Velodrome Slipstream uses concentrated liquidity positions represented by NFTs in a similar way to Uniswap V3.
This proposal completes the modifications needed to fully utilize such positions as collateral on Interest Protocol.
This is specifically for the Optimism deployment of Interest Protocol only.
Parameters
Underlying: Velodrome NonfungiblePositionManager
Wrapper address: Existing Wrapped Position Implementation
LTV: 30%
Liquidation incentive: 8%
Primary Oracle: Velo Position Valuator
Pool: Wsteth/Weth @ tick spacing: 1
Gauge: CLGauge
Technical risks
Type of contract: Modified Uniswap V3 Fork
Time: Deployed Mar-06-2024
Privileges: Controlled by Velodrome Protocol / Governance
Upgradability: No
Relevant References
Velodrome Docs
Velodrome Slipstream Audit Report
Implementation
Overall, the implementation of Velo Concentrated Liquidity (CL) Positions as collateral on IP is very similar to the existing implementation for Uniswap V3 Positions.
Nft Vaults minted after this upgrade will be capable of utilizing both Velo CL Positions and Uni V3 Positions as before. Borrowers who have minted Nft Vaults previously should mint new ones after the upgrade in order to utilize the Velo features. Additionally, legacy nft vaults with VELO collateral will not be able to collect rewards from swaps for velo positions. However, these legacy nft vaults can still technically hold the collateral for borrowing, and can be liquidated.
Vaults that hold Velo CL Positions as collateral will have the option to stake via the Velo Gauge contract for rewards paid in VELO tokens, or to not stake and instead collect rewards for swaps in the same way Uni positions do.
There are functions in place to allow for staking and claiming of rewards, and the existing collect function works for both kinds of positions.
Additionally, as this introduces a second kind of position wrapper contract, the liquidation logic must be updated to allow for safe liquidation of these types of collaterals.
The liquidation logic is as follows:
- All standard / Capped assets must be fully liquidated from the vault before wrapped positions can be liquidated in any capacity.
- If a vault is undercollateralized and only holds wrapped positions of either type (VELO or UNI), then all positions of both types will be liquidated at once.
- The vault minter will be minted a rebate in USDI, this is to account for the over-liquidation of the collateral assets. Without this rebate, the protocol would be pocketing a fee on liquidation of these assets in the amount of (liquidation cost - vault liability). Instead, this amount is minted to the vault owner as a rebate.
For example, suppose a vault holds ~$100 of wrapped position collateral at 30% LTV, borrows $25, and as time passes, collateral value decreases to $85. Now, the borrowing power is only $24. With a liquidation penalty of 8%, the liquidator will pay $78.2 to receive the total $85of collateral. The borrower will then be minted a rebate of $53.2 (liquidation cost $78.2 - liability $25), walking away with the borrowed $25 + $53.2 rebate for a total of $78.2 and a loss of $6.8 in current collateral value.
In this way, there is no protocol fee for liquidation, and liquidations of wrapped positions are fair for borrowers while still being sufficiently incentivized for liquidators.