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Launch FiRM - The Fixed Rate Money Market Protocol

Executed
#074 - mills ERA

Created Dec 11th, 2022 - Executed Dec 16th, 2022

Details

Edo

Forum Link: https://forum.inverse.finance/t/launch-firm-the-fixed-rate-money-market-protocol/168

Summary:

This proposal aims to authorize the launch of Inverse’s newest product, “FiRM”, as well as grant the rights needed for operations to the Fed Chair and RWG multisig.

Background:

In February 2021, Inverse Finance launched its first decentralized money market, Anchor, and a fully-recallable debt-backed stablecoin, DOLA. Less than two years later, we are excited to release what we believe will be regarded as one of the greatest contributions to DeFi - FiRM.

Our experiences with variable rate lending markets, cross-collateral asset pools, and volatility in the markets this year led us to re-examine several assumptions about our business and challenge several assumptions about the broader DeFi lending market.

While Inverse has played in variable rate lending markets in 2021 and much of 2022, we are increasingly convinced that hyper-growth in DeFi lending will not occur via historically volatile variable interest rate lending but rather through more predictable and more coherent fixed-rate lending. Fixed-rate DeFi lending TVL today is a fraction of variable rate lending due to a combination of high rates, short maturities, and otherwise user-unfriendly business models. Similarly, the inflexible nature and the security issues inherent in cross-collateral asset pools is ripe for reinvention.

With these two industry-wide problems in mind, we present FiRM. We envision a world where most goods and services are traded against decentralized stablecoins and central to that vision is the ability to extend credit in innovative ways. Our new primitives in FiRM enable us to scale up fixed-rate DeFi lending in previously unseen ways.

FiRM:

The Fixed Rate Market or “FiRM,” is a new DeFi lending market protocol from Inverse Finance that implements a new DeFi primitive, DOLA Borrowing Rights, and a collateral architecture, Personal Collateral Escrows. DOLA Borrowing Rights provide a rights-based approach to lending that solves for the second order trade-offs made by variable rate lending protocols that attempt to control the peg of their stablecoin. Users benefit from the certainty of fixed-rate loans while gaining optionality and speculative opportunities from the price movements of the borrowing rights. Personal Collateral Escrows isolate collateral deposits by individual wallet address and by token, allowing for more efficient use of their collateral such as retention of voting rights for any governance tokens deposited as collateral.

FiRM will unlock new possibilities in DeFi including:

  • Fixed-rate loans for any duration
  • Interest rate speculation and hedging
  • New Pessimistic Oracle design
  • Powerful risk management tools
  • Access to voting using collateralized gov tokens (e.g. UNI, COMP, MKR)

Reformulating loan interest expense as a borrowing right solves multiple foundational challenges for the DeFi industry. It highlights how decentralized smart contracts can lend in more elegant and more composable ways than is possible with traditional “off-chain” TradFi systems. By implementing DOLA Borrowing Rights and Personal Collateral Escrows, the DeFi industry brings a more secure and less volatile set of lending tools to a broader segment of the financial services industry, realizing yet another aspect of the potential of decentralized finance.

For Inverse Finance, this opens a range of new lending opportunities including serving DAO credit needs, institutional desire for risk limited DeFi exposure and desire by speculators to capture better returns. Radically improving our foundational security infrastructure by launching DBR borrowing rights and Personal Collateral Escrows enables us to open up composable partnership opportunities and charge the feature development pipeline.

Version 1.0

Upon launch, FiRM will be in “guarded mode” with a single market of wrapped Ether and a limited amount of DOLA available to borrow. WETH was chosen for the debut market as it’s considered as pristine as a collateral can get on the Ethereum blockchain. A DOLA lending supply cap will be controlled by the RWG multisig and it will always be considered in relation to DOLA circulating supply and liquidity. Any decision regarding future expansions of the market will be actively managed by our Treasury and Risk Working groups. We are determined to stay true to our improved security posture and gradually add new markets to FiRM as usage grows and the DOLA ecosystem evolves. We have many exciting and innovative ideas to build on top of FiRM involving new markets, use cases for DBR, liquidation mechanisms, and more that will require extensive internal code review and external auditing.

Frontier, our deprecated money market, will remain the place for INV stakers to continue receiving staking rewards. The v1 markets and their interactions with the DOLA IOU and Debt Repaye will also remain.

On-Chain Actions

DBR:

  • Call addMarket with the weth market address

Market:

  • Call setBorrowController with the deployed borrowController
  • Set collateralFactorBps to 7000 (70%)

FiRM FED

  • Set supplyCeiling to 500,000 DOLA for global market
  • Set marketCeiling to 500,000 DOLA for weth market

Dola:

  • Add Market Fed as a minter

BorrowController:

  • Call setDailyLimit to set maximum daily borrow limit.

Oracle:

  • Call setFeed with WETH address, the ETH Chainlink feed, and the correct amount of decimals.

Actions

Action 1
DBR
.addMarket(
FiRMWethMarket

)

Action 2
«
Set FiRMWethMarket Supply Ceiling to

500,000

DOLA
»
Fed FiRM
.changeMarketCeiling(
FiRMWethMarket,

500000000000000000000000

)

Action 3
Action 4
«
Set FiRMWethMarket Daily Borrow Limit to

100,000

DOLA
»
FiRMBorrowController
.setDailyLimit(
FiRMWethMarket,

100000000000000000000000

)

Action 5
Action 6
DOLA
.addMinter(

)

Action 7
«
Set FiRM's Global Supply Ceiling to

500,000

DOLA
»
Fed FiRM
.changeSupplyCeiling(

500000000000000000000000

)

Action 8
«
Set FiRMWethMarket Collateral Factor to

70%

»
FiRMWethMarket
.setCollateralFactorBps(

7000

)

Proof of Reviews

Members allowed to make Drafts can sign the fact that they reviewed the Draft Proposal

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