StableCredit vs Dai

Hello Friends! Since Andre Cronje announced StableCredit last week there has been a lot of speculation on how it compares to Maker and Dai. I’ve pooled some resources that help explain what it is and would love to hear your thoughts!

Announcement - StableCredit combines tokenized debt stable coins, lending, AMMs, and single sided AMM exposure to create a completely decentralized lending protocol

Bankless Interview with Andre - My main take away from this is that the MORE popular an asset is in the system (eg ETH), the less efficient drawing credit will be (in proportion to the other assets in the pool).

Codeup38 Interview

Thanks to @marcandu for surfacing this great twitter thread that adds more depth and the drawbacks.

So my main takeaways from this “research” - (let me know if I’m off!)

  1. StableCredit system limits upside exposure to deposited assets.
  2. Seems well-equipped to enhance trading between assets and encourage a well-balanced asset pool
  3. I don’t believe StableCredit holders are protected during a black swan event
  4. Arbitrage traders will be key in maintaining a balanced system.
  5. Seems like it would work well in a neutral trading market, and less efficient in bull or bear markets
  6. Doesn’t seem built for real world assets.

My Questions:

  • What happens when collateral drops and causes StableCredit to be unbacked?
7 Likes

Few questions and opinions, every collateral that Chainlink oracles approved is whitelisted for StableCredit? How kosher is that?

Very dependent on arbitrageurs–what happens when DeFi expands beyond Ethereum–will there be enough folks with deep pockets to bail out StableCredit when violent pullbacks occur?

Fully Decentralized does not equal USDC. StableCredit will not shy away from exposure to USDC. Oh and a Panamanian company called Tether

Also, is it me–or, most folks think StableCredit is apart of YFI? Totally new protocol, IMO

So I did some research on this as well. My takeaways (basically all negative because I’m a pessimistic bastard) are as follows:

It isn’t governance free

Ultimately, someone needs to decide what tokens make up this pool. If you allow any token into this pool, then this can be massively abused and the pool drained of assets with actual value. In v1 chainlink governs which assets can go in the pool by providing price feeds. In essence governance is offloaded to chainlink.

The Single-side AMM socializes impermanent loss into the transfer token (StableCredit)

I think this was addressed in that linked twitter thread, but yeah. You can’t magically make impermanent loss go away (unless you use the oracle prices rather than the AMM ratio to set the transfer rate, but then you have other problems.) By returning StableCredit in cases where the user has suffered impermanent loss, you inflate the StableCredit token.

I actually think in a black swan the StableCredit token increases in value because more of it is burned when assets are removed from the pools. That said, I think it’s still horrible for borrowers.

The system attempts to balance pool value equally

Great in theory, in practice I’m not sure how this can work given that lending and borrow demands are not equal across assets. I think the plan is to use dex aggregators to trade into this and help balance these, but I don’t see how that doesn’t just result in a situation where borrowers can’t withdraw their collateral.
EG, there is 100M of USDC collateral, and 10M of DAI collateral. Traders balance these to 55M each. Now a good portion of USDC lenders can’t withdraw collateral. For stablecoins this probably doesn’t matter. For volatile assets, it probably does.

yETH pool is almost certainly planned to use this new system (though maybe not immediately?)
This is unrelated to the StableCredit system in itself but thought was worth mentioning.

This will happen directly on uniswap

This part is kind of cool, there is basically no reason to duplicate the contracts, so they’re just using uniswap as the AMM part of this. I do wonder what happens if someone provides ETH-StableCredit liquidity on uniswap though, probably nothing good.

5 Likes

Apparently v2 of StableCredit is going to use Uniswap oracles.

This is my second biggest concern with the system :slight_smile:

Andre said that you can add any token, but flooding the system will be so capital inefficient that it makes it pointless (but you can do this in some quantity, just whether or not that becomes significant, idk)

I’m wondering if the DAI from yETH will be deposited into StableCredit and then another asset used to yield farm. The whole point of yETH, imo, is to keep upside exposure to ETH.

1 Like

He said this, and he’s right about doing that with one shit token versus 100 legit tokens. But there is no limit to how many shit tokens you can create, it won’t be 1 vs 100, it’ll be 1000 vs 100. Maybe I misunderstood his point though.

I suspect the goal is to put the ETH in stablecredit system and borrow DAI/whatever from that. Not going to lie, I’m not sure how that is going to be better for them, but I guess the auto balancing of the system might sort it out, maybe.

2 Likes

in general, I am liking their design to lower impermanent loss and offering leveraged liquidity providing to Uniswap… this can boost SC adoption and help it to attract huge collaterals

on the other hand, I think they will soon realize that this protocol will be easily killed with no governance to determine which collateral supported and DC for each collateral

their alpha release shows that not all assets with chainlink feed will be supported so this could indicate changing in their designs already

personally I think their AMM pools idea if proved to be successful should be adopted fastly by Maker governance and foundation or we might lose our dominance

1 Like

Maybe yETH would use StableCredit for a DAI source to borrow and pay back debt to Maker Vaults? :thinking:

2 Likes