Re-examining Opportunities in the Ethereum Ecosystem

Although current market funds are mainly concentrated in Bitcoin and the Solana ecosystem, the Ethereum ecosystem seems to be slightly quiet. However, with the official launch of Eigenlayer expected to enhance the benchmark interest rate of the Ethereum ecosystem, funds are likely to flow back into the DeFi sector. As the investment adage goes, "buy when no one is interested," positioning for the future re-staking ecosystem through Agilely at this time may be a potentially lucrative choice.

Introduction

After Ethereum transitioned to proof of stake, the wrapped ETH issued by staking protocols such as Lido and Rocket Pool brought a 4% risk-free interest rate derived from proof of stake to the Ethereum ecosystem. EigenLayer further decouples the security of Ethereum staking nodes from the network, providing services to multiple proof of stake networks through re-staking. Although it has not officially launched yet, it can be anticipated that re-staking is expected to further raise the benchmark interest rate of the Ethereum ecosystem to 6%-8%. On this basis, by leveraging, users may obtain approximately 10% long-term risk-free returns. Agilely has become the first project among many LSDFi protocols to embrace re-staked tokens.

Agilely Introduction

Agilely is essentially a stablecoin $USDA issuance protocol. USDA is a full-chain interest-bearing stablecoin based on the Liquity model, which ensures that users can earn interest simply by holding it, while also ensuring that USDA is always anchored to $1, achieving the coexistence of yield and circulation attributes.

After the emergence of the LSD track this year, interest-bearing stablecoins that combine liquidity, stability, and profitability have quickly gained favor among DeFi participants. Since Lybra fired the first shot in May, Gravita, Raft, and Prisma have successively followed suit, with a total locked value reaching 400 million USD, becoming an emerging force that cannot be ignored. Agilely, based on the advantages of many projects, not only retains the most innovation points in product design but also ensures that the token can capture the actual income of the protocol in its token design, which is an advantage not possessed by similar projects.

The stablecoin model based on CDP( collateral debt positions ) was first proposed by MakerDAO, where users over-collateralize assets in the protocol as collateral to borrow the stablecoins issued by the protocol. However, a collateralization rate of up to 250% leads to low capital efficiency.

Subsequently, Liquity proposed a more classic CDP stablecoin model, which achieves a minimum collateralization ratio as low as 110% through a dual-anchor mechanism and a three-tier liquidation model, significantly enhancing capital efficiency. The stablecoin LUSD issued by Liquity has consistently been anchored to $1 after two years of market fluctuations, fully proving the robustness of its mechanism design. Agilely adopts Liquity's price stabilization mechanism to ensure the stability of the USDA price.

Review of Liquity's Stability Mechanism

Before introducing USDA, it is necessary to review Liquity's stability mechanism for better understanding. Liquity's CDP stablecoin LUSD is designed mainly around the following aspects: soft/hard anchoring to achieve LUSD price anchoring, stability pool - debt redistribution - recovery mode to ensure protocol safety, and regulating supply and demand through changes in minting fees and redemption fees. These modules work together to provide stability for LUSD, making it the best model for CDP-based stablecoins.

Liquity's price stabilization mechanism

LUSD, as a dollar-pegged stablecoin, has stability as its core attribute. Its price stabilization mechanism is divided into hard peg and soft peg. The hard peg limits the price ceiling to $1.1 by setting a minimum collateralization rate of 110%. If the price of LUSD exceeds $1.1, users can mint LUSD by collateralizing Ether at a 110% collateralization rate and sell it on the market for risk-free arbitrage; the price floor is constrained to 1 by providing a hard redemption/repayment channel. If the market price of LUSD falls below 1, anyone can purchase LUSD on the market to exchange for ETH/redemption of collateral from the Liquity protocol for risk-free arbitrage. By providing an open arbitrage channel, the price of LUSD is stabilized between [1 - redemption fee rate, 1.1].

The soft peg part includes several aspects. First, it is the protocol-led long-term market psychology reinforcement. The Liquity system reinforces the perception that the value of 1LUSD is equivalent to 1USD. Users will also reach a consensus of 1LUSD = 1USD in the long-term game. As long as market participants form a psychological expectation of the price range for LUSD between [1 - redemption fee rate, 1.1], they will not buy LUSD at high prices or sell it at low prices. In addition, there is a one-time issuance fee determined by the algorithm as an additional stabilization mechanism. Compared to interest rate increases, raising the issuance fee rate can more directly influence the number of new LUSD minted. For specifics, refer to the "Supply and Demand Control Mechanism" section below, where the issuance fee rate and redemption fee rate work together to control the issuance quantity of the base currency, thereby regulating the market price of LUSD.

It has been proven that this stable mechanism is effective.

( Liquity's liquidation mechanism

As mentioned earlier, Liquity's liquidation mechanism consists of a stable pool - position redistribution - recovery mode, forming a protocol safety line. Under normal circumstances, the liquidating user ), that is, users with a collateral ratio lower than 110%, is usually liquidated by the stable pool as the counterparty. However, if the stable pool does not have enough LUSD to support the liquidation, the system will initiate the position redistribution mechanism. Finally, when the overall collateral ratio of the system falls below 150%, it will switch to recovery mode.

In this liquidation process, the stability pool is the first and most commonly used line of defense. Debt redistribution and recovery models are primarily used for protocol security protection in extreme cases.

• Stability Pool: As the counterparty for clearing users at the protocol level. LUSD holders deposit LUSD into the Stability Pool, and when there is a position that needs to be liquidated, external liquidators call the Stability Pool for liquidation. Liquidators receive 0.5% of the collateral and a gas subsidy of 50 LUSD. The remaining 99.5% of the ETH belongs to the depositors of the Stability Pool. Theoretically, depositors of the Stability Pool can earn up to 10% ETH yield ### when liquidating just below the 110% liquidation line (, but it should be noted that this operation essentially involves buying ETH in a declining ETH market, and if the ETH price continues to drop and profits are not extracted in time, losses may be incurred.

• Position Reallocation: When the LUSD in the stable pool is exhausted, the system will proportionally redistribute the ETH awaiting liquidation and the LUSD awaiting repayment to all existing positions. The higher the collateralization ratio, the more debt and collateral received, to prevent a cascading liquidation in the system. To date, even during several major market downturns, the system has not initiated position reallocation.

• Recovery Mode: When the overall collateral ratio of the system falls below 150%, the system enters recovery mode, quickly pulling the overall collateral ratio back above 150%. Liquidation during recovery mode is relatively complex and will not be elaborated here. Overall, positions with a collateral ratio below 150% may be liquidated, but the protocol sets a maximum loss limit of 10% for users. Liquity entered recovery mode during the crash on May 19, 2021.

) Liquity's supply and demand control mechanism

As a stablecoin, LUSD is similar to traditional currencies, regulating supply through monetary market operations. Specifically, it controls the supply and demand of LUSD by adjusting the minting and redemption rates, which are adjusted based on the timing and cycles of redemptions. When there are no redemptions, the system's minting and redemption rates decrease; when redemption activities increase, the redemption rate also rises. Compared to traditional currency market operations, this mechanism is more defensive, focusing on preventing large-scale redemptions by increasing the redemption rate.

Liquity only charges a one-time minting and redemption fee, calculated based on the global variable BaseRate in the protocol. The minting fee equals BaseRate * minting amount, and the redemption fee equals (BaseRate + 0.5%) * the value of redeemed ETH.

When no redemption occurs, the BaseRate will decay to 0 over time, with a half-life of 12 hours. When a redemption occurs, the BaseRate is calculated using the following formula, where b###t( is the BaseRate at time t, m is the amount of LUSD redeemed, n is the current supply of LUSD, and α is a constant parameter.

Overall, Liquity ensures the proper operation of the entire system through excellent mechanism design, and the feasibility of this system has been proven. Since its launch, Liquity has maintained good operations, and LUSD has reached the pinnacle of stability and capital efficiency.

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Innovative Agilely Mechanism Based on Liquity

) collateral

In terms of collateral, Agilely allows users to use ETH, mainstream wrapped ETH, and GLP as interest-bearing assets to mint USDA. In the future, it will also integrate restaked tokens, transmitting their own interest rates to USDA and enhancing the USDA interest rate.

( interest rate model

This section mainly discusses the fees within the protocol, including minting, redemption, and borrowing fees. Minting and redemption fees are one-time charges, while borrowing fees are the costs that accumulate over time on unpaid debts.

Minting Fee: Refers to the one-time fee that users need to pay when minting stablecoins in the protocol. Agilely chooses to use Liquity's BaseRate model and modifies it. In the part where BaseRate decays over time, a decay factor is added, and different decay factors are determined for each instance.

Redemption fee: refers to the cost required for users to retrieve collateral from the agreement when repaying a loan, usually higher than the minting fee. The redemption fee for Agilely is BaseRate + 0.5%.

Loan Fee: Refers to the fees accumulated over time for unpaid debts by users. Some agreements incentivize users to choose long-term borrowing by not charging this portion of the fee. Agilely has innovatively designed ADI) Agilely Dynamic Interest ### to regulate the total money supply.

stability mechanism

This section mainly discusses the stability mechanism of Agilely as a stablecoin, which is divided into two parts: hard anchoring and soft anchoring.

• Hard peg: Provides a minimum collateralization ratio of 110% for ETH collateral to guarantee the price ceiling, and offers a redemption channel to ensure the price floor.
• Soft Anchoring: In addition to relying on the long-term market psychological game brought by the protocol to achieve the consensus of 1USDA=1USD, Agilely also integrates ADI( Agilely Dynamic Interest) to regulate the market supply of USDA for macro price control.

Clearing Mechanism

In terms of the liquidation mechanism, we take Liquity's three-tier liquidation mechanism ( stability pool - position reallocation - recovery mode ) as a benchmark to summarize Agilely's improvements.

Agilely ensures system security while being fairer, placing the clearing interface in the front end to lower the threshold, allowing more people to participate, unlike some projects that require running specialized bots to engage in clearing. In addition, Agilely optimizes the conventional stable pool into a smart stable pool, where the USDA invested by users will be placed in the stable pool with the highest likelihood of clearing and the largest potential clearing capital gap collateral.

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) PSM

In addition to the staking rewards from Ethereum, Agilely is also dedicated to capturing real-world asset ( RWA ) revenues to diversify protocol income. By setting the PSM module to raise interest rates, it aims to attract DAI, and combines the collected DAI with MakerDAO to enable the protocol to obtain MakerDAO's treasury bond income.

Value Flow within the Protocol

The Agilely protocol has multiple sources of business revenue, including minting/redeeming and borrowing fees, transaction fees from PSM, additional fees from the stable pool, returns on collateral, and RWA returns in PSM. These revenues will flow out in the following three ways:

• ABI###Agilely Benchmark Interest(flows to USDA holders, LP)on the Uniswap USDA-ETH pool and