Dynamic Liquidity Protocol
Here, you will be able to find the most relevant information about Dynamic Liquidity Protocol.
The Dynamic Liquidity Protocol provides additional liquidity mechanisms for intangible assets. It allows to borrow a dX stablecoin from the protocol in exchange for tokenized intangible assets locked as collateral.
dX is a decentralized, multi-collateral-backed stablecoin with F-NFT as underlying assets and is soft-pegged to a fiat currency.
The price of fiat currency is provided to the network via price feeds coming from the Chainlink (oracles).
Overview of the Dynamic Liquidity Protocol (DLP)
In DEIP's infrastructure, anyone can mint a dX stablecoin (e.g. dUSD, dEUR, dCYN, etc.) by collateralizing F-NFTs and locking them into a special smart contract (Vault).
In order to mint X of stable tokens, the total value (
) of assets locked into the collateral smart contract has to be
, where K is the default collateralization coefficient and
is dynamic adjustment coefficient.
The default collateralization coefficient is K=3 (300% of the locked underlying assets value), therefore to borrow 1M dUSD tokens the borrower has to put $3M of the value of F-NFT tokens as collateral to a Vault.
The actual collateralization coefficient is adjusted dynamically (via component) and can change over time taking into account recent transactions with F-NFTs, F-NFT issuer track record, issuance platform, recent licensing transactions, and payouts of a specific F-NFT from the collateralization bucket.
To withdraw the assets from a Vault smart contract, the borrower needs to pay the full amount of (settle) borrowed dX tokens plus pay a stability fee (interest rate). The stability fee is paid to the network and distributed 50/50 between yield farmers and the Ecosystem Fund. The stability fee is set via the network governance mechanism.
Dynamic Liquidity Protocol Workflow
To ensure that there is always enough collateral to cover the value of all outstanding debt (the amount of dX outstanding), any Vault deemed too risky (according to parameters established by DEIP infrastructure) is liquidated through an automated liquidation auction.
The Dynamic Liquidity Protocol determines whether a liquidation auction should take place by comparing the Liquidation Ratio to the current collateral-to-debt ratio of a Vault.
Each Vault has its own Liquidation Ratio based on the assets stored in it and the risk profile of the particular collateral asset type.
Each Vault consists of two pools: an F-NFT pool and an asset-stabilization pool. Once a liquidation auction is triggered, a special liquidation smart contract takes a percentage of the assets pool (F-NFTs pool) and puts it on auction. At the same time and independently of the process with the F-NFT pool, the smart-contract refers to the assset-stabilization pool, withdraws the assets from it, and auctions them.
The protocol takes a percentage of the F-NFT pool (determined by a risk-assessment smart contract based on the currency governance configuration) and splits it into two auction slots of two different types: “pooled” and “segregated”.
- Pooled slots contain a percentage of all the assets from Vault F-NFTs pool into a single slot, and provides immediate price discovery for the Vault F-NFTs assets when they are bought.
- Segregated slots are created for each F-NFT in the Vault.
The percentage is the same for each F-NFT and determined by the liquidation smart contract based on current on-chain governance settings.
Segregated slots give a more accurate price discovery, but take more time to be liquidated on the market. Once the liquidation is performed, the liquidation smart contract estimates the new price of assets in the Vault and the risk coefficients. Where the total weighted value of the Vault is greater than the value of borrowed assets multiplied by the collateralization coefficient, it stops the liquidation process; where less, it launches the next iteration and does the whole process again, this time with a bigger share of Vault assets.
The percentage of each liquidation iteration (
) is calculated as follows:
is liquidation step multiplication coefficients,
is a default liquidation percentage, both set by the on-chain governance mechanisms.