Litepaper
Last updated
Last updated
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.
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).
Blend makes use of an interest rate model with three legs, dependent on the utilization rate of the asset in question. 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. Here is how these interest rates are calculated for the different legs:
With RateModifier (RM) at a given time ‘t’:
For the Blend pool with oUSD, the R_base is set to 0.01. This will be the starting interest rate when utilization of the stablecoin is 0. The R_1, R_2 and R_3 values are all set to 0.05. This means that the interest rate can move dynamically with demand as the utilization goes up, until it would go to 0.16*RM as the utilization goes to 1. Ideally the dao would increase the supply of oUSD in the pool before the highest interest rates come into play. The dao could also influence the interest rates themselves by altering the different R-values and the target utilization.
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.
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.
In the case that the Orbit protocol pool gets in Blend’s reward zone, the emissions will be distributed entirely among the oUSD borrowers. This setting can be updated at any time.
The max number of positions a user can hold in the pool is set to 4, which is the recommended number from Blend for assets such as Orbit stablecoins.
For the overview, the chosen parameter values for the XLM/oUSD Blend pool from Orbit protocol are listed below. These values allow the protocol to function in the ways described above. For a further deepdive in the functions and possibilities of these parameters, the Blend whitepaper is recommended.
oUSD: C-factor: 0 L-factor: 1 Rbase: 0,01 R1: 0,05 R2: 0,05 R3: 0,05 ReactivityConstant: 0,000004 Target Util: 0,8 Max Util: 0,95
XLM: C-factor: 0,75 L-factor: 0 Rbase: 0 R1/2/3 and ReactivityConstant: 0 Target Util: 0 Max Util: 1
Backstop takerate: 0,2