This is a First Impression on Stablis Protocol. Essentially this means we spent an hour looking at the project and these are the conclusions we came to. You can read more about First Impressions here or at the bottom of the page.
What is Stablis Protocol?
Or rather, what did we get the impression it is? Stablis Protocol is aiming to be a decentralized borrowing protocol on the Metis blockchain. Basically a place where you can use your existing assets as collateral in order to borrow their own stablecoin USDs – loosely pegged to the USD.
Stablis seeks to set itself apart by allowing you to use Liquid Staking Derivatives (LSDs) as collateral. If you have no idea what LSDs are then hover over the word for a brief explanation.
The upshot of this is you can benefit from your staked Metis whilst still being able to make liquid plays elsewhere in the ecosystem.
**This is just an example – it is not financial advice**
Let’s say for instance you have almost all of your Metis staked Artemis and hold a bunch of artMetis (which is an LSD). You really want to buy some $vdao, but don’t wish to leave your staked position. You could use the artMetis as collateral against a loan of USDs and then use that to buy $vdao.
How Stablis Protocol works:
You can interact with Stablis as either a borrower or a lender.
Borrowers:
As mentioned above you put up your assets (including LSDs) as collateral. You can then borrow an amount of USDs based on this collateral. The exact figure is a bit iffy in their docs but you need to have between 115% and 125% of the amount you wish to borrow as collateral. This number (when it’s decided) will act as the “floor” of your position when you open a Stablis “chest”.
Let’s say for example the amount was set at 115%. You wanted to borrow $100 of USDs. You would need to put up $115 of (for example) artMetis. This would be very risky as if the value of artMetis dropped at all from when you created this position you would “liquidate”. This would mean you got to keep your USDs you had borrowed but would lose your artMetis forever.
A safer way to borrow would be to give yourself a bigger buffer. Let’s say you put in $200 of artMetis; this would mean you could survive some volatility in the price without risking your position liquidating.
Lenders:
The lending side of the equation takes the form of the “Stability Pool”. Users can join this by depositing USDs. When a position liquidates USDs from the stability pool is used to repay the debt. In exchange the collateral of that liquidated position is used to compensate those in the Stability Pool. Under most circumstances this should be at a profit; if the collateral threshold is 115% and the position drops to 114% then everyone in the pool proportionally divides the profit.
Risks:
The Stablis docs actually do a wonderful job of outlining the main risks* so we’re going to quote directly from them:
“There are two scenarios under which you may lose a part of your funds:
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- You are a borrower (Chest owner) and your collateral is liquidated. You will still keep your borrowed USDs, but your Chest will be closed and your collateral will be used to compensate Stability Pool depositors.
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- You are a Stability Pool depositor and your deposited USDs is used to repay debt from liquidated borrowers. Since liquidations are triggered any time borrowers’ collateral drops below the minimum threshold you will receive more collateral in return with a very high probability. However, if the collateral you received decreases in price and you maintain exposure, you may lose value in your total pool deposits.”
Stablis Protocol Documentation
*As detailed below we feel there are some risks not addressed by the docs.
The two tokens
Stablis is built on a two token system; each playing a distinct role.
USDs:
This is their stable coin – it is “loosely” pegged against the United States dollar through their Stability Pool as discussed above. By having a liquidation threshold of higher than the value of the dollar; contributors to the pool should in theory benefit from every liquidation.
USDs can either be obtained through opening a borrowing position or by buying it on the open market through a DEX.
STS:
I’m not really sure about the function of the STS token; it can be staked to earn a share of borrowing and redemption fees. They vaguely mention governance in their docs as well so maybe this has to do with that?
The docs regarding the tokenomics are provisional so we look forward to more clarity about this in the near future.
Things we like about Stablis Protocol
Their docs are reasonably clear about what they do, with some exceptions listed below. We love that they include (most of) the potential financial risks in an upfront and clear manner on the very first page.
Our news team entered their discord, without announcing our journalistic intentions. Our many questions were answered quickly, and in plain English by team member Lout. 10/10 on this front, and certainly a breath of fresh air.
Finally a range of projects offering easy access to liquidity is a perfect compliment to Metis’ decentralized sequencers.
Things we were unsure on
“Stablis is a decentralized borrowing protocol” is the first sentence of their documents. They mention governance a few times but do not expand at all on what form this might take. Although the funds themselves are managed through smart contracts there is also mention of things like changing interest rates and fees; we would love more detail on how the decentralization of these mechanisms will be handled. Will the contracts be renounced? How will changes take place?
Their STS coin; it apparently benefits from fees and interest rates; but these are advertised specifically as “low”. Will this coin hold other utility?
Is there a plan in place to ensure the Stability Pool is large enough? A large Stability Pool will be crucial in ensuring it can stand up to web3’s usual volatile nature.
Things that need improvement
There are some contradictions in the documents; first and foremost the exact collateral liquidation point. Sometimes it says 115% and others 125%. This kind of detail is extremely important when people’s money is concerned.
More detail on potential risks, including disaster scenarios. We think Stablis could do a better job of outlining “responsible” borrowing with some examples. We believe it is important to provide examples of how easily someone might get liquidated if they borrow near the threshold. Moreover we believe it important that they highlight the potential disaster scenarios for the stability pool. For instance let’s say the collateral positions were predominantly artMetis and Metis dropped 75% in one day (crazier things have happened in crypto). This would lead to a huge swing in the USDs value and firmly de-peg it. If this is not the case we would love clarity from the team.
Slightly clearer docs. On the whole Stablis does a good job of laying everything out clearly; but there are a few places they could do a better job. One example is their docs jump straight into talking about LSDs immediately; don’t presuppose all web3 users know what these are. They are core to your protocol so take the time to explain what they are; and why making them liquid is useful. This ties in with Vesta’s commitment to making Metis accessible to all; not just degens who have been around for years.
Conclusion (TL;DR)
Stablis seems to get a lot right; it has a simple and concise aim and is a good fit for Metis. We cannot make any claims about their contract as it is being audited currently and diving into a contract is too long a process for a First Impression. They did great in terms of communication in their discord (bear in mind this is one anecdotal example). They could do a better job of taking the time to fully explain risks, making a clear value statement for their token, and diving fully into what they mean by “decentralization”.
We look forward to chatting with the Stablis team in the coming days/weeks and bringing you better information on what they have to offer.
