STARS Incentives to bootstrap stSTARS Lending And Collateral on Demex
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Proposal #242 description
Summary This proposal seeks to engage and establish a strategic partnership between Stargaze and Demex. This proposal, put forth by the Switcheo Labs (switcheo.com) team, suggests whitelisting stSTARS (Stride’s liquid staked STARS) as collateral, on Demex’s in-app money market. The goal is to provide yield opportunities for stSTARS holders and the greater Stargaze ecosystem. At the moment, there are no money markets that have listed stSTARS as collateral. By listing stSTARS on Nitron, users can earn lending APY and unlock capital on their HODLed yield-bearing stSTARs token and to borrow other assets. By doing so, we can boost the utility, decrease selling pressure, increase adoption of the STARS token, and provide more opportunities for the STARS community to earn yield.
The Proposal To list stSTARS on Nitron, we propose boosting the launch with a) an incentivization program and b) co-marketing efforts to spread awareness. The goal is to use these external rewards to incentivize the stSTARS lending pool, which will also help raise awareness of stSTARS being able to be used as collateral. Currently, stSTARS is not available as collateral on any money market and hence does not allow its holders to leverage their portfolio. LSDFi is becoming a prominent trend in the DeFi space, we can open up these opportunities to your community using stSTARS. Furthermore, it will encourage users to lend out their tokens instead of selling it, if they need liquidity or other assets. This will help maintain the market cap of STARS by increasing its utility and reducing its selling pressure. Users who view the Stargaze as undervalued and bullish on the project can deposit stSTARS tokens, borrow stablecoins to obtain more STARS and stSTARS, and repeat to achieve a leverage-long position on STARS.
Additional details: As both chains are IBC-enabled, stSTARS deposits from Stride will be done on Demex using IBC transfers which are a lot more secure. Stargaze and Demex will jointly pursue co-marketing efforts to broadcast the launches. To prevent unfair farming of incentives during the incentivization period, borrowing of stSTARS will be disabled. stSTARS Collateral Money Market Parameters stSTARS Loan-to-value (LTV): 35% Liquidation threshold: 40% Liquidation bonus: 20% Supply cap: 7,142,857.14 stSTARS tokens ~ $200,000 (supply can be raised any time) Borrow cap: $1 (will not be borrowable when incentives are live to prevent looping) Optimal utilization: 40% Target borrow rate: 0% (NA)
Projections Example: Stargaze can incentivize the lending pool with $5,000 STARS worth for 60 days. If the incentive amount attracts around $150,000 of STARS, it would give an incentive APR of about ~20%** which is competitive in the current yield farming landscape while still earning the staking rewards portion of innate APR of about ~14.3%** (on Stride) , for a combined yield of about ~36% APY. If a user wants to earn even more yield, a user can mint USC or borrow other assets to subsequently obtain more STARS and further deposit it to Nitron to earn more APY. This strategy is called leveraged looping and is very popular in the DeFi community. Distribution
This proposal, if accepted, will send 166,667 STARS tokens (~$5,000**) from the community pool to the Switcheo Labs team’s multisig address at stars10l87h6yxsmjuyt35mmd04gfk2u0qkatukfqw8z05mxjxzzrqgv6s2tu7t0 on Stargaze to fund and incentivize the stSTARS lending pool on Nitron. This program will distribute the authorized amount of tokens over 60 days, starting from the launch of the asset on Nitron. 100% of the STARS incentives will be deployed pro rata to users on Demex who deposit stSTARS tokens in Nitron’s lending contract via Carbon’s external incentive feature on its Collateralized Debt Position (CDP) module.
What is Demex? Demex is a powerful cross-chain derivatives DEX, designed to support any type of financial asset imaginable. Demex aims to make finance accessible and trust-optional while providing an intuitive and familiar user experience. Nitron is the name of Demex's lending and borrowing money market. It works similarly to AAVE and supports a wide range of cross-chain and exotic assets. It also has a public liquidation platform, which allows anyone to perform permissionless liquidations on undercollateralized loans. Demex exists on Carbon Network, a DeFi-focused L1 Cosmos Network built with Cosmos SDK and is IBC-enabled. The team behind Carbon Network is called Switcheo Labs, a doxxed Singapore Web3 development studio founded in 2018.
Why Demex? Demex was the first central limit order book DEX that first launched in 2021 in the Cosmos ecosystem. Demex has several popular spot and perpetual markets for a range of top IBC tokens such as ATOM, OSMO, EVMOS, KUJI, TIA, etc, becoming a haven for Cosmos traders. It is also home to assets from other popular chains such as Ethereum, Arbitrum, BSC, and so on. Moreover, Demex provides a supreme DeFi trading experience with its one-of-a-kind features such as flexible network fees, stablecoin auto-conversion, permissionless market and LP creation, and more. This makes Demex a good platform to list stSTARS on, to provide exposure not only to other Cosmos traders and DeFi enthusiasts but other major EVM ecosystems.
Why Nitron Money Market? Nitron is the most extensive cross-chain money market in Cosmos. It is home to several Cosmos assets, exotic assets such as LSDs, and even liquidity pool (LP) tokens. Nitron has been successful in attracting millions in TVL with its regular listings, as users find it the perfect platform to lend and collateralize their assets to unlock their capital and borrow other assets and/or mint stablecoins. LSDs have been very popular amongst Nitron users as leverage to earn more yield on top of staking rewards. Nitron is already home to several IBC assets as well as exotic assets such as liquid-staked derivatives from Stride, StaFi, Eris, and more. We can confidently and easily list STARS from Stargaze as well.