GM, this is your Daily Bolt briefing.
In this 4th of July edition, we’re keeping you informed with a full notes report on Gravita Protocol, an interest-free borrowing protocol for LSTs.
Stay alert, stay informed ⬇️
The Edge Podcast - Introduction to Gravita Protocol
Rhett introduces Gravita Protocol and discusses its main features while also focusing on Gravita’s vision for the LSDfi. Read our notes below to learn more. Click here to listen to the full episode (44 mins).
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Introduction to Gravita Protocol
Gravita Protocol - a borrowing platform that allows users to borrow against their liquid staking tokens (LSTs).
Rhett says that Gravita is a friendly fork of Liquity, designed to provide users with interest-free loans backed by ETH Liquid Staking Tokens (LSTs) such as rETH by Rocket Pool and stETH by Lido
Rhett says that Gravita Protocol is unique in the sense that it is the first platform to accept LSTs as collateral. He says that this feature sets Gravita apart from other DeFi borrowing platforms in the market.
Rhett says that to use Gravita, users can deposit their LSTs into the protocol and take out a loan. The loan is issued in GRAI, the stablecoin of the Gravita Protocol.
Safety Measures and Liquidation
Rhett says that the system goes into recovery mode if the overall loan-to-value (LTV) for borrowers reaches about 71%.
Rhett says that in this recovery mode, users can get liquidated at a 71% LTV as opposed to 85% against their ETH through their staked ETH.
Rhett advises users to either always maintain their LTV below that 71% threshold or to closely monitor whether the system is at risk of entering recovery mode to avoid liquidation.
Advantages of Gravita over Other DeFi Borrowing Protocols
Rhett says that Gravita offers a much lower cost for long-term borrowers because users only pay a one-time borrowing fee and never pay interest again, which can significantly reduce the cost of borrowing for those who plan to maintain their loan for a long period.
Rhett further elaborates on another advantage of Gravita, which is its allowance for a more aggressive loan-to-value (LTV) ratio than many other systems. He says that borrowers can take out a larger loan relative to the value of their collateral, allowing them to potentially leverage their assets more effectively.
Introduction to $GRAI, the Stablecoin of Gravita Protocol
Rhett describes GRAI as the debt token of the system.
He says that GRAI is similar to other stablecoins like DAI, and it is always valued at one dollar internally within the Gravita system.
Rhett says that the Gravita system has natural mechanisms to maintain the peg of GRAI to the US dollar. For instance, if GRAI is trading above or below one dollar in the market, arbitrage opportunities arise. Arbitragers can buy GRAI when it's cheap and sell it when it's expensive, which helps to bring the market price of GRAI back to one dollar.
Rhett says that Gravita plans to introduce redemptions. With redemptions, arbitragers can buy GRAI and redeem it for the borrower's collateral when GRAI is trading above one dollar. This mechanism provides another way to maintain the peg of GRAI to the US dollar.
The Stability Pool
Rhett says that anyone can deposit GRAI into the stability pool.
Rhett says that when a liquidation gets triggered (when a borrower's collateral falls below the required threshold), the stability pool comes into play. The stability pool burns the borrower's debt, and their collateral is distributed amongst the stability pool depositors.
He says that thanks to this mechanism those who have deposited GRAI into the stability pool can potentially earn a return in the form of the liquidated collateral.
Rhett says that the yield of the stability pool operates inversely to the market, becoming higher yielding when the market is in its worst state.
Decentralization and Governance of Gravita Protocol
Rhett says that the Gravita team has plans to decentralize ownership of the protocol through a governance token. This token will allow holders to participate in decision-making processes related to the protocol, further decentralizing its control.
Rhett says that the governance token will have other functionalities beyond governance.
Rhett says that most of the governance tokens will be distributed to the community rather than insiders.
Expansion to Other Layer-2s
Rhett says that Gravita plans to expand to other layer-2 solutions. He says that the goal is to be deployed on all high-quality layer-2s, not just Arbitrum.
He believes that this would allow Gravita to reach a wider user base and take advantage of the different features and communities of various layer-2 solutions.
Rhett says that the decision on which layer-2 to go to first will be based on community feedback and where the highest demand is. This approach ensures that Gravita's expansion aligns with the needs and interests of its user community.
Future Developments
Rhett says that the protocol is focused on getting to layer-2 solutions relatively quickly.
He says that Gravita plans to support liquidity provisioning positions as collateral in the near future. This would allow users to use their liquidity provider (LP) tokens, which represent their share of a liquidity pool on a decentralized exchange, as collateral for loans on Gravita.