Friktion Tokens, and Stability Vault Upgrades

Friktion Finance Tokens as new Collateral Vault Tokens

Friktion Finance is a european style option market where both retail and institutional investors can take part in both income or hedging option styles. At time of writing (10/24/2022) Friktion owns $28 million in value locked within options.

To participate in the vaults users can deposit a fungible token or stablecoin to collect income or yield. Once apart of the 5 different types of options you can choose from 27 different vaults. Once deposited, users are given a friktion vault token that represents their ownership share of the vault. After an epoch (7 days), based upon price action, the institutions which hedged their positions or wanted yield either lose out and pay retail or retail pays institutions.

As you can see in the above screenshot 1 fcBTC token is equal to 1.1764 BTC. If you deposit 1.1764 BTC you receive 1 fcBTC vault token, which if the price of bitcoin continues to move lower under 21500, you’ll earn more bitcoin. You will not earn more fcBTC tokens but the amount of fcBTC redeemable for BTC goes up, whether it goes up in dollars is based on price action.

Currently friktion vault tokens have no market liquidity but based upon the hubble stability vault, that is not an issue. The real issue is getting oracle feeds that accurately price loans to determine if they have sufficient collateral. Friktion vaults as stated before return rewards every 7 days. Any crypto user knows markets can go 50% within 24 hour thus protection is required.

Vault tokens can be implemented but require many safeguards:

Vault Tokens will have low LTVs: At most 45% LTV and 50% Liquidation level.

Borrow limits placed on all vaults to ensure that if oracle feeds are being incorrectly priced that borrowers cannot jeopardize the health of USDH.

Usual Minting fee of 0.5% and a higher Stability fee of 2% as users are recording weekly that are likely to outpace stability rates.

Unaccrued Interest to be Paid Metric

This would be a metric that tracks the accumulated interest on all hubble loans that has yet to be paid out to USDH Stability Vault Stakers. This would not represent possible payouts, as loan repayment is unknown.

Stability HealthVault Health Ratio

If the Stability vault deposited USDH / circulating USDH is below 10%, the stability fee will rise by 1% every 20 days until above 10% incentivizing users to deposit in the stability vault. Overall, it ensures a safer stability vault.

3 Likes

Thanks for putting this up and so clearly, I would like to ask for the sake of understanding how the 45% LTV was calculated as a safeguard.
I would like to include in the proposal fpTokens, which are those used for the put options, increasing the possibility of using the friction investmens.

I agree with the fees for the stability vault, to provide a better opportunity to buy liquidations.

Would love to see this added. Don’t know much about how it will work (liquidity, interest rate, etc.,) but this would definitely add value to Hubble’s current product offerings.

It has to be lower than 50%. Options are priced to hedge extreme events and when those events happen, the risk reward ratio is quite vertical which presents a large % swing. For example one week alone on the usdc-btc vault, swung -20%, may have to be even lower than 25% in order to allow safe borrowing. The number is theoretically calculated on “what ifs”.

Thanks for the proposal! I’ve also been thinking about this, and think it could be pretty interesting. Some of the Hubble team is at Breakpoint next week and will discuss this with Friktion also, will report back.

You already mentioned some critical aspects, and yes, accurate pricing and also provisions for liquidation would also need to be in place. There are most likely ways to deal with this, but agree a lower LTV would be required than other crypto assets. Keen to explore more