stablecoin of their choice from the 3Pool on curve.fi (withdraw link here) or use the 3CRV tokens as they see fit.
  • Once the expiry for Collar’s “Tri-Pool” has passed, lenders redeem their COLL tokens for a mix of repaid 3CRV and collateral DAI/USDC/USDT, with proportions that are determined by the amounts repaid and defaulted by borrowers.

Of course, this proposal is not finalized and it will ultimately be left up to the community to decide whether it is implemented or not. Please see details on Collar’s governance and voting in a future article closer to Collar’s launch. In the next articles we will be sharing the details of more exciting CIPs that our team has prepared.

Collar gives you options for you stablecoins.

Visit collar.org

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CollarFinance

CollarFinance

Collar is a decentralized lending protocol that hedges pegged cryptoassets with no liquidations and 100% LTV.