A brief analysis of the problems and solutions of Lybra Finance

Author: 0xLoki, Xinhuo Technology Source: X (original Twitter) @Loki_Zeng

1. The essence of eUSD is that the opportunity cost is ~7%-mint APY; a bond with a coupon rate of ~5.5% will naturally unanchor upward. PeUSD has a fixed borrowing cost of ~1.5%, and it is possible for it to unanchor upward or downward based on supply and demand. v (generally the probability of going down is higher)
2. The processing of v1-eUSD, v2 TVL migration, and DLP restrictions are not smooth, and every step will lead to TVL loss.
3. Reducing the DLP requirement from 5% to 2.5% is a complete failure. The original intention is to slow down the loss of TVL, but in fact there are only two categories of users: 5% and 0%. After reducing to 2.5%, 0% users may increase, but 5% users have a greater tendency to smash the market.

The above problems are essentially economic problems and can be solved by economic means, such as the crudest way to eliminate arbitrage space:

1. Eliminate all room for arbitrage. Allow the protocol itself to pledge $LBR to mint eUSD at zero interest, and unlimited minting will control the price of eUSD at the upper edge of the target range. The exchanged USDC/3Crv is infinitely supported by peUSD at the lower edge of the target range.

2. peUSD introduces TRFM and DSR and uses interest rates to adjust supply and demand

3. The protocol arbitrage surplus forms DLP as a public commodity for eUSD mint (some third-party agreements are also doing DLP leasing)

The DLP ratio accelerates the mint pool rather than deciding whether to use it or not.