Title
[GRFC] - Whitelist Flux Lending Strategy for use in Gro protocol
Summary
This GRFC proposes to whitelist and implement a vault for lending USDC to the Flux Finance Lending Pool. Flux Finance, a decentralized lending protocol by Ondo Finance, facilitates over-collateralized lending and borrowing through a peer-to-pool framework. This protocol is a derivative of Compound V2 and has undergone slight modifications focused on permissioning, which received auditing through code4rena. Loans within Flux maintain over-collateralization through the utilization of the Ondo Short-Term US Government Bond Fund (OUSG), a type of limited partnership interests within Ondo I LP, a Delaware limited partnership. OUSG’s value is upheld by investments in the Blackrock iShares Short Treasury Bond ETF (SHV) and relies on regulated third-party service providers for custody, fund administration, and audits. This proposal commences with an introduction to the Flux Lending Pool and further delves into quantitative analysis.
Flux Finance Overview
Flux Finance stands as a decentralized lending protocol introduced by the Ondo Finance team and governed by ONDO token holders within the Ondo DAO framework. This protocol, based on Compound V2 with slight adaptations for permissioned tokens like OUSG, offers an array of lending options including USDC, DAI, USDT, and FRAX, with OUSG exclusively serving as collateral.
The primary objective of Flux is twofold: to enhance the value of OUSG and to streamline the incorporation of real-world assets into blockchain ecosystems while adhering to regulatory standards. This DeFi approach strives to maintain a balance between accessibility and compliance.
fTokens Functionality
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fTokens: Similar to Compound’s cToken standard, fTokens in Flux Finance enable lenders to convert stablecoins into protocol-balancing fTokens. These tokens gain value through the fToken/Token exchange rate, gradually increasing instead of distributing immediate interest. This design allows gradual asset redemption. Flux Finance’s supply and borrowing rates adapt dynamically based on market conditions.
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Permissioned Tokens: fTokens are designed to accommodate permissioned tokens. Notably, transfers involving fOUSG are restricted to whitelisted addresses. This safeguard ensures compliance with ownership requirements through kycRegistry contract validation. Additionally, the system prevents transfers that could negatively impact borrower liquidity, maintaining protocol stability.
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Key Parameters: Managed via the Unitroller contract, several essential parameters shape the OUSG lending market:
- Collateral Factor: This factor, ranging from 0% to 98%, determines borrowing capacity relative to supplied value.
- Close Factor: Set between 5% and 90%, it indicates the proportion of liquidatable account borrowings that can be repaid in a single liquidation.
- Liquidation Premium: An additional percentage of liquidated value compensated to the liquidator.
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Current Values: As of now, the OUSG Collateral Factor stands at 92%, the Close Factor at 50%, and the Liquidation Premium at 5%.
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Tokens Available:
Supply & Borrow (fToken):
Collateral (fToken):
- Flux OUSG (fOUSG)
Flux Market Analysis
According to Defi Llama, which employs a TVL calculation incorporating borrowed funds, Flux protocol’s Total Value Locked (TVL) reached $63 million in early August 2023, with OUSG accounting for 60% of this figure. USDC emerges as the most supplied and borrowable asset, closely trailed by DAI.
fUSDC Description
- 7d supply APY: 4.85%
- Token Holders: 444
- Total Supply: $20.18M
Benefits (Pros)
- The stability of Flux’s tokenized Treasuries minimizes the risk of bad debt
- Ondo Finance’s self-sustaining approach, prioritizing essential financial services over external incentives, solidifies the project’s enduring viability.
Downsides (Cons)
- While the lending interest rates for supplying are competitive compared to larger money market protocols, the on-chain adoption appears to be relatively limited
Resources
- Flux Finance website
- Flux Finance documentation
- DefiLlama - Flux Finance
- Llama Risk Assessment
- MakerDAO Flux Proposal
Submission date and next steps
- Date of Submission: 2023-08-11T00:00:00Z
- Move proposal to Snapshot if RFC feedback is implemented and there is sufficient support: 2023-08-17T00:00:00Z (at the earliest)
Signalling Vote
Please indicate below whether you are FOR, AGAINST; or have no opinion (ABSTAIN); on this sub-proposal.
FOR: Approve fUSDC strategy for whitelisting on Gro protocol
AGAINST: Do not approve the fUSDC strategy for whitelisting on Gro protocol
ABSTAIN: No opinion on approving the fUSDC strategy for whitelisting on Gro protocol
- FOR: Approve fUSDC for whitelisting on Gro protocol
- AGAINST: Do not approve the fUSDC for whitelisting on Gro protocol
- ABSTAIN: No opinion on approving the fUSDC for whitelisting on Gro protocol