MYSO Finance is a DeFi protocol that allows users to borrow without liquidation risk through so called “Zero-Liquidation Loans” (also sometimes referred to as non-liquidatable loans), which are designed to make DeFi borrowing as easy as possible (i.e., users don’t need to worry about liquidations, health factor monitoring etc.) and at the same time meant to make them an attractive new yield source for lenders. In essence, Zero-Liquidation Loans function as a risk transfer mechanism, in which the borrowers are relieved from liquidation risk while lenders – by design – bear shortfall risk to earn yield for this. From the lender’s risk-return profile, this can be thought of as a physically settled covered call strategy. There’s a whitepaper (see https://figshare.com/articles/preprint/MYSO_v1_Core_A_Trust-Minimized_Protocol_for_Zero-Liquidation_Loans/21581328) as well as several Medium posts (see https://medium.com/mysofinance) explaining this concept in more detail.
Similar to Gearbox, MYSO Finance first started as one of the finalists during the ETHOnline hackathon in October 2021, meanwhile completed a security audit with ChainSecurity (see Myso Finance - Core V1 - Chainsecurity) and recently launched on Ethereum Mainnet (see https://app.myso.finance/).
We’d like to propose a pilot project to have Gearbox DAO create its own borrowing & lending pool, using MYSO’s v1.1 protocol. However, it is important to note that this proposal is similar to one we have previously submitted to Olympus DAO, as we believe that the implementation of Zero-Liquidation Loans can provide significant value to DAOs: Gearbox DAO may offer its community members access to non-liquidatable loans and increase the utility of the $GEAR token, while providing the Gearbox DAO treasury access to a new yield source.
In order to allow for meaningful user interactions and testing, we propose to allocate part of the Gearbox DAO treasury into a to-be-deployed GEAR/USDC pool. However, to mitigate the risk of using a newly developed protocol, we propose to deploy between $100’000- $250’000 (up to 5% of current USDC funds) worth of USDC and to revise after a 3-month trial period based on borrow volume and user feedback. With a GEAR/USDC pool, users will be able to borrow USDC against GEAR collateral without liquidation risk. Below pool parameterizations are meant as a starting point, and we are happy to explore different loan structuring options in more depth and provide some additional backtesting results, if this proposal is of interest to the community:
Collateral Currency: $GEAR Lending Currency: USDC Loan Tenor: 30 days Max LTV: 50% APR: tbd (paid in USDC)
In addition to our proposal, we would also like to invite the Gearbox DAO community to test the borrowing functions of the v1.1 protocol on Goerli: https://testnet.myso.finance/ Note, that – by design – the lender side is restricted through a whitelist (which eventually would be controlled by Gearbox DAO during the pilot). In case users would like to test the lender side as well, please let us know so we can whitelist your address for testing.
Motivation & Compensation
While MYSO Finance has been actively developing non-liquidatable loans for almost 1.5 years, the first audited prototype was rolled out only very recently. Hence, as an early-stage project, MYSO Finance currently lacks large-scale adoption and traction in the market. As such, MYSO Finance is searching for partners that are open to experimenting with new innovative DeFi primitives and can help popularize “Zero-Liquidation Loans” as a valuable new borrowing & lending primitive in the market.
From a commercial model, we would like to offer two options: (a) a jointly managed pool, for which the MYSO Finance team would personally contribute liquidity throughout the pilot. This is meant to highlight our commitment and optimally align interests. In this model, all potential loan proceeds and fees would be shared on a pro-rata basis. (b) alternatively, we can offer a one-off fee to test the v1.1 pool, including UI integration. This option would be without any personal liquidity contributions from the MYSO team.
The MYSO protocol has several important USPs:
- No risk of liquidations , i.e., with zero-liquidation loans, users don’t have to worry about liquidations and corresponding penalties whatsoever. LPs, on the other hand, earn yield for bearing the risk that a loan may become undercollateralized and not be repaid. The associated risk-reward profile resembles that of an in-the-money covered call position, which is a well-known conservative yield enhancement strategy. With the proposed pilot project, Gearbox DAO would act as an LP in the GEAR/USDC pool.
- Open-ended pool, i.e., borrowing & lending pools don’t have an expiry date but are open-ended, meaning that borrowing and lending is continuously possible.
- Constant loan tenor, i.e., users can always borrow at a constant loan tenor (e.g., 30 days) allowing for more meaningful borrow interactions.
- Adjustable loan terms , i.e., Gearbox DAO would have its own borrowing & lending pool, for which it could continuously adjust borrowing terms (i.e., APR, LTV etc.). This would allow to maintain attractive borrowing terms even under changing market conditions. Coordinating loan term updates can be facilitated easily by setting up a multi-sig with Gearbox DAO representatives to ensure borrow term updates are only executed if Gearbox DAO members agree on these.
- Upfront fee mechanism, i.e., in addition to interest rate earnings, Gearbox DAO could collect an upfront fee on each borrow transaction, allowing it to earn returns on its deployed capital already before the underlying loans get settled (i.e., before they are repaid, or default and the underlying collateral becomes claimable).
- Adding 3rd Party Lenders , i.e., Gearbox DAO could invite community members or other DAOs to also partake in the borrowing & lending pool by whitelisting such addresses. This would allow to grow pool liquidity beyond Gearbox DAO’s own funds. Moreover, this would allow for “social trading” where Gearbox DAO community members could participate in the DAO’s lending activities, assuming there’s a trusted relationship between community members and the DAO representatives who govern the pool’s loan terms
In addition to the advantages outlined above, it’s worth noting the following:
- While we already have two live pools, TVL is still low (≈ $180k), also because lender access is currently restricted.
- While our v1 version has been audited by ChainSecurity, we’ve already released an improved v1.1 version, with two changes: (i) improved capital efficiency to reduce a previously immanent LTV decay; (ii) allow for adjustable loan terms by the pool manager – previously these parameters were immutable, however, for more efficient market testing these are now changeable by the pool manager to increase pool longevity, especially for the case when there’s only one DAO lender. These changes have not yet been audited but are open source and two of our pools is already running with this v1.1 version: https://github.com/mysofinance - in addition, we just launched a Bug Bounty program with Immunefi for v1.1.
As we are already live on Ethereum Mainnet, we will be ready to launch above specified pool within one working day, once the proposal has been approved by the community.
We are grateful for having the opportunity to share our proposal and look forward to the next steps in the process.