Litepaper
Orbit makes extensive use of the Blend protocol for its lending pools. In setting up these pools there are several parameters that need to be determined before deployment. This litepaper aims to offer insight in the way Orbit functions through these pools and the parameter choices that make this possible.
Usage of Blend pools
The Blend pools in the Orbit protocol are used for the minting and distributing of Orbit stablecoins. This works as follows:
The treasury supplies a Blend pool with a certain amount of unbacked Orbit stablecoins, a supply which from that moment on can only be altered by the dao. Users can subsequently take these stablecoins out of the pool by putting up collateral (thereby also providing backing for the coins).
Settings overview
Listed below are the chosen parameter values for the XLM/oUSD Blend pool from Orbit protocol, these can be altered later on by the dao. These values allow the protocol to function in the ways described in this litepaper and the Orbit whitepaper. For a further deepdive in the functions and possibilities of these parameters, the Blend whitepaper is recommended.
C-factor
0
0.75
0.9
0.85
L-factor
1
0
0
0
Rbase
0.005
0
0
0
R1
0
0
0
0
R2
0.02
0
0
0
R3
0.1
0
0
0
ReactivityConstant
0.000004
0
0
0
Target Util
0.8
0
0
0
Max Util
0.95
1
1
1
The backstop take rate is set to 0.2, which means that 20% of the accrued interest goes to the backstop, to provide the backstop with enough liquidity to ensure the robustness of the protocol.
Interest rates
Blend makes use of an interest rate model with three legs, dependent on the utilization of the asset in question. As the utilization moves, the interest rate will adjust dynamically in order to incentivize users to bring the utilization closer to its target.
The first leg is for a utilization U lower or equal to the target utilization:
The second leg is for a utilization between the target value and 0.95:
The third leg can be seen as a kind of ‘emergency interest rate’ which only kicks in when the utilization exceeds 0.95:
With RateModifier (RM) at a given time ‘t’:
The graph below displays the interest rates for strong FX without the rate modifier. As can be seen the rates will start of quite low, but increase as the utilization exceeds its target. Ideally, the dao would increase the supply before the highest interest rates come into play. The dao could also alter the interest rates themselves by changing the different R-values and the target utilization.
Collateral and liability factors
Apart from the interest rates, the collateral and liability factors are also important settings for the pools, since these determine just how much collateral has to be put up in order to borrow an Orbit stablecoin from the protocol. This works as follows:
The maximum amount a user can borrow with a certain amount of collateral is given by the borrow limit:
To calculate the value of the amount to borrow we make use of the following formula:
To prevent the Orbit stablecoins to be used as collateral themselves, we set their C-factor to 0, while their L-factor is set to 1. For XLM, the L-factor is set to 0 to prevent the XLM from being borrowed and the C-factor to 0,75. This means that a user would have to put up XLM worth 133% of the value of the desired stablecoins. This way the debt position is fairly well protected against liquidation due to price changes.
Emissions configuration
In the case that the Orbit protocol pool gets in Blend’s reward zone, the emissions will be distributed entirely among the oUSD borrowers. As with the other settings, this can be updated at any time by the dao.
Max positions
The max number of positions a user can hold in the pool is set to 6, which is the recommended number from Blend for assets such as Orbit stablecoins.
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