Utilising the Basket - Flash Loans + Basket Diversification + More

Since the inception of the Protocol we’ve always had ideas of using the Basket to generate revenue for the Protocol and its users. The thought being, a key characteristic of the Protocol is that it is capital efficient, thus it would be a shame to just leave the assets in the Basket and not do anything with them. In theory we knew that the auctions would be efficient in restocking the Basket, in practice, this theory has been proven true. Since the launch of $FLOAT at ETH all time high, we have seen the Protocol accrue almost 1000 ETH into its Basket via the auctions over the past 3 weeks.

In general, we can do more. We can withstand some fairly aggressive movements (down 50% for example), and we can utilise at the very least 25% of the basket

Flash Loans

One of the easiest uses that we envisage is using the ETH from the Basket for flash loans. The code for this is partly written already and could be implemented in v1.1 of the Protocol. A prime use case could be an arbitrager participating in the auction uses the flash-loans from the Basket to aid them in correcting the $FLOAT market price back to the target. The Protocol would take a fee (0.05%) into the basket.

Basket Diversification

We could swap a portion of the basket our to yield earning assets, preferably rebasing / compounding tokens (e.g. Lido stETH) which could naturally increase the balance of the basket.

Implementation-wise this shouldn’t be too challenging as long as we keep the assumption the assets are pegged to ETH (i.e. 1 ETH = 1 XYZ).

It would be great to hear the community’s thoughts on this and any ideas they have as we BUIDL the decentralised monetary system of the future together.

Keep Floating,
John L

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as for the uses of ETH, i agree with your point. but i dont think it is the good choice to distribute the revenue to those staked in the Float POOL. i think the revenue should just stay at the basket to increase the ratio. that will finally lead to a good effect on Bank Holders. that value sould and only can be captured by BANK holders.

with more steps, we even can put some ETHs to AAVE to earn interest. all these earnings should be capture by bank holders. thats the key. sir.

as for FLOAT holders. if Float go to widely use stage, that may stake Float to earn interest or something. so need more cooperation with float.

I’m not sure why someone will be interested in getting the flash loan from the protocol when dy/dx offers it with almost no fee. We may have to provide additional functionality for people to use these loans.

Also agree if any profits it should remain with the basket.

Flash loans are relatively easy to implement (although trickier to audit, but we’ve done a lot of the ground work regarding rapid changes to the basket) which was one of the first reasons we originally suggested it.

The potential we could see came from an automated “strategy” for the auctions that we create, that can only use the basket for loaning. That doesn’t stop people from doing it themselves however, but as we’ve seen there are less bot makers out there than I’d suspected.

This is interesting - and wasn’t our initial plan - but frankly makes sense as they’re both accomplishing the same goal. Consider it swapped!

Increased Basket TVL => BANK burn => Float more efficiently incentivised with BANK
Basket yield => FLOAT incentivization.

I would highly recommend to utilize the basket to earn yield in any pools that hold non-custodial assets (i.e. no point in providing liquidity in any pool that also holds USDT or USDC. Otherwise what is the point of FLOAT?

So here is some things we can do while keeping the basket almost 100% exposed to ETH.
On purpose, I would avoid any protocols with liquidation risk (i.e. Liquity, or Compound).

  1. Curve stETH/ETH pool LP, stake on Convex, sell LDO, CVX, CRV rewards into ETH
  2. Write a bot that checks whenever Alchemix has alETH available, borrow it, provide liquidity on Saddle, stake it, sell ALCX rewards into ETH.

When the protocol grows to a substantial size, let’s pick an arbitrary number like $100M basket size, we can start allocating like 10% in riskier strategies like mentioned Liquity.

  1. Enter into a CDP on Liquity to mint LUSD (you could even build the own frontend), provide LUSD into the stability pool, sell LQTY rewards into ETH. You would need a bot that checks and auto-adjust the liquidation proce consistently.

An additional advantage other than just diversifying risk would be that you can automatically cross-promote to the other communities I have mentioned like “Float Protocol is leveraging Convex’ and Lido’s strategies bla bla”.

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i cannot agree with you more. great idea. though this, Float can have a good chance to cooperate with other protocol.

Absolutely agree - we won’t be putting any USDT / USDC or even any dollar pegged assets in the basket. Not only would this be defeating the decentralised nature of FLOAT, but it also harms the Market tracking (which relies on the basket value being an estimator of the market).

I really like the idea of Basket Diversification to interest bearing assets, even to NFTs or interest bearing NFTs (cue NFTs as collateral). Gives a reliable source of income for the Protocol while reducing the vol of the basket if sensible allocation is given.

Great, agreed. Replacing a portion of ETH with an interest-bearing representation that is fairly Lindy like stETH improves economic efficiency of the protocol. The Lido team can help cross-promote to their communities accordingly as well. Nexus Mutual did something similar: Investing the Capital Pool in stETH - Potential Protocol Changes - Nexus Mutual Community Forum

The revenue can partly remain with the basket and partly be directed towards treasury to finance operations and key hires

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We could also think about using the eth in the basket as a means to incentivize partnerships…whenever we see a project with thriving community…we could deploy some of the eth from the basket to one of their strategies…for example projects like yearn, alchemist and olympus dao have rabid following…we can find ways to deploy some of the eth from the basket into some of their strategies and viceversa…using some portion of the eth from the basket to facilitate partnerships would be super cool…we need someone who can specifically look into developing these sorts of cross community partnerships/relationships…just my 2 cents :slight_smile:

I fully agree with this proposal.

I also think it’s important to pick up on the point around there being [quote=“CptLightyear, post:7, topic:267”]
no point in providing liquidity in any pool that also holds USDT or USDC. Otherwise what is the point of FLOAT?

I think it’s super important that everyone – both current and prospective users and other DeFi platforms, even stablecoins – groks that Float stands for decentralised collateral and moving DeFi away from the dollar economy. While Float, as a currency, is permissionless and hopefully used by everyone someday, wherever they are on the decentralisation spectrum. The DAO should only ever allocate the protocol’s capital to platforms and yield-producing strategies aligned with its core mission and values.

Relating this to partnerships, it would be interesting to consider allocating a small portion of the basket to emerging new yield-producing DeFi platforms seeking some of the basket’s decentralised collateral to boost the TVL of non-centralised assets in such DeFi protocols.

There will be many more new platforms, similar to Curve, Compound, Alchemix, etc, in the coming months and years. A program like this, however small, could help drive the adoption of Float with new DeFi platforms. It is also another way to grow awareness of Float amongst new communities of DeFi users.

Practically speaking, I’m really talking about just another way for Float to market its mission and values, and to get other DeFi communities excited about supporting this mission.

USDC and its brethren can F off :slight_smile:

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