Volume AMA: Introducing Curve Leverage Lending Bot
Overview
Taariq Lewis @LewisTaariq, CEO of VolumeFi (volume.finance) is joined by special guest Zhibai Zhang @FieldTheory, DeFi Strategist at VolumeFi in this week’s AMA episode. They share an in-depth discussion about Paloma’s Curve leverage lending bot and its powerful features that allow users to trade with any token and swap borrowed assets for more collateral. The timing is auspicious as the crypto market gears up for a bull run in 2024 where users can take full advantage of decentralized leverage lending.
After last week’s successful deployment to Arbitrum, the work on upgrading modules leading to a final merge to the latest version of Cosmos SDK 50 continues, including strengthening attestation that will lay the foundation for the launching of the Pigeon Feed marketplace and the much-awaited deployment of GRAINS to mainnet in Q1 of 2024.
More Palomabots are back online with newer enhancements to pump up usage with fast execution. Notable mentions are the more popular Curve TWAP and Euro Off-Ramp bots, both now live and experiencing increasing transaction volumes.
Even as the holidays are almost here, the Volume and Paloma teams continue to build, innovate, and test to bring something useful and valuable to the crypto community and demonstrate the power of the Paloma network.
Definitions
AMA - Ask Me Anything
Validator - or Pigeon in Paloma-speak, a participant in a blockchain network responsible for validating new transactions and maintaining the security of the blockchain.
GRAINS - Paloma’s (unlisted) token.
Pigeon Feed - the on-chain marketplace for message relaying on Paloma.
Cosmos SDK - a platform for building multi-asset Proof-of-Stake (PoS) blockchains. It is both a library for building and securely interacting with blockchain applications.
TWAP - short for Time-Weighted Average Price, is a pricing algorithm used to calculate the average price of an asset over a set period.
crvUSD - a collateralized-debt-position stablecoin developed by Curve Finance. Users deposit collateral to take a loan in crvUSD, which liquidates portions of collateral based on specific price bands, reducing the risk of full liquidations.
ETH - or Ether, is the native token used by the Ethereum blockchain and network as a payment system for verifying transactions.
Intro
Taariq welcomes everyone to Volume’s Twitter Spaces. He shares a brief reminder about Volume.
“Volume is all about decentralized custody, decentralized bots, decentralized lending, and decentralized trading, all managed by the Paloma validator set.”
“The goal of bots is to manage private keys on multiple chains. We believe in a future world in which there will be thousands of chains. You need a strong flock that will be able to deploy and connect to all these chains and automate essentially trade execution on these chains.”
Taariq adds that the goal is to build this and enable it and that validators who secure the network deserve to get paid more than subsidy, and more than inflation.
A Recap of Last Week’s Wins
Taariq congratulates everyone for last week’s successful deployment to Arbitrum. Pigeons discovered the new throttle feature which increases jail time for validators using unjail scripts and forces them to fix issues before they are brought back to the network. The cool-off period lowers the need for valset updates which cuts down a significant spend on gas fees.
The upgrading of modules leading to a final merge to the latest version of Cosmos SDK 50 continues. The ongoing efforts will push through to January as the team ensures that the new version undergoes testing and functionality pass. Taariq foresees the upgrading to Cosmos 50 will coincide with Paloma’s first anniversary with a working chain in February.
“The reason why we do this is to keep a lead. We need to have an edge. We want to surprise the industry with something that is actually very good and something valuable. We hope 2024 will be a shilling year as we toil in quiet and trying to get it right so that we have something really, really powerful as we come online.”
The protocol team has been delivering a massive number of cycles of releases for the last year to further improve and add value to the network. Work on extending and expanding attestation enabling validators to manage and observe events on multiple chains is still ongoing. After a two-thirds consensus is reached, the message gets relayed and executed, and payment is made. This is an important piece of the marketplace where Pigeons can set their price for relaying messages.
Paloma will start trading GRAINS around Q1 of next year once the marketplace comes online. Users will be able to pay for their GRAINS on the target chain and validators will also get paid on the target chain token and GRAIN.
The Power of Paloma
Taariq shares an example of the power of Paloma’s current state of technology. Last week, a user was looking to off-ramp $100k using the Euro off-ramp bot. This bot works by depositing any token which the validator will swap for DAI and bridge to Gnosis, and then swap from DAI to Euro Eth. The whole transaction was executed in a space of 30 seconds!
“I have never seen a transaction move that fast and be settled that quickly in a cross-chain way. This is a cross-chain settlement that happened in two AMMS across two chains and one bridge. So that had to go through four different pieces and that was all managed and attested to by the Paloma validator set.”
Taariq adds that if the L2 is fast, validators can execute in subsecond time which is a very fast cross-chain execution. This is a testament to the power of the Paloma network, and the capability of the validator set. This means that Paloma validators can charge a premium for speed.
Taariq emphasizes that as new bots are coming online, Paloma will be releasing more bots that are useful and have that demand that people are willing to pay for.
The State of Palomabots
There are currently over 20 Palomabots, 5 of which were created in partnership with Curve, and 7 on Uniswap. Palomabot.ai and Curvebot.fi show the list of Palomabots that are now live and the transaction volumes that have been processed by Paloma validators. The team is rebuilding the rest of the bots to introduce many changes to the protocol-relaying execution process before they go live again.
The Curve TWAP bot continues to get more usage with fast execution. While not yet composable, the Curve TWAP bot can now be used on all chains supported by Curve. While the Euro off-ramp bot is now live, Taariq shares that the team is working on TWAPS for the Euro off-ramp bot to make scheduled payments.
“We want your off-ramp bot to schedule and TWAP those transactions so that even though one deposit goes in, you will still have a stream of payments executing on the backend.”
The Curve limit order bot which is all about cutting losses and capturing gains is undergoing more testing. While users can set limit orders on Curve via the bots, they cannot be done natively on Curve.
Curve Leverage Lending Bot
Field Theory gives an introduction to Curve’s leverage lending bot.
Curve Finance launched a leverage lending product where users can deposit ETH and BTC and use them as collateral to borrow more capital. The borrowed assets which are in Curve’s stablecoin, crvUSD, are used to swap for more collateral. He cites an example.
“In terms of leverage, if you put $1 worth of collateral, the contract would give you for example $3 as borrowed asset. The borrowed assets in crvUSD, are kept in the contract and used to swap for more collateral. So effectively you're owning $4 worth of ETH. When the price of ETH goes up by 1%, you earn 4 cents from that percentage return.”
Curve’s original product only accepts ETH, but Paloma’s Curve leverage lending bot is built to accept any token, or more than one kind of token in different amounts, that will automatically be swapped into the acceptable collateral token on Curve. The borrowed crvUSD is then immediately swapped into ETH.
Taariq asks FieldTheory about exiting a position to maximize gains.
“In the leveraged loan position, you are just waiting for the price to go high enough for profit-taking. You can do it manually when the price gets to a certain point that you're happy with and then stop the bot.”
However, there is another way to be safe on the downside if the price goes down. Because you’re leveraged, it’s amplified, he adds.
“The bot has a stop-loss feature where the user can put in a threshold measured by the health factor. As the bot constantly monitors the user’s position, if the health factor goes below that threshold, the bot will automatically de-leverage.”
To further illustrate how the leverage lending bot works and its advantages, Taariq uses the bot interface while the AMA is live.
“I'm putting in 500 USDC, and I'm going max crvUSD which comes out to $3,000. For my 500 bucks, I get $3,000 which is 7x leverage. And if I bring that down to N4, it says my health is about 50% and my borrow rate is about 11%. So I'm paying an 11% APR every year. My deleverage level is 41. So if my health is 46, the bot will automatically repay my loan if the health falls to 41.”
FieldTheory explains that the de-leverage level is where the user defines the threshold for health. The lower end is around 3.3% however users can go slightly lower. He clarifies that the de-leverage percentage is how much you want to get out.
Returns from the leverage lending bot can be measured in percentages, FieldTheory explains.
“If ETH is at $2200, and goes up by another 200 or around 10%, if you’re holding just regular ETH, then whatever your asset is, it'll go up by 10%. With leveraged lending, if you're doing something like 7%, then the 10% will be multiplied by 7. This comes to 70% return minus slippage and fees.”
In simpler terms, a dollar’s worth of ETH where the price goes up by 10% will return 1.10 or 10 cents. With leverage lending, the asset will become 1.7 or 70 cents, minus gas fees and slippage.
Taariq announces that the Curve lending bot is live but cautions that this is still in alpha as contracts are not yet audited.
“Don't play around with this if you cannot afford to lose or you don't understand this. Leverage is very powerful, but it can be costly and the bots can help you save money, but the bots can make you lose money.”
Taariq notes that users looking to play in a bull market will want to take advantage of decentralized leverage. Right now, the bot is just for ETH for leverage lending via crvUSD from Curve.
He explains that while CurveFi offers leverage lending as well, it does not automatically de-leverage. By using Paloma’s Curve leverage lending bot, however, the user’s position is protected and users do not have to constantly monitor their position because the bots will do this for them.
Closing
Taariq extends a big thank you to all Pigeons mainnet, and FieldTheory for guesting on today’s AMA.
He encourages everyone to reach out to the Volume and Paloma team on Telegram or Discord if they have any questions or need support on using Palomabots.
“Our job is to really demonstrate the power of Paloma blockchain, but also to make something useful that people will want to use every day. So come on down, take a look, check it out, start small, and then go big!”
Stay tuned for the next AMA!
To find out more about Volume, check out Volume Finance (https://volume.finance/), join the Discord (https://discord.com/invite/Ebh6YjMShu), and follow us on Twitter (@Volumefi). Check out Paloma Chain on palomachain.com (https://www.palomachain.com/), follow them on Twitter (@palomachain), and join the flock on Discord (https://discord.com/invite/tNqkNHvVNc). Coo!
