SIP-0028: Add SOV as collateral for borrowing

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Update 2021-09-06: Voting on this SIP has started and will last 24 hours: https://bitocracy.sovryn.app/proposals/6/governorAdmin

I have just posted a new draft SIP proposing to add SOV as an asset that can be used as collateral in the Sovryn borrowing protocol. You can find the SIP draft here:

https://github.com/DistributedCollective/SIPS/pull/28

Happy to discuss any feedback either here or on the GitHub pull request.

[josecarreira]

imagine that i staked my SOV’s… they can be used for collateral?

[magicmike]

Looks good to me. One question:

What is the mechanism to adjust the SOV (or rBTC) collateral ratio over time, if conditions change? Does it require another SIP, or is there another method?

[IllusiveGoose]

When using SOV as collateral, does it only count for non-staked SOV in the account?

Also, is there a minimum margin limit that liquidates the SOV? If so, does this take priority over other transactions in the account? For example, if I use $300 of SOV as collateral for $100 of SOV and then immediately try to transfer all $400 to another account, will the $100 be liquidated and retrieved before the SOV is transferred away? Is the collateral locked away in a smart contract?

Sorry if this doesn’t make sense. I’m new to this.

[light]

Thanks for the great questions everyone!

@josecarreira

imagine that i staked my SOV’s… they can be used for collateral?

No, only non-staked SOV can be used as collateral. The main purpose of staking SOV is for there to be long term alignment and have value “at stake” in exchange for voting power. If you can get liquidity on staked SOV then it messes with the incentives of staking.

@magicmike

What is the mechanism to adjust the SOV (or rBTC) collateral ratio over time, if conditions change? Does it require another SIP, or is there another method?

Adjusting any parameter in the Sovryn protocol, including the collateral ratio of assets on the borrowing protocol, requires a SIP.

@IllusiveGoose

Is the collateral locked away in a smart contract? Sorry if this doesn’t make sense. I’m new to this.

You can find an explanation of how the borrowing protocol works here: https://wiki.sovryn.app/en/sovryn-dapp/borrowing

[Make]

This is a very good suggestion.

[Sacro]

Looks good to me, going to vote for this sip.

[LordElvic]

I think it makes sense for 2 reasons

1. We are already enabling other assets in this manner - excluding our own seems counter intuitive
2. If I have liquid SOV - forcing a swap into another asset for the purpose of facilitating a loan creates artificial sell pressure as well as making be choose between HODL or function.

I would support

[Profesh]

This seems good for SOV; personally I’d be all in favour.

[jamiemadrox]

Looking forward to this. Is there any metric which leat to 300% collateral ?

[Dark_Knight]

Some questions and thoughts regarding SIP-28:

1. Will this SIP enable borrowing any other asset beside SOV (For example to borrow rBTC, ETHs, BNBs, XUSDT… against your SOV as colllateral)?

2. If above answer is yes, what prevents someone to run away with borrowed rBTC, ETHs, BNBs,…in case SOV price drops significant?

I’m not in favor of enabling leveraged trading for SOV, nor am in favor of CEX listing as from that time on SOV token looses it’s main purpose being governance token.

3. If borrowing SOV is only used for trading leveraged long SOV, I don’t see any other purpose of using this mechanism as to pump SOV price. What will happen when SOV is listed on CEX? What prevents CEX offering leveraged short trading for SOV token? In that case I see a major disadvantage for Sovryn platform and their users and possible drainage of funds from Sovryn platform to CEX.

Am I missing something here and I need some more info and explanation on this topic? How will Sovryn benefit from this SIP? What are advantages and disadvantages of this SIP?

I’m not used to such scarce informations in draft SIP.

[exiledsurfer]

follow the thread on this topic that started here:

Adding SOV as a Collateral Type in Sovryn?

Collateral in Sovryn: Types and Uses One of the powerful features of Sovryn is the ability to borrow against your (crypto)assets. This allows users to gain liquidity without ever having to sell - which means you can hold your assets long term, benefit from long term HODLing, and still pay rent, trade and go on a well deserved vacation. This also has the benefit of being extremely tax efficient. If you don’t sell, there are no capital gains taxes to pay off. In many jurisdictions, debt repaymen…

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@jamiemadrox

Looking forward to this. Is there any metric which leat to 300% collateral ?

Nothing very scientific, was more a gut feeling that since SOV is less mature and more volatile than RBTC (or the stablecoins available as collateral) doubling the collateral ratio was a safe place to start and then we can adjust as it seems appropriate.

@Dark_Knight

1. Will this SIP enable borrowing any other asset beside SOV (For example to borrow rBTC, ETHs, BNBs, XUSDT… against your SOV as colllateral)?

This SIP enables SOV to be used as collateral for borrowing any token available in the lending protocol.

@Dark_Knight

If above answer is yes, what prevents someone to run away with borrowed rBTC, ETHs, BNBs,…in case SOV price drops significant?

The same thing that prevents them from running away with any other borrowed assets: if the loan gets close to being undercollateralized then the collateral will be liquidated to pay off the loan.

@Dark_Knight

If borrowing SOV is only used for trading leveraged long SOV

This isn’t the only reason. People can use the proceeds of their loan for any purpose, levering up on SOV is only one of the possible uses.

@Dark_Knight

What will happen when SOV is listed on CEX? What prevents CEX offering leveraged short trading for SOV token?

These questions are outside the scope of this SIP and this thread.

@Dark_Knight

How will Sovryn benefit from this SIP? What are advantages and disadvantages of this SIP?

The SIP explains the advantages, mainly being liquidity for SOV holders without having to sell SOV. The main risk I can think of is that if this feature is used for leveraged trading then it could lead to cascading liquidations in case of a sudden crash in SOV price. This could cause a momentary spike down in the price of SOV, but if the low of the spike down is below the fundamental value of SOV then I’d expect in a rational market for the price to eventually stabilize closer to the fundamental value of SOV.

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Updated the top post to let people know that voting on this SIP has started here:

https://bitocracy.sovryn.app/proposals/6/governorAdmin

[exiledsurfer]

SIP-28: “Add SOV as collateral for borrowing” has passed with 99.95% of #Bitocracy stakers voting in favor.

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