PDLP
Exploring PDLP
PDLP is short for Protocol-Direct-Liquidity-Provision and was approved through DIP019. It is designed to combat liquidity shortage on secondary venues effectively with direct liquidity provision into secondary market.
USX is a hybrid decentralized stablecoin, under the Vault model, users supply collaterals to the Vaults to mint USX. This is the primary market to generate USX liquidity. MakerDAO used to 100% rely on the vault model for DAI's issuance.
The obvious drawback of primary issuance is capital inefficiency. For example, in order to provide USX (or DAI) liquidity to secondary market (i.e., lending or DEX), you have to 1) provide collateral to mint USX (or DAI); 2) supply minted USX (or DAI) to lending protocol to provide liquidity. In most cases, those who mint stablecoins in the primary market (vaults) do not have the incentive to provide liquidity in the secondary market.
The PDLP module allows the protocol to use USX‘s deposit certificates in lending protocols (i.e., iToken, aToken, cToken) as collateral to mint USX and supply the liquidity to lending protocols. That being said, minting USX and providing liquidity will be performed in one step - it removes the middleman (primary market issuers) and becomes an effective liquidity provider in the secondary market, making it highly efficient and market-driven.
For example, high market demand will drive up interest rates and trigger more supply of USX into the secondary market. On the contrary, previously added liquidity will be withdrawn when market demand drops, bringing the interest rates back to the target level.
PDLP is highly scalable and is able to accommodate a broad range of protocols, facilitating the expansion of USX liquidity across lending markets, DEXes, bridges and chains.
PDLP Strategies
PDLP will mainly focus on principal-safe strategies to power USX liquidity across lending, bridges, and stablecoin swaps that are less exposed to impermanent loss.
Lending
Similar to the D3M model MakerDAO deployed with Aave, USX and EUX can be minted against USX or EUX's yield tokens in lending protocols (i.e., aToken of Aave or cToken of Compound) and directly deposit back to whitelisted protocols to provide liquidity (approved through DIP019).
For example, when PDLP module issues USX liquidity to dForce Lending, it will take iUSX (interest token of dForce Lending) as collateral to secure the minting of USX.
When a user borrows USX from dForce Lending, he is required to provide collateral assets satisfying the predetermined LTV ratio to secure his USX loan, meaning that USX loans are always over-collateralized.
PDLP will enforce a range-bound borrow rate for USX, which is driven by USX's utilization rate across supported lending protocols. Whenever the borrow rate goes above the capped borrow rate, additional supply of USX will be deposited into the lending protocol to bring the borrow rate back to the bound range.
PDLP can support third-party lending protocols like Aave or Compound, subject to DF governance approval.
Bridges
Similar to lending protocols, PDLP can power whitelisted bridges with a pegged mechanism (i.e., Celer's cBridge). USX can be minted against deposit certificates of whitelisted bridges via PDLP (approved through DIP021).
This operation aims to facilitate the bridging of USX across supported networks with zero or near-zero slippage, without capped liquidity.
Combined use of dForce bridge with swaps on destination chains, enable USX to serve as a universal liquidity token to facilitate the cross-chain bridging of any assets. For example, you can supply USDC to borrow USX on Arbitrum, use the bridge to bring USX to Optimism, supply USX as collateral to borrow USDC on Optimism. By doing so, you can bridge your ETH, BTC, etc to destination chains at affordable cost with minimized slippage.
Swaps
PDLP can also power stablecoin swaps paired with USX (i.e., USDC/USD, USX+3pool, etc), which are less exposed to impermanent loss (approved through DIP019).
PDLP will use LP token, a representation of liquidity position in whitelisted DEXes, as collateral to mint USX. This mechanism will allow dForce to own liquidity and earn most of the LP fees for DF holders.
PDLP Limits
Total assets controlled under PDLP will be allocated across different layers and blockchains (approved through DIP021).
A total of 300m USX have been allocated to the broader Ethereum ecosystem. Minting will take place on Ethereum, but can be bridged to L2 solutions, including Arbitrum, Optimism, and more, within the limits.
200m USX have been allocated to BSC whilst USX will be minted natively on BSC via PDLP.
Whitelisted Protocols
Approved PDLP limits are applicable to protocols listed below across all networks (including future deployment on other blockchains and layers):
Other venues would need to seek additional approval from the dForce community through governance.
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