Over the past 18 months, Fluid has rapidly established itself as one of DeFi’s top-tier protocols and fastest-growing DEX on Ethereum. With over $6B in market size, $15M+ in annualized revenue, and leading positions across lending and stablecoin swaps, Fluid has shown that its capital-efficient architecture delivers real results at scale.

Now, the protocol is entering a new phase: the creation of an onchain reserve of FLUID tokens, guided by a transparent buyback and growth strategy designed to strengthen the ecosystem for the long run, that started this October.

Why This Matters

Fluid is already:

• The most advanced protocol, pioneering a connected liquidity layer with innovations such as Smart Debt and Smart Collateral.
• Top 3 lending market, with $2.5B in active loans across all chains
• $117B+ in cumulative trading volume (fastest DEX ever to $100B on Ethereum)
• Earning $15M+ annualized revenue
• #2 DEX by volume and fees on Ethereum and #3 DEX across all chains
• #1 in stablecoin swaps USDC/USDT - GHO/USDC - USDE/USDT
• #1 fastest-growing lending DAO
• $6B+ market size, up 574% YoY (from $816M in 2024)
• Jupiter Lend (Solana), built in collaboration with Jupiter Exchange,: $700M+ TVL and $1.3B market size in just weeks, making it the second-largest lending protocol on Solana
• Fluid Lite ETH Vault: $250M TVL, earning 7.1% APY for retail users
• FLUID first DeFi token investment by a Nasdaq company (StableX)

These results are impressive on their own. But they’re also just the starting point.
Over the next six months, Fluid is targeting:

• $10B market size
• $30M annualized revenue
• Launches of new products like USD Lite Vault and DEX V2
• Expansion to more partners, chains, tokens and regions.
• And for the future: Permissionless vaults/DEXes, fixed rates, perps & more

Reaching these milestones means greater liquidity depth, a more diversified revenue base, and stronger positioning for institutional adoption.

The Role of Buybacks to build The Fluid Reserve

The FLUID token is at the core of protocol governance, community alignment, and long-term value creation. Introducing The Fluid Reserve and a structured buyback program is meant to:

• Establish a strategic reserve that can support governance, stability and growth.
• Align incentives between protocol growth, token holders and Fluid growth.
• Build resilience in varying market conditions.

Following extensive discussion on the forum proposal, including feedback from contributors, community members, and a market study benchmarking healthy FDV-to-revenue ratios across leading DeFi protocols, the DAO has proceeded with the buyback process.

Dedicated Fluid Reserve Buyback & Tracking System

The team is developing a dedicated buyback and tracking system to determine the optimal share of protocol revenue allocated to buybacks. This automated infrastructure requires additional development time, as recent priorities have focused on:

• Launching Fluid on Solana
• Preparing for the Plasma integration
• Developing and testing DEX V2
  
  

In the interim, the DAO will follow a transitional approach, directing 100% of Ethereum mainnet revenue toward buybacks during the first month.

• View the first buyback transaction here.
• This is a community owned dashboard until the official tracking system and dashboard goes live.
• Wait for more updates shared via the Governance Forum and X.

Launch Timeline

• First Week of October — Buybacks officially began, as outlined in the original proposal.
• First month (October, 2025) — 100% of Ethereum mainnet revenue will be directed toward buybacks.
• Execution — To promote transparency and market stability, buybacks will be carried out through multiple smaller transactions.
• Infrastructure — A dedicated buyback system and tracking dashboard will be developed and shared with the community.
• Next phase — Once the infrastructure of the dedicated buyback system and tracking dashboard is complete, governance will review and refine the long-term model to ensure it remains transparent, sustainable, and aligned with Fluid’s growth strategy.
• Additional revenue streams will be included.
• The model will adjust dynamically to market conditions.
• The DAO will evaluate results and iterate on the strategy.

Revenue Sources

Currently, Ethereum mainnet generates over 80% of Fluid’s total revenue, making it the most significant driver for the buyback program. Based on current market prices, this translates to approximately 1.7M of buying pressure in October.

Future iterations of the program will incorporate Jupiter Lend and L2 revenue streams as part of a more holistic framework.

Growth Flywheel

Fluid’s design has always centered around a self-reinforcing growth loop:

Revenue growth → Product innovation & incentives → More TVL → More revenue

The Fluid Reserve is one piece of this flywheel, but equally important is maintaining a healthy DAO treasury. A robust reserve allows Fluid to:

• Fund new product development and integrations.
• Attract third-party security and growth partners.
• Continue innovating even during bear markets.
  
  

This balance of reinvestment and strategic buybacks is key to building a sustainable, resilient DeFi ecosystem.

Looking Ahead

October marks the beginning of The Fluid Reserve. Buybacks will be implemented onchain and evaluated over a six-month period. The results will help guide long-term decisions as Fluid scales toward its next stage of growth.

But this isn’t just about numbers. It’s about keeping building the Most Advanced DeFi Protocol and Liquidity Layer, an ecosystem where liquidity is deeper, capital efficiency is maximized, and governance is community-driven.

Stay Fluid.

Disclaimer

This article is for informational purposes only. It contains forward-looking statements, including expectations around product launches, revenue, and growth targets.

These statements are based on current assumptions and are subject to risks and uncertainties. Actual results may differ materially.

Please do your own research and refer to the official governance channels for updates.

We’ve taken inspiration from everything in DeFi to build something beyond just a better DEX — we're creating the most advanced decentralized exchange the crypto space has ever seen. Fluid DEX v2 is not just an upgrade; it’s a complete reinvention of what a DEX can be.

DEX v2 is designed to absorb the best of every major DEX and then go further, enabling features and strategies that were never before possible. With this upgrade, LPs will unlock an unprecedented level of flexibility, and Fluid aims to become the biggest and most capital-efficient AMM in crypto.

From DEX v1 to v2: A Quick Recap

Fluid DEX v1 launched on October 29, 2024, introducing powerful financial primitives: Smart Collateral and Smart Debt. Within just three months, it became the fastest-growing DEX and the second biggest DEX on Ethereum.

Before we even shipped v1, the architecture and roadmap for DEX v2 were already being laid down. This post dives deep into what makes DEX v2 the foundation for any type of AMM.

Architecture Overview

At its core, Fluid DEX v2 runs on a singleton contract built atop the Fluid Liquidity Layer. This unified structure enables infinite composability while massively improving capital efficiency and gas usage as well as allowing cross-collateralization.

Governance can deploy infinite DEX types, each with its own logic and math, supporting every known AMM model and allowing for the creation of new ones.

On launch, DEX v2 will support 4 major DEX types:

• Type 1: DEX v1 Smart Collateral
• Type 2: DEX v1 Smart Debt

DEX v1 codebase will be ported to DEX v2 with minimal updates to allow better gas efficiency and some new features.

• Type 3: Smart Collateral Range Orders
  Like Uniswap v3 range orders, but enhanced — the liquidity earns lending APR by default and can be used as collateral.

• Type 4: Smart Debt Range Orders
  Create range orders on the debt side by borrowing assets - a completely new primitive.

More DEX types are in the works - including one focused on building the most advanced perpetuals system ever seen on-chain.

Focus on Openness

DEX v2 is built with modularity and permissionless expansion in mind. It will support:

• Fully Permissionless Smart Lending Pools
  Anyone can deploy Smart Collateral-based DEXes with no debt features.
  
• Conditionally Permissionless Smart Collateral
  Anyone can deploy Smart Collateral pools as allowed by governance (eg: users can deploy their own ETH-USDC pool and use that pool’s range order as collateral by default)
  
• Conditionally Permissionless Smart Debt
  Anyone can deploy Smart Debt pools as allowed by governance (eg: users can deploy their own USDC-USDT pool and use that pool debt range order with whitelisted collaterals)
  
• Conditionally Permissionless Smart Collateral and Smart Debt
  Anyone can deploy multiple Smart Collateral range orders and Smart Debt range orders as allowed by governance (eg: users can deploy wBTC-USDT and sUSDe-USDC as Smart Collateral and borrow ETH-USDC and USDC-USDT as Smart Debt)

In the future, Fluid will allow for fully permissionless Smart Collateral and Smart Debt, allowing users and protocols to create any kind of collateral and debt positions.

DEX features

DEX v2 goes far beyond standard AMM capabilities:

• Smart Collateral Range Orders
  By default, LP positions earn lending APR.
• Smart Debt Range Orders
  A completely new primitive, allowing LPs to create strategies that were not possible before.
• On-Chain Dynamic Fees
  DEX v2 inbuilt Dynamic Fee or Custom Algorithm via Hooks.
• Hooks (Inspired by Uniswap v4)
  Custom logic and automation for DEX interactions.
• Flash Accounting (Inspired by Uniswap v4)
  Boosts gas efficiency for CEX-DEX arbitrage and complex flows.
• On-Chain Limit Orders
  Limit orders earn lending APR while waiting to be filled.
• DEX v1 supports
  Everything that DEX v1 does, but in a more gas-efficient way.

Strategy Examples

DEX v2 allows LPs to combine Smart Collateral and Smart Debt to build advanced positions with built-in leverage, yield, and flexibility.

Here are a few examples:

Multiple Smart Collateral and Smart Debt range orders:

Borrowing against the Smart Collateral:

Smart LP strategy: Convert $1 into $10:

Stable ETH  Strategy: Max Leverage Loop (convert $1 into $39)

Combination of Range Orders and Normal Collaterals

With DEX v2 primitives, LPs can invent entirely new yield and trading strategies — or automate them using hooks and composable contracts.

Conclusion

Fluid DEX v2 isn't just a product upgrade — it's a leap forward in AMM design.

With unmatched flexibility, a robust architecture for growth, and the introduction of financial logic that simply wasn’t possible before, DEX v2 positions Fluid as the frontrunner to become the most dominant AMM in DeFi.

Want to explore more? Join our Discord and follow us on Twitter — we’ll be sharing technical docs, live demos, and upcoming DEX types over the next few weeks.

Official links

Website https://fluid.io/

X https://x.com/0xfluid/

Discord https://discord.com/invite/C76CeZc

Governance  https://fluid.io/gov

Docs https://fluid.guides.instadapp.io/

After innovating on top of protocols like Uniswap, Aave, Curve, Maker, and many others through Instadapp since 2018, we identified fundamental blockers to DeFi scalability that the market wasn’t resolving and created Fluid with the vision of building the most efficient, secure, and scalable DeFi ecosystem.

This vision includes a money market (the existing lending & borrowing protocol), a decentralized exchange (the DEX), and an underlying Liquidity Layer that lets liquidity flow across these protocols and, in the future, many others to be built on top of it.

The lending and borrowing market is live and flourishing, with a market size that has surpassed $800M in the first 3 months, powered by the Liquidity Layer. Today, we present the third piece of the triad — the decentralized exchange.

NOTE: If you’re completely new to Fluid, we recommend reading the Introducing Fluid blog first, yet it’s not required to understand this one!

DEX protocol

The DEX protocol is a novel protocol that is built on top of the Liquidity Layer and introduces Smart Debt and Smart Collateral. This will empower users to utilize their debt and collateral as liquidity for trading purposes. The v1 of the DEX protocol will be similar to a combination of Uniswap v2 and Uniswap v3 — single auto rebalancing range order UX like Uniswap v2 and concentration like Uniswap v3.

Pool aka “range order” can be of any size, have any fee, and any proportion. For example, for pairs like ETH<>wstETH, 80% of liquidity can be in ETH and 20% in wstETH, for pairs like ETH<>WBTC, 50% of liquidity can be in ETH & 50% can be in WBTC, etc.

Smart Collateral

Smart Collateral is a single range order that enables users to multipurpose their capital, using it as collateral to borrow against it, lend it, and deploy it as AMM liquidity on the DEX to earn trading and lending fees simultaneously.

Initial potential Smart Collaterals can be ETH<>wstETH, ETH<>weETH, ETH<>WBTC, USDC<>USDT etc. Governance can also explore trading-focused Smart Collateral such as ETH<>USDC, ETH<>USDT, etc.

Smart Debt

Smart Debt allows the debt to be turned into a productive asset by using debt as trading liquidity, therefore earning trading fees that offset the cost of capital incurred by borrowing (APR). Smart debt can be considered as the inverse of any AMM pool.

Initial potential Smart Debts can be ETH/wstETH, ETH/weETH, USDC/USDT, etc. Governance can also explore trading-focused Smart Debt such as ETH<>USDC, ETH<>USDT, etc.

Use cases:

Smart Collateral and Smart Debt enable the creation of different types of strategies and allow users access to the best rates in the ecosystem, earning more on their collateral and receiving discounts on their debt.

1. Normal Collateral & Smart Debt

This kind of vault enables users to leverage normal collateral while getting a discount on debt via trading fees. Normal collateral includes ETH, WBTC, wstETH, weETH, UNI, etc., while the Smart Debt includes USDC<>USDT, ETH<>wstETH, etc.

2. Smart Collateral & Normal debt

This kind of vault enables users to earn on their collateral through trading fees while holding normal debt. Smart Collateral options include ETH<>wstETH, ETH<>WBTC, ETH<>weETH, and more. Normal debt includes assets like USDC, USDT, ETH, and others.

3. Smart Collateral & Smart Debt

These kinds of vaults allow users to earn on both collateral and debt through trading fees, potentially maximizing your position's benefit. This can be used for 2 purposes: normal borrowing focus or trading focus.

Normal borrowing focus:

Smart Collateral options include ETH <> wstETH, ETH <> WBTC, ETH <> weETH, etc.
Smart Debt includes assets like USDC <> USDT, etc.

Trading focus, having the same Smart Collateral & Smart Debt:

i) Collateral: wstETH <> ETH & Debt: wstETH <> ETH.
ii) Collateral: USDC <> USDT & Debt: USDC <> USDT.
iii) Collateral: ETH <> USDC & Debt: ETH <> USDC.

Diving deep into trading-focused vaults

Users who take advantage of Smart Collateral and Smart Debt become liquidity providers for the DEX by using their collateral and debt as liquidity. Trading-focused vaults allow traders to leverage their LP positions, earning high trading fees with leverage.

For instance, by using a vault with wstETH<>ETH as Smart Collateral and Smart Debt at a 95% loan-to-value (LTV) ratio, you can achieve 20x leverage. This makes an effective LP position of ~39x (20x collateral and 19x debt). Hence it creates 39x worth of LP liquidity from 1x worth of assets and is now earning 39x the trading fees.

Similarly, with Smart Debt & Smart Collateral like ETH<>USDC at 80% LTV, users can reach up to 9x effective liquidity (and 9x trading fees!), combining 5x collateral and 4x debt.

Revenue

DEX protocol could also bring 3 more revenue streams and allow Fluid to generate one of the highest revenues among all DeFi protocols:

• Cut from trading fees
• Organic borrowing demand for assets like wstETH, weETH, sUSDe from the Smart Debt
• Smart Vaults might have an extra fee, for example, 1% extra on Smart Debt of USDC <> USDT

Initial fees will be determined by the $INST holders upon governance proposal to launch Fluid DEX.

Risks and Market Scenarios

While Fluid is utilizing the same liquidity for the DEX and Lending, there are no liquidity crunch risks during the market crash or surge.

Market crashing

In case of a sudden market crash, the market is selling ETH for USDC. Hence the LPs of the DEX protocol will take ETH and give USDC to traders, increasing ETH liquidity in the protocol, thereby increasing ETH liquidity in overall Fluid — hence doing the opposite of liquidity crunch.

Let’s compare the WBTC/ETH pair. Comparing past data, ETH is more volatile than BTC. So, when the market is crashing, then technically the market is selling ETH for BTC. Hence, increasing ETH liquidity in Fluid.

Any other tokens other than ETH. ETH is less volatile than any other crypto like UNI, LINK, stETH, eETH, etc. So, during the market crash, in these pairs ETH liquidity will go out of Fluid and other tokens liquidity will come in Fluid.

Overall, in any scenario of the market crash, Fluid will always have enough liquidity to process any liquidations while Fluid’s unique liquidation mechanism represents a 100x improvement over existing borrowing and lending protocols

Market surge

If the market is trending upward, the opposite is true. Liquidations will move closer to pairs like USDC collateral and ETH debt. In this market surge, more USDC will move into Fluid, while ETH will exit, thereby increasing USDC liquidity for seamless liquidation.

Fluid: A Look Ahead

With the highly efficient and scalable design, Fluid DEX is creating a new wave in DeFi innovation powered by the Liquidity Layer. Initially, Fluid will support prominent platforms like Lido and EtherFi, with plans to include additional LST, LRT, and stablecoin providers in the near future.

As Fluid prepares to launch the DEX in the coming weeks, it’s crucial to stay up to date with the latest developments and exciting announcements emerging from the Fluid DEX and ecosystem.

To stay tuned to Fluid updates, follow us and join the community:

Official links

Website https://instadapp.io/product/fluid

App https://fluid.instadapp.io/

X https://x.com/0xfluid/

Discord https://discord.com/invite/C76CeZc

Governance https://gov.instadapp.io/

Docs https://fluid.guides.instadapp.io/

As 2023 draws to a close, we reflect on Instadapp's remarkable journey and innovations in the decentralized finance (DeFi) landscape. Throughout this prolonged bear market. the Instadapp team never stopped innovating! Lets review what we accomplished in 2023.

Instadapp Pro: Growth and Integrations

Instadapp Pro, our premier offering, experienced an unprecedented year of expansion. Integrating over six new protocols on Mainnet this year, including new lending protocols: crvUSD, Morpho and Spark.fi. We also integrated Savings DAI which this year became a defacto DeFi savings rate,

We deployed Instadapp Pro on Base chain with support for Compound V3 and Aave v3 support. This year we saw the Total Value Locked (TVL) maintained a steady ~$2 billion throughout the year, underscoring our resilience in the DeFi sector and the strong trust we've built with our users.

Alongside these protocol integrations, we expanded our refinancing options to include the latest protocols like Spark.Fi and Morpho as well as facilitating migrations and upgrades from AAVE v2 to AAVE v3. Instadapp was an early mover with Morpho, and we saw 50% of the Morpho v2 TVL come from Instadapp users. Instadapp Pro works directly with Avocado, providing users the ability to interact with both DeFi Smart Accounts (DSA) or Avocado wallets. Instadapp Pro remains our flagship protocol and remains an evolving product suite .

Instadapp Lite: Strong and Steady

Instadapp Lite continues to be the longest running stETH strategy. This year we added Spark.Fi and Morpho v2/v3 to our ETH Vault allocation pools offering our users additional growth and diversification for the Lite Vaults. Instadapp Lite has achieved an average 75% higher returns compared to holding stETH.

Notably, with the release of Lido Redemptions we built a direct redemption mechanism allowing the vault to redeem stETH directly from Lido significantly improving the vaults overall liquidity. Find detailed information for Instadapp Lite on Dune.

Avocado: The Next-Gen Smart Wallet

Avocado, our groundbreaking smart wallet, debuted in March 2023. It's redefined user experience in Web3 with its intuitive UI/UX and account abstraction features abstracting transactions, networks and gas. Since launch, Avocado has continuously evolved, adding functionalities like cross chain sends, DEX aggregation, transaction building, and soon transaction batching.  

Avocado's has grown to over 7,500 users, with a 99.9% transaction completion rate, and has grown to support 0ver 13+ networks since launch we deployed on Fuse, BNB, and Scroll Networks. Avocado is currently accessible from the web UI but bridging the gap for users means mobile apps! We are preparing to launch Avocado Mobile on iOS and Android platforms making Avocado even more accessible.

Avocado Multisig

We launched Avocado Multisig the first of its kind multi-chain multisig offering unparalleled levels of convenience through Avocado Account Abstraction features. As the multichain landscape gains momentum in 2024, Avocado Multisig aims to address the challenges faced by users and DAOs in managing and securing funds across multiple networks.

Distinguishing itself from Gnosis Safe, Avocado Multisig prioritizes usability for all users while retaining Avocado's account abstraction features. One Unifed Gas tank for all signers and maintaining the same address across all networks as well as Instant Onboarding makes Avocado Multisig an ideal choice for multichain protocols and users.

Avocado Protect

We launched Avocado Protect a non-custodial 2Fa service for Avocado Personal accounts. Enabling users extra security by adding two factor; Avocado Protect  2Fa is network dependent enabling users the maximum flexibility when setting up their security.  Utilize Avocado Protect on one network or use it on all networks. Avocado Protect also enables users to assign a backup address as well.

Fluid: The Future of Lending Protocols

We are excited to launch the next era of lending protocols, with the launch of Fluid in January. Fluid represents a major leap forward in lending protocols. Fluid aims to address several existing problems and inefficiencies in the lending market while developing new solutions that not only address these problems, but build a larger foundation for the future.

The Fluid Liquidity Layer enhances capital efficiency and addresses liquidity fragmentation effectively. Notably, Fluid's liquidation system operates within defined 'ranges,' reducing gas costs and speeding up debt removal. Fluid also incorporates automated limits, introducing an added layer of security for lending protocols through dynamic limits.
 Fluid comprises a suite of protocols built on top of its liquidity layer, including an 'Earn' product, lending vaults, and a DEX protocol. Fluid is set to bring innovation at all levels, including smart debt and smart collateral to enhance users' capital efficiency. Governance of Fluid will be in the hands of INST token holders. For a comprehensive overview of our upcoming protocol, please refer to our blog post introducing Fluid.

Conclusion

2023 has been the biggest development year for Instadapp. With the launch of Avocado and the upcoming launch of Fluid, we've broadened our product suite while maintaining and improving existing protocols: Instadapp Pro and Instadapp Lite. We are focused on a multi-chain future and we believe our latest entries Avocado and Fluid will be pioneering in both simplifying complexities in blockchain interactions as well as advancing user UI and features. We are excited to continue to push the boundaries of DeFi and providing innovation to continue to grow this space.

Thank you for your continued support as we embark on this exciting journey into 2024 and beyond.

Instadapp has played a leading role in the DeFi landscape right from the start in 2018. Back then, the term ‘Defi’ didn’t exist and we often referred to it as 'Open Finance.' Instadapp has for a long time been solely a middleware protocol, simplifying underlying protocols and introducing sophisticated flashloan strategies to augment protocol functionalities. We embarked on this path with MakerDAO and over time have expanded into multi-chain infrastructure with a TVL of over $2b.

Over the years, Instadapp has been deeply involved in innovating the largest lending protocols in DeFi such as MakerDAO, AAVE and Compound. Through our developments on flashloans and on Smart Accounts we were able to provide many unique features. However, as a middleware solution we could only innovate incrementally on top of these protocols, many deeper level innovations were not possible.

Fluid is the culmination of our work and experience in developing on top of lending protocols and building unique and novel functionalities over the years. Fluid has taken inspiration from many major protocols including: Uniswap v3, Aave, Compound, MakerDAO & Curve. We’ve built a protocol that combines many familiar elements related to efficiency, security and usability. This composition creates a new fundamental layer for DeFi, upon which many protocols can be built.

Fluid has been in development for more than 1.5 years, while going through many iterations over this time, we are now super stoked to introduce it to you. Fluid is the

• Most advanced
• Most secure
• Most flexible
• Most efficient

protocol in the lending space. All while maintaining the simplest user experience.

Before diving deep into the technical complexity of the protocol. Let's see how simple it will be for users.

Here are a few concepts inspired from other DeFi protocols:

• Uniswap v3 - slot based liquidity to optimize liquidation exponentially (by more than 100x)
• MakerDAO - vault mechanism to provide better asset security, reducing complexities & gas overhead and automated ceilings
• Compound & Aave - pool based liquidity with calculated risks and rates curve through utilization
• Curve/Uniswap - designing a concept of smart debt & smart collateral. Allowing users to use their collateral & debt as DEX liquidity

Some of the features Fluid enables:

• Highest LTV (Loan to value). Borrow upto 95% against ETH.
• Better rates for lenders and borrowers.
• Highest security standards by isolating risk, automated limits & protocols class.
• Earning on collateral & debt with smart collateral & smart debt.
• Lowest liquidation penalties (as low as 0.1%).
• Lowest liquidation gas (3-4 times less than most protocols).
• Capital optimization with no segregation.

Introduction to Fluid

Liquidity Layer

At the base of Fluid lies the Liquidity Layer, which serves as the foundation upon which other protocols can be built. This layer serves as a central hub where liquidity from all protocols is consolidated. It facilitates automated limits for protocols, manages utilization rates, and can deploy various rate models. The Liquidity Layer allows protocols to deposit, withdraw, borrow, and payback. End-users interact with the protocols, which in turn interact with the Liquidity layer.

Better capital efficiency

The Liquidity Layer solves a very real and current problem in the DeFi ecosystem: liquidity fragmentation.

There’s a steady stream of new protocol versions that keep emerging. Often the newer protocols, even if they bring better features, take a lot of time to accrue enough liquidity compared to older versions, especially in the absence of liquidity incentives (many months or even years). This is because every new protocol starts at zero and requires mobilization of lenders & borrowers in a balanced way, so the rates stay stable compared to the older version.

The Liquidity Layer solves this due to its flexible and open nature. When a user transitions from one protocol built on top of the Liquidity Layer to another, the liquidity on the Liquidity Layer remains unchanged, and there are no changes in rates incurred. This functionality means Fluid users will be able to instantly start utilizing new features, and new protocols without fragmenting liquidity. For example, if a newer version of a protocol allows higher LTV for borrowers, borrowers can start moving to the upgraded version while Lenders start getting better rates without any capital movement.

In the attached link it compares the old & new versions of protocols and the time it took for liquidity to migrate.

Automated Ceiling

The biggest feature of any financial protocol is its security, ensuring robustness in all circumstances and minimizing potential losses in worst-case scenarios. One simple way to do this can be found in traditional finance with daily spending limits, and other methods of monitoring the movement of large funds.

We saw DeFi protocols adopt something similar with debt ceilings and other limitations placed on the protocol. For example, MakerDAO uses a debt ceiling to mitigate their risk exposure to various assets. We observed a similar approach extended with Aave v3 isolation mode, as well as with Compound v3 and Aave v3, which imposed restrictions on the supply amount limiting the risk of supplied assets. One challenge in implementing limits is that these measures often require active management.

Fluid's Liquidity Layer introduces Automated Limits, which dynamically adjust the debt/collateral ceiling every block when funds are nearing limits. This feature allows organic borrowings to go through, while restricting any sudden whale moments. This means even if there were code vulnerabilities or economic manipulation on a protocol of Fluid, the Liquidity Layer will restrict abnormally large and sudden borrowings & withdrawals, limiting losses and buying time for the community multisig to step in and pause that particular protocol to allow governance to take appropriate action.

Liquidity Layer is a simple contract with no advanced algorithm or logic. It simply holds all the liquidity from all the protocols and makes sure that assets are highly secured. The Protocols built on top of Fluid are where the advanced algorithms are being implemented. This ensures that any vulnerabilities within these protocols will result in minimal losses for affected users.

As protocols and assets become established on Fluid, the borrowing and supply limits expand, while newer protocols can be kept on very tight limits. This allows the secure addition of new protocols without introducing additional risk to the overall Liquidity layer.

Automated ceiling are set according to the below params:

• Base ceiling
• Max ceiling
• Rate
• Limits in %

Now that we have covered the base layer of Fluid. Let’s explore some of the innovative initial protocols being built on top as well as the value they provide to the overall ecosystem.

Lending Protocol

The simplest protocol for Fluid is a lending market. A lending market allows users the simplest and most basic use case of Finance. Lend & Earn. Generally, there are 2x-5x more Lenders than there are borrowers (Lenders vs Borrowers Dune). The Lending protocol removes all the complexities related to borrowing and provides a super simple UX.

Most advancements on lending protocols have occurred on the borrowing side. Oftentimes these advancements are for borrowers only, but require lenders to shift their assets to the new protocol. This creates a lot of inefficiencies for users and in particular lenders. The Lending protocol solves this by providing users with a long term safe yield while also benefiting from any new advancements on the borrowing side without having to move any assets. The Lending protocol also allows other developers to build on top with the confidence that they can rely on it long term (eg: Balancer building aave-balancer pool or Maker supplying DAI in Compound or Aave).

The Lending protocol allows the simplest rewarding methods and follows the ERC4626 standard and is highly gas optimized, allowing simple & cheap integrations for devs.

Vault Protocol

The Vault protocol is the most advanced protocol of Fluid and is targeted towards borrowers. It offers a range of benefits over current borrowing protocols, including enhanced capital efficiency, higher LTV, better rates, lowest liquidation penalty, smart debt & smart collateral all while having the most simple UX for end users.

Similar to how Uniswap v3 innovated the Limit orders, Vault Protocol is bringing innovation to Liquidation.

While the user experience might resemble MakerDAO vaults, unlike MakerDAO, user’s on the Vault protocol earn interest on their collateral similar to any other borrow & lending protocol. You can think of this as a hybrid between AAVE markets and MakerDAO vaults.

Highest LTV

The way liquidations are implemented determines the LTV (Loan to value) of a protocol. This is because liquidations play a vital role in maintaining a protocol’s safety by eliminating bad debts on time. A protocol's safety can either be enhanced by reducing the LTV or by improving the liquidation engine. However, reducing the LTV is less desirable as it means end-users have reduced borrowing capacity, giving competitors providing higher LTV an edge. On the other hand, optimizing liquidations could lead to a much safer protocol with a higher LTV, thus improving the overall experience & utility for end-users.
The Vault protocol boasts the most significant advancements ever made in liquidation mechanism design, which has the potential to allow users to borrow up to 95% of the value of their ETH.

Liquidation mechanism

The liquidation mechanism of the Vault protocol is loosely inspired from the Uniswap v3 design and represents a 100x improvement over existing borrowing and lending protocols. It achieves that by allocating the liquidity such that all users in the range get liquidated simultaneously instead of one-by-one leading to a significant decrease in gas cost.

On Uniswap v3, when a swap happens, the swap fills all the active range orders at once without the trader having to know each range order getting filled.
Similarly the Vault protocol allows liquidation of all bad positions at once without the trader/liquidator having to know each bad position separately. (Yes we wrote trader there, hold that for one second)

The gas cost of liquidation is around ~150k. In comparison a Uniswap v3 swap is ~120k and liquidations  in DeFi protocols range from 300k to 1M for a single position(Liquidation gas cost comparison Dune).

Traders are Liquidators

In general, liquidations in the Vault protocol work like a swap but with better rates. For DEX aggregators, the integration is as simple as adding any other AMM, allowing traders to get better prices. This means any trader of any size can liquidate any amount of debt. There’s no requirement to liquidate the entire bad debt at once. This allows even the smallest trade to liquidate bad debt on time and traders get the best price.

Liquidate only what’s required

On the Vault protocol, liquidations only happen until the liquidation threshold is met, nothing extra. This means for most liquidations the amount of debt liquidated is closer to 5% whereas on other protocols it can be up to 50% or 100% debt (full liquidation of position). On the Vault protocol, when users are liquidated, they will lose 5-10x less than on other borrowing protocols.

There are higher-level ecosystem benefits as well due to liquidating only what’s required. If all the users in the ecosystem are using the Vault protocol to manage their debt positions, then the negative externalities produced by forced selling and cascading effects can be reduced by 5-10x. Making the overall ecosystem more efficient and stable.

Lowest Liquidation penalty

Liquidation on the Vault protocol can be as low as 0.1% while in comparison to other protocols which are generally between 5-10%. Saving users up to 50-100x on liquidation penalties.

Oracles

Oracles are a critical component of any lending and borrowing protocol. They enable the timely liquidation of bad liquidity from the protocol and allow for efficient liquidity by providing up-to-date pricing information. By leveraging oracles, protocols can improve their overall security and potentially increase their loan-to-value (LTV) ratios.

The Vault protocol of Fluid utilizes an oracle system that combines Uniswap and Chainlink to ensure the most reliable and accurate pricing data (Oracle price comparison Dune). The protocol checks three different time-weighted average price (TWAP) checkpoints and the Chainlink price, comparing them with the current Uniswap price to verify that it falls within a specific range and has not been manipulated in any way. This ensures that the protocol can use the current DeFi price for liquidation purposes while removing the possibility of manipulation (or making it extremely costly).

For geeks wanting to involve in more technical explanation on how the overall vault protocol allocates liquidity & how the liquidation algorithm works. Follow our Whitepaper.

Note : Vault protocol v2: With the recent announcement of Uniswap v4, we have also proposed the most advanced ‘Oracleless’ lending protocol on top of v4. For more details, check out here.

DEX protocol

The DEX protocol is a novel protocol which introduces smart debt and smart collateral. This will empower users to utilize their debt and collateral as liquidity for trading purposes. The v1 of DEX protocol will be similar to a combination of Uniswap v2 & Uniswap v3 - Single auto rebalancing range order, UX like Uniswap v2 & concentration like Uniswap v3. V2 can be based on Uniswap v4 (still in ideation phase).

Smart collateral pools is like any AMM pool, where users can earn from trading fee while simultaneously lending their collateral & borrowing against it. On the other hand, the smart debt pools can be considered as an inverse of any AMM pool, allowing borrowers to use their debt as liquidity and getting discount on debt through trading fees.

By leveraging these innovative features, users will be able to access the best rates in the ecosystem, earning more on their collateral and receiving discounts on their debt. The DEX protocol is the only protocol which allows your debt to be a productive asset.

Smart Debt

Smart debt is the only financial primitive (that we know of) which allows you to turn your debt into a productive asset by using debt as a liquidity and allowing traders to trade on top of it. Smart debt can be considered as the inverse of any AMM pools. Rather than having token as liquidity, the debt is being used as liquidity and with every trade rather than increasing the token liquidity from swap fees, smart debt reduces debt from swap fees.

Liquidity

How does liquidity get built up in the smart debt pool?

Users borrow from a smart debt pool via the enabled vaults. For example, a vault as ETH collateral & smart debt of USDC/USDT. Users deposit their collateral and borrow against it. The borrowing happens through the smart debt pool and a share of the overall pool is allocated to that particular user.

Earn on your liability

While the borrow rate generally remains stable ranging from 3-5% (depending on how the rate curve is being managed), the trading APR varies from day to day depending on the trading activity. This will allow users to get the best borrow rates in the industry, so much so that in some scenarios they might even get paid to borrow. Making Fluid the perfect place to manage your position.

What if one of the token in smart debt pool goes to zero? Will I lose anything in that case? Short answer is no. Check out this link for more details.

Smart Collateral

Smart collateral pools is like any other AMM pool, where users can earn from trading fee while simultaneously lending their collateral & borrowing against it.

As explained above v1 of smart collateral will be similar to a combination of Uniswap v2 & Uniswap v3 - Single auto rebalancing range order. Hence has the similar way of building up liquidity, earnings through trading fees & risks.

Governance

INST will be governance token for Fluid. Similar to any other borrowing & lending protocol, INST holders will have a responsibility to decide each & every component of it.

On launch, the major responsibilities are as follows:

• Setting rate curves, fees & configurations for tokens in Liquidity layer.
• Protocols configurations & allowance to interact with Liquidity layer.
• Establishing automated limits and class for protocols.
• Setting up Vault's Configuration.
• Determining rewards on Lending protocol and Vault protocol.

Timeline

• November end. Wrapping up formal audits. Making codebase public & start of open audits.
• Mid December. Governance body or team will deposit $500,000 into Fluid. Anyone who successfully hacks it can claim the entire amount.
• Mid January. Launching the protocol with Lending & Vault Protocol and liqiudity layer as base.
• DEX protocol launch will be followed after couple of months.

Conclusion

Fluid represents the culmination of our extensive experience in developing on top DeFi protocols. Fluid is an innovative base layer from where many DeFi protocols can be built on top in new and more capital efficient ways. Fluid solves long standing issue of fragmented liquidity and provides an innovative base layer for new innovative DeFi protocols to be build upon, allowing better utilities to users such as high LTV, better rates, productive debt and anything new to come in future. Our goal is to make Fluid as the financial layer of future.

 Uniswap recently announced v4 which opens DeFi to many new exciting possibilities. Instadapp has been working on a concept of how to make the most advanced borrowing protocol on top of Uniswap v4, Uniswaps introduction of  "inverse range orders" changes the game!

 Uniswap's unique liquidity range model enables a lot of unique characteristics, this is multiplied with the introduction of inverse range order, which is similar to a negative position, by matching a users LPs with an inverse order. The inverse order acts as a sort of ‘reserve’ which in conjunction enables an oracleless position.

 So what does this mean? Well that means we can use Uniswap v4 LPs to build a new kind of lending protocol with some unparalleled features and efficiencies: Here are some of the advances this solution will offer:

Features:

• Flexible Liquidation Threshold (LT): Users can decide their LT from 50% to 99%. Borrow rate will be proportional to their LT. (Yes, you heard that right up to a 99% LT)
• Flexible borrow rate: Borrow rate will be proportional to LT. Safer users pay less to borrow than their riskier counterparts.
• Boosted income to Uniswap’s LPs: Uniswap LPs created will earn additional income from liquidation penalty rate from borrowers.
• Oracleless protocol: There is no oracle required, therefore removes all the risks related to oracle manipulation. This is also what allows the protocol to provide 99% LT.
• 0% liquidation penalty: there is no liquidation penalty instead position ‘decay’ losing collateral overtime, this removes any incentives for manipulators.
• Liquidation penalty rate: Whenever the user's borrowing position gets into liquidation state (aka inverse range order gets in range) the position starts to pay liquidation penalty rate to LPs.
• Transient Liquidation: If the price of collateral goes down temporarily, but is able to return to its original price, the position's original value is returned i.e minimum losses will occur through liquidation penalty rate for the time being the position was under water.

These kinds of features are the sorts of advancements we’ve only dreamed about. Let's break it down how this all works and why it works so well with Uniswap v4.

Uniswap v4 Hooks

 Uniswap v4 introduces a feature called "hooks," enhancing the functionality of its two-token pools. These hooks allow for the inclusion of code before and after swaps or during liquidity updates. While the core operation of Uniswap v4 remains largely similar to its predecessor, v3, the introduction of hooks significantly amplifies its adaptability and functionality.
 This facilitates the development of innovative use cases and provides easier access to Uniswap's extensive ecosystem. Consequently, liquidity providers (LPs) can more seamlessly integrate with additional protocols or construct more intricate use cases. LPs are alive! LPs are no longer stagnant fodder for the day that the market price falls into its range, LPs can both provide liquidity and participate in other DeFi protocols.

Lenders

 Lenders are similar to participants in any other money market protocol. Their role is to lend their tokens, which can then be borrowed by borrowers. It's important to note that lenders are not LPs (liquidity providers).

Liquidity Providers

 Liquidity Providers generate range orders as they would normally, however will have a higher APR than holding a normal LP through the additional fees generated through liquidation penalty rate from at risk borrowers.

Note: With Uniswap v4. Out of range LP’s liquidity can also be simply lent out to further increase the earnings of LPs but we will keep this use case minimum for this blog post & focus on the borrowing side.

Borrowers

 Borrowers will supply and borrow against any two token Uniswap pair, for example supplying ETH and borrowing USDC (or supplying USDC & borrow ETH). When the user borrows against ETH, an inverse range order of ETH is created on the USDC side of liquidity and vice verse. The borrower will also be able to set the Liquidation Threshold of their position, higher threshold creates more narrow price ranges meaning a drop in price shifts between ETH/USDC faster and incurs higher penalties when the position is in liquidation state.

Note: Borrowers UX remains super simple. They only have to decide borrow rate or liquidation threshold and the protocol decides the range for inverse range order.

Oracleless Lending Market

 As we mentioned before, Uniswap v4 borrowing introduces inverse range order. Whenever a user creates a borrowing position, it creates an inverse range order using borrower’s collateral which acts as a liquidation range for the borrower. As collateral token price falls w.r.t to debt token, the inverse range order starts to shift from collateral to debt token. For example, if ETH goes down and the inverse range order of ETH collateral comes in range, it starts to shift to USDC while for LPs it works as usual their USDC in range starts to convert into ETH. Hence for LPs, their final position remains same as it would be without inverse range order as they get partially filled by inverse range order rather than from external swaps and start to earn a penalty rate on that reserved liquidity.

Inverse range order

 Borrowers can determine their own LT (Liquidation threshold) this also determines the borrow rate. The inverse range order gets created according to the user's liquidation price. Higher LT creates thinner inverse range order while lower LT creates wider inverse range order.

Net Liquidity

 Net liquidity is the liquidity after offsetting LP’s range order (positive liquidity) with borrower’s inverse range order (negative liquidity). This remaining liquidity is used on Uniswap v4 pools for traders to trade on.

Additional Insights

There are a few novel and unique scenarios we can address and provide some analysis for.

 For example what if someone attempts to manipulate the pool by filling the inverse range order, it will briefly push the borrower's position into the liquidation range. However, since there is no liquidation penalty, the manipulator won't receive any incentives. During this short period, borrowers will start paying a penalty rate, while LPs will start earning a penalty rate. Assuming a high penalty rate of around 20% and a liquidation state of 10 blocks (or 120 seconds), the total penalty incurred by the borrower will be 0.000076103%. Therefore, the manipulator will end up paying more fees on trades than the borrower's penalty.

 Market price changes can cause a position to fall into the liquidation state. If a position falls into liquidation due to a price drop, but returns to its previous values the position will incur minimal loss through penalty rate. We call this a ‘Transient liquidation,’ if the collateral price incurs a short ‘flash crash’ condition the loss may be near zero. If a position remains below the liquidation threshold the collateral will continue to pay the liquidation penalty rate.

 When LP's range orders is offsets by borrower's inverse range orders, can LPs still withdraw the liquidity?
Yes and no, LPs can withdraw excess liquidity (liquidity which is not reserved). No, not all LPs can withdraw liquidity at once. If some LPs withdraws the liquidity, the remaining LPs earnings will boost as liquidity will decrease but earnings from penalty rate will remain same, hence attracting more liquidity to be supplied in. Also, all LPs can instant withdraw if borrowers closes the position (removes their inverse range order) or if position decays more than the max limit.

 A borrowing protocol built on Uniswap v4 will bring LPs three different revenue streams: trading fees, penalty rate & lending the out of range liquidity making Uniswap an even more attractive protocol for liquidity providers.

Conclusion

 Uniswap's recent announcement of v4 has brought forth a world of exciting possibilities for the DeFi space. Instadapp has been diligently working on a groundbreaking concept to leverage Uniswap v4's unique liquidity range model.

 The efficiencies brought by Uniswap v4 lay the foundation for a groundbreaking lending protocol directly built on Uniswap LPs. With the potential to unlock higher earnings for liquidity providers and mitigating the risk of oracle manipulation, Uniswap v4 is the medium to develop the next generation of lending protocol.

The self-custody of assets is the epitome of a decentralized future. Currently in web3 assets could mean tokens, NFTs, liquidity positions, or other forms of data. In Traditional Finance, Banks act as ‘custodians’, whereby they hold our assets. In contrast, ‘Non-custodial’ means you and only you are responsible for your own assets and data. In this article, we explain how Avocado is non-custodial and how it will always remain that way.

Avocado harnesses the power of account abstraction to create your smart contract wallet. This wallet is deterministically linked to the wallet address that you have connected. This means that a specific avocado wallet only has a specific owner and vice versa. Bringing to you the compatibility of your EOA and the simplicity and security of a smart contract.

Why do I have to deposit funds to my Avocado wallet even though it's connected to my EOA? Only custodial, centralized exchanges do that.

While Avocado’s flow resembles a centralized (custodial) exchanges flow, wherein users have to deposit their assets to start transacting. No address, not even Avocado has access to your avocado wallet in any way possible.

Your wallet address is used as a key to generating your Avocado wallet. The only way to access your funds on Avocado is through your EOA.

How are transactions processed on Avocado?

When you make a transaction on/through Avocado, your wallet signs the message which then goes through Avocado’s RPC wherein it finds an available broadcaster to send the transaction to the respective blockchain. Multiple broadcasters are available, meaning even if one broadcaster is down, others will always be available. This redundancy ensures that transactions are always processed even during network spikes.

What is a “broadcaster” in this case?

Technically, a broadcaster is an ethereum account that takes your signed message and sends it to the blockchain, popularly known as a relayer in the industry.

The broadcaster cannot modify any messages and just sends them as they are. The messages are verified on-chain. The broadcaster is programmatically set to send signed messages to the blockchain no matter what. If any message is modified, the transaction will simply fail as it will not pass the verification check on the contracts maintaining its non-custodial nature.

How are messages signed?

Messages are signed from your wallet, like Metamask.

What happens if all the broadcasters go down?

This is an unlikely hypothetical scenario - if all broadcasters are down, users can still move their funds by sending a transaction directly to their Avocado Wallet. As a non-custodial wallet, Avocado users can always execute transactions even without a broadcaster, however, in this case, the user would need to use native gas.

Avocado Gas Tank

One of the biggest utilities of Avocado’s broadcaster infrastructure is that it allows users to pay for gas in a singular unit, USDC. The future of web3 is definitely multi-chain, along with which come native gas fees of each chain. Avocado abstracts gas by letting users pay gas in USDC only regardless of the underlying chain.

The broadcasters charge you for sending a message on-chain in USDC while continuing to pay native gas to the respective chains.

Is gas management decentralized?

You need to top up your Avocado Gas Tank with USDC to make transactions. As explained above the biggest utility of the broadcaster system is to have gas abstraction. Users' assets are fully non-custodial by users having true ownership over their assets. However, the funds in the gas tank are currently custodial allowing access to be with the broadcasters. This is what enables gas abstraction. This will get decentralized over time with a decentralized validator set.

A Non-custodial Future

Web3 gives us a utopian feeling about the future, that no other technology no matter how innovative feels like. Secure, transparent, 24/7 available, equalitarian, and affordable. Where everyone owns their assets and pays what they deserve. We believe Avocado would be the pillar to create a distributed economy, where innovations are built bringing web3 to the masses.

Learn more: Introducing Avocado

Website: https://avocado.instadapp.io/

Discord: https://discord.com/invite/C76CeZc

Twitter: http://twitter.com/instadapp

Ever since the launch of Instadapp, our main goal has been to simplify DeFi. We pioneered a multi-protocol dashboard to make DeFi more accessible and user-friendly. We've built a sophisticated dapp for degens, as well as simpler ones to provide an ultimate non-custodial experience for web3 users.

We did so through key innovations such as smart contract wallets (DSA), simplifying cross-protocol transactions, implementing the use of flashloans, and more.

But, web3 UX is still broken. Users are often torn across different chains. They have to juggle multiple networks, keep track of RPCs, manage native gas tokens, deal with fragmented liquidity, and perform multi-step cross-chain executions.

There's a need for a solution! Our first-ever cross-chain development was a refinancing bridge, Interop. It allowed users to move entire DeFi positions across different chains - but, in its short run, we quickly realized a much larger underlying problem.

Today, with more in-depth research and applying the foundations we've learned from all those years, we are super excited to launch Avocado!

Avocado is the next-generation smart contract wallet, which enables you to perform multi-network transactions, with an in-built account abstraction utility - while you're connected to a single network, Avocado. This completely eliminates the need of switching between different networks.

As soon as you're connected to Avocado network, a deterministic smart contract - algorithmically linked to your wallet address (such as Metamask) - is created in a completely non-custodial manner. We will publish an in-depth infrastructure architecture essay on the technical details soon.

When you initiate a transaction on a chain from your Avocado wallet, you will benefit from the same level of security as you would if you would transact directly on the chain. There's no difference. You get the same security but with a better UX.

For all the transactions on or through Avocado, gas is paid in USDC. This waives the need to manage multiple native gas tokens for each network. You can add gas from any chain, and pay for gas on any chain.

In short;

• Network Abstraction: It not only shows all the balances from all the networks in one place but also eliminates the need to switch networks while executing transactions. Connect Avocado, and transact anywhere.
• Gas Abstraction: It's a gas station with USDC being the native gas token - it eliminates the need of maintaining native gas balance in all the chains. Top up USDC as gas, and transact anywhere.
• Account Abstraction: It's powerful because AA provides greater modularity in the design, as well as opens up a wide range of use cases such as authority roles, recovery mechanisms, interoperability, enhanced security, and more.

Avocado, being a smart contract wallet, opens up a wide range of use cases, such as batching transactions, unified cross-chain executions, recovering your wallet, adding different roles, a gasless experience, and more!

Your address on Avocado remains the same on all the chains, like your EOA, so that such things don't happen. Avocado is an upgrade to your EOA.

You can start using your Avocado wallet immediately by connecting to any dapps via WalletConnect. We will further improve this experience by introducing a mobile app and a browser extension.

Here are some of the key upcoming developments:

• 2FA Security: Avocado will have a superior 2FA experience while remaining fully non-custodial, making it the most secure place to store your tokens, DeFi positions, and NFTs.
• Balance Unification: Avocado will enable cross-chain executions, such as buying a token on Arbitrum from the USDC you hold on Polygon without any hassle in a single click. We are also exploring the route to unify the balances through a dedicated roll-up.
• Roles: Users will have the ability to assign roles or security modules to specific addresses, such as guardians or automation to perform whitelisted tasks on their Avocado account.
• DeFi Strategies: In-built strategies - which aren't possible on an EOA - will be introduced to assist DeFi users in managing their positions on Avocado more efficiently and seamlessly.
• Developer Incentives Program: By integrating Avocado, developers can enhance their users' experience and offer new functionality as well as earn 10% of the gas fee. Developers can not only make their applications more useful and functional but also generate revenue.

Avocado contracts are an advanced version of Instadapp’s DSA (DeFi Smart Account) with more functionality and universal accessibility. As Avocado brings more users and dapps into the Instadapp ecosystem, the INST governance will be responsible for updating and redirecting the gas relaying fees.

The Bigger Picture

We believe that one day users won't have to worry about what chain they're using or what token they're paying gas in. In fact, what's gas? Users are just paying transaction fees. Cross-chain executions will be the new normal. Interacting with web3 will be easier, quicker, more accessible, and more secure than ever.

Check out Avocado! Stay tuned! 🥑

We launched Instadapp Lite less than a year ago, and at that time, Lite vaults reached ~$200M across four vaults. Lite was put through the test when stETH lost its peg in the aftermath of the Luna meltdown. Lite came out a lot stronger with better security practices.

As we approach the Shanghai fork, we're excited to announce Lite v2, with multi-protocol support, increased APRs, improved withdrawal capacities, and easy upgradability for new functionalities to be added in the future. Lite v2 will be deployed and made live in the coming week.

Lite v2 makes things even simpler.

At first, Lite v2 will launch with an ETH-only vault, meaning it will accept only ETH deposits and focus on a multitude of stETH-related strategies to return yield to users. It leverages the new ERc-4626 standard, opening the door for the composability of iETH tokens across DeFi protocols.

High APR with Multi-protocol-strategy Support:

Lite v1 vaults were single protocol oriented, using Aave v2. Lite v2 is multi-protocol oriented. The new vaults will support multiple protocols and multiple strategies on launch.

Essentially, users' assets will be leveraged on the protocol that provides the highest APR at the time. On launch, the vault will support these protocols:

• Aave v2
• Compound’s ETH market
• Morpho Aave v2
• Aave v3
• Euler

Improved Withdrawals

One of our major goals in improving the vaults is improving the withdrawal capacities. Firstly up to 50% withdrawal capacity will be available, allowing 50% of the users to leave the vault without incurring any loss. Multi-protocol support allows the vaults to maintain competitive rates while still allowing high withdrawal capacities.

For example, if Morpho Aave v2 provides the best APR the assets will be leveraged here, but as users start to withdraw the assets, the assets will start to move towards Aave v3, which might provide less APR but has a higher liquidation threshold. This allows the vault to have the same risk exposure while improving and facilitating withdrawals.

As the vaults are upgradeable, the vault can adapt to newer strategies in the future. For example, the ETH vault can provide liquidity to trade between stETH <> ETH, creating better yields for users on stETH -> ETH swaps, and self-deleveraging on ETH -> stETH swaps at a negligible loss.

Fees

The ETH vault will charge 20% on profits. All fees earned by Instadapp Lite go to the DAO. The vault will be deployed and primary parameters will be set by the team. After the initial deployment, the ownership will be transferred to the DAO immediately which will then be responsible for future updates.

Rebalancers

For day-to-day changes, the vault has special permission for these accounts called Rebalancers. Rebalancers cannot withdraw funds from the vault. Rebalancer can deposit assets from the vault to protocols, withdraw assets from protocols to the vault, move assets between protocols, and leverage. The max ratios and available protocols will be set by governance which will make sure the vault is in a safe state after any rebalancing.

The Rebalancer can carry out the following transactions on the vault:

• Deposit - Deposit assets from the vault into a protocol whenever the vault has excess deposits.
• Withdraw - Withdraw assets supplied to a protocol back to the Vault. It can only happen as per the max ratios set at inception or governance voting. (when the vault has lower assets to withdraw)
• Leverage - Leveraging the assets to earn greater yield as per the max ratios set at inception or governance voting.
• Refinance - Move assets between protocols. The destination and target protocol both needs to stay below the max ratios set at inception or governance voting.

Team Multi-Sig

The team multi-sig has some permissions into the vault for emergency and limited use. The team multi-sig can be used to reduce ratios for a particular protocol and can ‘pause’ the vault by either pausing withdrawals or rebalancing. These functions do not change the ownership of the assets and do not prevent users from trading or transferring the underlying iToken.

The ability to reduce ratios from a particular protocol can be useful if the current protocol being supplied by the vault incurred some sudden change that makes it unfavorable, such as changes to the liquidation threshold for stETH, reduction in collateral factor, etc.

The Team Multi-Sig has no access to users' funds at any point. It can only change parameters in ways that will protect the vault from unforeseen market conditions.

⚠️ Deprecation Alert (for Lite v1 users)

As a new ETH vault comes into action, the non-ETH vaults of Lite v1 will be deleveraged, allowing users to withdraw their funds without incurring any loss. This means all Lite v1 vaults will be deprecated. There were several reasons to make the change:

• The non-ETH vaults in particular were having withdrawal issues making it difficult for these holders to withdraw.
• The non-ETH vaults used an uncorrelated asset strategy, which requires more active management and incurs more on-chain rebalancing.

For holders of iUSDC, iDAI, and iwBTC:
As this new ETH vault increases in volume, the v1 non-ETH token vaults will deleverage and have more withdrawal capacity in the withdraw pool allowing you to exit the vault without incurring any loss.

For holders of iETH:
The current ETH vault deposits an upgrade to the new vault in a 1-click migration that will be provided when the vault will launch. We recommend all ETH depositors upgrade to the new vaults. However, the ETH v1 vault will continue to remain operational.

For stablecoin suppliers, we are in the development of a novel stablecoin vault. We will introduce a USDC/USDT stablecoin vault that will offer similar improvements but will utilize Uniswap v3. We’ll share more on that soon.

iETH and Beyond

As mentioned above we'll soon introduce a stable coin vault to cater to our users' experience and improves Lite's overall utility. The goal is to continuously enhance the vault and make it more dynamic so we can run more strategies and have a competitive advantage in yields while improving withdrawal liquidity.

We look forward to integrating iTokens into a larger ecosystem with improved liquidity and rebalancing mechanisms, such that iTokens can safely be used as collateral on other applications.

Learn more about Instadapp by following us on Twitter for regular updates and launches, get to know us closely, and ask us those hard questions (or just say hi) up front on Discord. Nonetheless, if you need to contact us, feel free to email us.

Morpho arrives at Instadapp! Morpho is a new generation of lending protocol built on existing protocols! It aims to drive efficiency in the lending markets.

Morpho is a unique protocol built on top of existing protocols like Compound and AAVE.

Morpho optimizes the interest rates users can achieve by directly connecting lenders and borrowers using these protocols. Morpho calls this their P2P rate!

You can think of Morpho as the matchmaker of your loans, and the guarantor is the lending protocol.

The best of both worlds

Lending protocols like AAVE and Compound offer amazing access and liquidity. You can borrow or supply funds to AAVE at any time. You can immediately withdraw your collateral if you pay off your loan quickly.

To offer this open type of market, the protocol has higher liquidity and also requires more collateralization, this also applies to the premiums charged on borrowers and the interest earned on suppliers.

Unfortunately, we exchange some capital efficiency for having this open and liquid market guarantee.

Morpho takes the guarantee and liquidity of these larger lending protocols and builds a matching system on top.

By matching borrowers and lenders directly, they offer both parties a rate that removes the extra premiums required by the underlying protocol. The underlying protocol can still be used whenever funds are unmatched, which also sets the rates.

Morpho just improves the efficiency of the rate. Borrowers pay less interest, and suppliers earn more! Morpho combines the best of DeFi with the best parts of Peer to Peer markets.

Is Morpho a No-Brainer?

Morpho’s unique approach makes it a compelling alternative to access AAVE and Compound.

In the worst-case scenario, your funds are not matched, so you pay the rates you would have paid if you used the protocols directly. However, in the best case, your loans or deposits will be matched for a part of the time and you will be getting a better overall APR rate secured by the same protocol you would have used anyway!

Morpho, by being built on these larger lending protocols, offers the same rates, liquidation parameters, and functionality. Morpho brings you the benefits of peer to peer finance with the guarantees of DeFi.

Morpho is now live on Instadapp!

You can utilize Morpho exactly as you do with Compound or AAVE, with access to Strategies and upcoming refinancing to make it even easier to jump to Morpho!

We think Morpho is a unique and extensible protocol that can offer a lot of increased APRs for users, improve the overall lending experience, and usher in more products that similarly will use DeFi monoliths like AAVE to build even better systems.

Learn more about Instadapp by following us on Twitter for regular updates and launches, get to know us closely, and ask us those hard questions (or just say hi) up front on Discord. Nonetheless, if you need to contact us, feel free to email us.

Have you ever had a transaction fail due to slippage? But you put in enough gas, and then by the time the transaction confirms, the price has changed, and your trade has failed. This may have been a conscience it also could have been a bot that frontran your transaction and sandwiched attacked you.

MEV or Miner Extractable Value can be described as the ‘extra’ a block producer could generate by producing one block over another. But you may be thinking, “Doesn’t gas determine which transactions go first?”

In general, block producers grab the most profitable transactions based on gas fees and tips included with the transactions; however, with more on-chain financial activity such as token trading, the gas fee isn’t the only value that can interest the block producer.

Bots and arbitrageurs have found ways to generate additional income by carefully reviewing the ethereum mempool.

The mempool is where pending transactions sit before they are confirmed on blocks. You can think of this as the waiting line before transactions go on the chain.

TxStreet is a website visualizer showing pending transactions as passengers waiting in line to get onto Busses which represent blocks on chain.

How do arbitrageurs frontrun transactions?

When a user submits a transaction to Ethereum, it is not confirmed instantly; it sits in the mempool to be mined into a block. What creates MEV is external actors being able to view the public mempool calculating a value to these transactions and potentially creating profit from slippage and abusing this logic.

Bots and arbitrageurs use this information to frontrun transactions, cause extra slippage, make dex trades fail, and cause unnecessary losses to users.

Armed with the knowledge of the public mempool, these arbitrageurs and bots generate competing blocks. They pack the block with transactions that frontrun your pending transaction.

One way these bots attack users is in a ‘sandwich attack,’ these bots generate transactions and trade ahead of your pending DEX trade causing you to trade at an unexpected loss.

This risk is increased with coins that are less liquid and whose price may more easily be manipulated. Other times these bots can simply cause your transaction to fail and cause you to waste gas.

Private Transactions on Instadapp

You can activate Private Transactions on Instadapp to protect all your transactions from being attacked. By making the transactions private, your transactions will be sent to private relayers who auction your transactions privately into blocks.

Your private transactions are only revealed when they are confirmed on-chain in a block! Private transactions hide your pending transactions from external actors preventing them from generating an attack against you.

Private Transactions are never broadcasted prior to being included in the blockchain; this ensures even if a transaction failed while using private transactions, your transaction information would still not be visible to the public.

What powers Private Transactions?

Private Transactions is the culmination of development from the research team Flashbots. Flashbots purpose is to provide tooling and research to improve and solve the MEV problem on Ethereum. Among their contributions, Flashbots has created MEV-Boost, which enables any block producer to participate in sealed bid auctions for transactions.

By enabling private transactions, your transaction is sent to the participating MEV-Boost block producers. These block producers then run a sealed auction to finalize and submit the block. MEV-Boost is available to any validator. MEV-Boost allows for fairer transaction inclusion and better serves the block producers and users.

Instadapp provides private transactions through our integration with Alchemy Flashbots API. If you would like to learn more about Alchemy, check out their feature overview here.

Where can I turn Private Transaction on?

You can enable and disable Private transactions at any time within the settings window:

Conclusion

Instadapp is your premier go-to DeFi application with access to the largest and most useful DeFi applications! Now the added security from private transactions ensures you get the best executions for your strategies, trades, and anything you do on Instadapp!

Get started today! Go to Global Settings and tick on Private Transactions, and that's it! Your transactions now execute in private with no pesky losses due to bots and arbitrageurs.

Learn more about Instadapp by following us on Twitter for regular updates and launches, get to know us closely, and ask us those hard questions (or just say hi) up front on Discord. Nonetheless, if you need to contact us, feel free to email us.

Compound Finance is known as the pioneer of decentralized peer-to-peer lending markets. The recent launch of v3, code-named 'Comet,' is an exciting follow-up to Compound v1 and v2, driven with an emphasis on security and ease of use.

The biggest change is a realigned focus on borrowers. This means only one ‘base asset’ is supported for borrowing while other crypto assets are supplied as collateral.

Unlike v2, which used a pooled-risk model, users could borrow any asset. Just as they say, one bad apple can spoil the whole bunch; a single faulty asset could drain the entire protocol.

You can read the full change log here on the forum post. In this post, we will try to highlight the major changes we are excited about.

Compared to v2, how is v3 secured?

This change to single-asset borrowing increases security, as no one can borrow the collateral you supplied. Under each market, you can only supply supported collateral, but you can only borrow a single asset. Currently, the supported market is the USDC base asset, with ETH, COMP, LINK, UNI, and WBTC being the supporting collateral.

Your collateral is more secure, risk is managed better, and capital efficiency is improved. It's ingenious!

Compound also mentions that there will be more base markets in the future; DAI and ETH are the most probable. This is most likely to happen on a second deployment with confirmation from the community via governance.

So, there won’t be any interest on supplied collateral anymore?

This security update comes with a caveat; since borrowers would not be borrowing your collateral, they won’t be paying any interest. On Compound v3, you won’t earn any interest on supplied collateral.

However, you will be able to borrow more, with less liquidation risk and lower liquidation penalties, while spending less on gas.

You can earn interest on the base asset (USDC in this case) by supplying the base asset.

Decoupled supply and borrow rates

On Compound v2, supply and borrow rates were codependent. In v3, on the other hand, both rates are calculated separately. These rate models are set by the governance which can more proactively set these two different rates.

For example, Compound governance can decide to set a higher borrowing rate and a lower supply rate. If the borrowing rate is 40% and the supply rate is 20%. This difference of 20% can go to the protocol’s reserve as revenue and differs from the static models from Compound v1 and v2.

What if the supply rate goes higher than the borrowing rate? How will the extra interest be paid to suppliers?

This is most likely a rare occurrence; if it does happen, it will be paid from the Compound’s reserve. Regardless, the protocol is still safe in these circumstances and is earning any excesses.

How will the liquidation system work?

The liquidation system in Compounds v3 is optimized. When your borrow balance exceeds the liquidation limit, it triggers liquidation. The liquidator “absorbs” the ownership of your position, and your debt is paid back using the collateral. The remaining collateral, minus the liquidation penalty, is returned to you in the base asset.

All liquidations on Compound settle the position.

Compound v3 also introduces changes to how it handles bad debt. When a user is liquidated on Compound, no matter what you deposit as collateral after liquidation, your remaining balance would be converted to interest-earning USDC (in this case).

Let’s say you had deposited ETH, UNI, and LINK collateral and had borrowed USDC up to the point of liquidation. Let's say just LINK fell in price and you were liquidated, after the liquidation, the protocol would settle all your collateral assets and only return the remainder as USDC supplied to Compound.

This liquidation is called an ‘absorption’ as the liquidation is initially paid for by Compounds reserve. These improvements ensure the Compound can offer better rates in exchange for a more streamlined liquidation process.

What's the liquidation penalty?

It varies for each collateral asset ranging from 5 to 7%.

How are prices validated?

Compound version 3 employs Chainlink as the protocol’s exclusive price feed, which simplifies governance smart contracts and will enhance the system’s security and scalability. This will also be portable to EVM chains beyond Ethereum.

Governance will be able to modify this decision in the future.

What role does Governance play in v3?

As Robert puts it, Compound III is controlled & owned by the community. All decisions, from price oracles to supply and borrow rates, depend on governance. Compound also acquired a Business Source License (BSL), which means forking the protocol requires community permission as well.

Improvements for Account Management on Comet

Compound III shines like a comet with new advanced account management features. Compound accounts can enable different users or addresses to have permissioned access to parts of their Compound accounts.

For example, you could whitelist another address to pay back debt in your Compound position or grant a protocol the ability to borrow from your account for a fee.

These authority models will assist in building new compelling use cases in the future.

Conclusion

Compound has taken a simpler, more efficient and safer route to becoming a leader in USDC borrowing. In the world of DeFi lending protocols, if there are no external rewards, Compound Comet looks like it's in it for the long run.

Manage your Compound on Instadapp.

Read our guide on how to manage your Compound positions on Instadapp here.

Learn more about Instadapp by following us on Twitter for regular updates and launches, get to know us closely, and ask us those hard questions (or just say hi) up front on Discord. Nonetheless, if you need to contact us, feel free to email us.

Do you remember Black Thursday? For those of you who don’t know, it was a massive liquidation of MakerDAO positions when ETH fell 43% from $194 to $111, and millions of dollars were liquidated, affecting almost everyone in DeFi at the time (March 2020).

This was the first of many liquidations that shook the industry, making people second-guess the promise DeFi held.

A lot has changed since March 2020, though protocols have emerged with better security and algorithmic measures. They also have increased liquidation ratios, allowing users to borrow more against their collateral.

DeFi protocols ensure automated liquidations but forget to automate not being liquidated.

Instadapp introduced Protection Automation for Aave v2 and v3. This feature allows you to automatically unwind your position to pay down debt when a position becomes risky.

Setting up Protection on Aave v2 and v3

You can find the Protection Automation on the Strategies tab.

Set the Trigger Health Factor and Target Health Factor

Trigger Health Factor represents when the automation should occur. You can see your current risk factor and enter a value that is lower than your current health factor.

Whenever the position's health factor falls below the triggering health factor protection automation will submit a transaction to SAVE the position.

Target Health Factor determines how much the automation will pay back. You can set the desired Health Factor, and automation will pay back your position to this level.

Once done, click on Automate to set the Automation up.

Reviewing Automations

To get a full history of your automation transactions, go to the Utilities section, and click on Automation to view them.

Conclusion

One thing remains constant in this industry, and that's market volatility. Turn Automation on the portal to save your positions from being liquidated unexpectedly in difficult market conditions. Simply put, prevention is better than losing your assets, especially if it only takes one click to protect your positions.

Head over to Aave v2 or Aave v3 on Instadapp, and turn on Automation.

Quick FAQs

Q. Is there a minimum value of collateral assets?

Automation requires a minimum value of collateral assets. This minimum is only required when activating Protection Automation.

• Mainnet: a minimum of $15,000 USD worth of collateral to activate Automation.
• Polygon: a minimum of $1000 USD worth of collateral to activate Automation.
• Avalanche: a minimum of $5000 USD worth of collateral to activate Automation.

Q. Want to set up to close the position when the price goes above Triggered Health Factor?

Set the Target Health Factor to 1000 if you would like Protection Automation to pay back all the debt when triggered.

Q. How do I cancel an Automation?

Protection Automation will remain active until it is turned off. You can turn automation off in the Automation panel using the Cancel button. During a market downturn, the automation may run multiple times, each time returning the position to the target health ratio.

Q. What asset will be used to pay back the debt using Automation?

Once protection automation is activated, it will use any available collateral in the position during automation to pay back debt.

Q. Are there any fees?

For Automation on Mainnet, you will also pay the gas required to execute the automation. This fee will be paid through the collateral in the position. There is also a 0.3% - 0.4% fee per automation event.

Note: Automation is a Beta release, and has not gone through difficult market conditions to test its resilience. You should continue to monitor your positions even after setting up Automation and use at your own risk.

Learn more about Instadapp by following us on Twitter for regular updates and launches, get to know us closely, and ask us those hard questions (or just say hi) up front on Discord. Nonetheless, if you need to contact us, feel free to email us.

At this point, you might be thinking, “yet another protocol,” but hold that thought. Euler is different, plus we proactively integrate protocols that have a big vision for decentralization and put users and security before all.

Euler is a unique protocol built on the foundations of popular lending protocols like Compound and Aave but allows users to create their own markets for any ERC20 token. Offering a wide array of assets to lend and borrow with some of the highest collateral factors! Low-fee liquidations for some of the most liquid assets like ETH, wBTC, and USDC.

Here are some innovative concepts Euler pioneered, when combined with Instadapp’s powerful dashboard, will maximize your assets:

Permissionless Listing

Euler allows its users to decide which assets are listed. Any asset that has a WETH pair on Uniswap v3 can be added.

Whenever a new token is added on Uniswap with a WETH pair, it's automatically listed on Euler under the “unlisted” category. Once activated to the "isolated" category, users can utilize it on Instadapp.

Note: Isolated tokens will be supported very soon on Instadapp.

Asset Tiers

Euler separates their assets into tiers. You can borrow and lend a larger variety of assets with some limitations. The purpose of this is to protect users from the risk of price manipulation.

Collateral Tier: These assets can be lent, borrowed against, and combined with different asset pairs similar to assets on other lending protocols.

Cross-Tier: Assets can be used for ordinary lending and borrowing, including cross-borrowing (i.e., multiple borrowed assets per sub-account). Not available as collateral.

Isolation Tier: These assets, similar to Cross-Tier, do not have a collateral factor and cannot be borrowed against; but these assets can be borrowed in isolation. (i.e., one borrowed asset per sub-account

Sub-accounts

In order to support a variety of pairs, Euler uses 'sub-accounts,’ enabling users to create up to 256 sub-accounts per DSA!

These are helpful, so you won't have to approve a token multiple times for each new isolation-tier loan you want to take out.

You only need to approve Euler's access to a token once and can then deposit it into any sub-account. Sub-accounts enable a lot of unique strategies and ways to create positions.

Manage your funds or debts between sub-accounts by easily moving or migrating debt or assets using the Debt & Collateral Transfer.

Reactive Interest Rates

Euler amplifies the rate of change of the interest rates when utilization is above or below a target level to maximize capital efficiency.

Based on Euler’s whitepaper, this gives rise to reactive interest rates that adapt to market conditions for the underlying asset in real-time without the need for ongoing governance intervention.

Borrowing Factor

Unlike other lending protocols, Euler considers a “Borrowing Factor,” too. They take into account the risk of borrowing assets separately from their value as collateral. This enables the protocol to offer one-sided borrowing markets on riskier assets.

This concept is part of Euler’s Risk-Adjusted Borrowing approach. The combination of the collateral factor and the borrowing factor generates how much can be borrowed.

Using Euler on Instadapp

You can create a brand new Euler position on Instadapp, or you can import your position from Euler to access Instadapp’s smart strategies like 1-click leverage, collateral swap, debt swap, debt & collateral transfer, and more. Currently, Euler is live on Mainnet.

Learn more about Instadapp by following us on Twitter for regular updates and launches, get to know us closely, and ask us those hard questions (or just say hi) up front on Discord. Nonetheless, if you need to contact us, feel free to email us.

The crypto market has been crazy for the past few weeks, dropping by more than 50% spreading fear in the market and signaling the possible start of the bear market. This sudden market crash has also introduced many market inefficiencies. For some DeFi degens they have found ways to tap into these unique opportunities. This post will be focused on one of these inefficiencies and how users can use it to earn a +10% APR on USDC in the current bear market.

Let me start by sharing that almost all my ETH holdings are in the form of Lido Staked ETH (stETH). Using the following strategy you can potentially take advantage of the current market inefficiencies and earn while the market recovers the price of stETH. I myself am actively using this strategy! In this post I’ll cover the idea behind this strategy, how to set this up and We will review the risk profile of this strategy.

What is stETH?

stETH is the tokenized ETH staked into the ETH Beacon Chain sometimes called ETH 2.0. stETH earns pure ETH POS staking rewards (the best kind of reward in the entire crypto ecosystem). 1 stETH is fully backed by 1 ETH on the beacon chain this means 1 stETH = 1 ETH. Anyone can mint 1 stETH with 1 ETH through Lido.

stETH is sometimes described as being ‘pegged’ to ETH but this is a bit of a misnomer. stETH is backed by 1 ETH similar to how 1 USDC is backed by 1 fiat dollar in a bank account; compare this to DAI or UST which are not backed by fiat dollars but instead their price is pegged to the dollar. While stETH is not actually ‘pegged’ to ETH we may refer to peg/depeg in the context of the ETH market price to stETH.

Why is stETH trading at a discount?

stETH once minted cannot be redeemed until withdrawals on ETH 2.0 goes live. While no one knows the exact date, we can estimate it is at least 7 months away. In the bull market, stETH (and all other cryptos) had high demand. High demand resulted in an increase in the supply of stETH in the market allowing users to earn rewards on their ETH but due to the recent market crash, the demand has substantially decreased which resulted in a decrease in the exchange price of stETH w.r.t ETH.

How to benefit from this inefficiency?

If you believe that the stETH will eventually be redeemable for its backed ETH on the Beacon Chain then you would also assume that each stETH will be equal to 1 ETH sometime in the future. It can even happen in the next 2 months if the price of stETH in the market recovers or when the ETH 2.0 redemptions starts which doesn’t have a fixed date yet.

At the time of writing this: stETH is at a +6% discount w.r.t ETH.

Starting assets: $100k USDC.

Let’s assume 1ETH = 1000 USDC for simplification.

End position: (I’ll be taking Aave protocol for examples but can also be done using Euler)

• 112,000 USDC collateral (Tap into 12k USDC returns now)
• 200 ETH debt (or 212 ETH debt)
• 200 stETH collateral (or 212 stETH collateral)

The target is to have ETH debt = stETH collateral to be able to close the full position when stETH gets stable and realize the entire profit.

3 Steps process: (I’ll be using Aave with Instadapp to reduce the steps by utilizing the strategies)

1. Deposit 100,000 USDC into Aave
2. Use leverage strategy for ETH to stETH.

• Borrow 200 ETH.
• Swap ETH for 212 stETH.
• Deposit 212 stETH in Aave.

1. Use leverage strategy for ETH to USDC.

• Borrow 12 ETH.
• Swap ETH for 12000 USDC.
• Deposit 12000 USDC in Aave.

Position riskiness w.r.t stETH depeg (keeping market prices same for simplicity in the calculation):

• ETH debt = $212k.
• Min collateral requirement = $212k/0.83 = $255k. (USDC liquidation is at 0.88, stETH is at 0.81. Taking an average limit of 0.83 effective collateral factor)
• USDC collateral = $112k.
• stETH collateral needed = $255k - $112k = $143k.
• stETH price w.r.t ETH when stETH collateral value is $143k = 143000 / (212 * 1000) = 0.674528302 ETH. Meaning ~32.5% depeg is needed to liquidate this position.

But the actual depeg risk will be much higher than 32.5% as the depeg happens when the market crashes. When the market crashes ETH & stETH price goes down but USDC stays the same meaning the effective power of stable USDC collateral increases allowing it to handle more than 32.5% depeg. Vice versa happens when the market surges the effective power of stable USDC collateral decreases but at the same time, the stETH peg also gets better allowing users to close the position early.

Similarly, if a user wants to have less risk exposure then the user can decide to go with less leverage. Ex:- going leverage by 1x (100 ETH) will decrease the risk to ~80% depeg. That means, the user’s position will liquidate when stETH = 0.2 ETH (if all the other prices in the market stays the same).

Additional risks:

• Smart contract bug: This strategy involves Lido’s stETH, Aave protocol & Instadapp’s smart accounts.
• ETH borrow rates getting higher than stETH reward rate.
• Subject to depeg risk as per your ratio.

Layman’s Summary of this Strategy

Essentially you are able to capitalize on the current market inefficiency by first building a capital allotment, in this case using USDC. Utilizing that capital to borrow in ETH and buy stETH at a discounted rate which you can immediately cash out. You also continue to decrease the size of your debt with ongoing staking rewards. To fully realize the profits made by the difference in stETH/ETH price you have to close the position when the stETH price is restored to at least 1 ETH.

Written by Samyak