2020-03-25 LSWG Call 6

• Anchor (presentation by Do Kwon (Terra Money))

• Staking product that allows user to hold stablecoins and earn staking rewards
• Background staking derivatives

• 1.         Tradable staking positions
• 2.         Using staked collateral in defi applications

• Terra looked at principal protected notes in defi space:

• E.g. Dai Savings Rate (DSR)
• Interest of these products normally fluctuate based on speculation demand

• Driving force is opening/closing of CDPs => volatility

• Rely on third party participation

• E.g. keepers in maker that have to liquidate CDPs

• How could you build sth completely programmatically without third party participation?

• Anchor, 2 components

• Staking derivative for LUNA, bLUNA (representing staked position minus cost of bonding (max. commission rate + slashing))

• bLUNA tries to be fungible among validators (by abstracting slashing and commission rates)

• Staking reward cash flows in stablecoin (from Terra payments network tx)

• Idea is to get ppl to participate in staking and get exposure to staking rewards without being required to hold volatile principal (the staking token)

• That is the second part of the protocol (lending bLUNA and getting stablecoins on a Compound-like money market: https://agora.terra.money/t/anchor-principal-protected-staking-on-terra/196)

• What is the level of overcollateralization?

• Less than in  a protocol with third party intervention (in comparison to liquidator model) because they have on-chain swap mechanism between stablecoins and staking token
• Explanation of swap mechanism

• Terra validators vote on price feeds (oracle)
• mechanism

• Terra to Terra stablecoin charges 25bps
• Terra stablecoins to Luna similar to Uniswap
• Swap spreads that can go up to 100% depending on usage

• bLUNA could only be one type of collateral, multi-collateral model should be possible
• Insurance fund to make sure positions stay overcollateralized in a high volatile/many liquidations environment

• Unslashed (insurance protocol, focused on slashing protection first)

• Slides (see Github issue)
• Risk derivatives, transfer risks from slashing to third party
• Insurance marketplace (cover buyers and investors that provide collateral and will get premiums)
• Combining insurance tokens with staking derivatives tokens you can get a fungible, slashing risk free staking token

• Examples what you could do with such a token

• Leverage (via a CDP system like Maker)
• Lending (via a money market like Compound
• Short selling (built on lending market)

• Opportunities w/ slashing insurance

• Less centralization risk (bc no separate trading pairs for each validator)
• Allows more differentiation between validators (insurance market creates an assessment of market risk)

• Risks

• Making money out of a security exploit
• Validator exit scamming delegators by buying a lot of covers and then double-signing

• Questions

• How much collateral needs to be put up?

• Fully collateralized, example:

• $1m ATOM position => $50k collateral (5% slashing max.)
• Account for price movements in ATOM,...

• Collateral will be used for multiple things (e.g. lending on a money market, could also be using liquid ATOMs)

• There is a risk management layer in which risk underwriters can manage their collateral)
• Similar to traditional Insurance-linked securities

• Roadmap

• In 3-4 months for v1
• Integration with protocols works on a protocol-by-protocol basis

• Other insurance products Unslashed is looking at

• Counterparty risks (e.g. liquidation in DeFi)

• How will claims be validated?

• Slashing is on-chain, no need to process claims, data needs to arrive, money goes to people holding the insurance token