List ibETH as Collateral Asset

Summary

List ibETH - interest bearing ETH, from Alpha Finance protocol - as collateral asset.

For

List ibETH as collateral asset

Against

Do nothing

Motivation

CREAM and Alpha has already established a strong partnership. Alpha Finance is one of the few protocols whitelisted in Iron Bank and both have major plans for their respective V2 releases.

Background

Alpha Finance is already an important protocol in today’s DeFi scenario. With 600+M TVL in less than 4 months of its first product launch, it found a great underserved niche in the ecosystem. Also, it is about to launch its V2 with further improves to current lead product, Alpha Homora, an leveraged yield farm application.

Furthermore, there are 280608.42 ETH deposited backing ibETH in Alpha Homora. APY provided as ibETH has been steady at 7-8% with spikes to 25-40% in ETH terms.

ibETH risks are related to Black Swan events where liquidators may not liquidate underwater positions in time. Quoting Alpha Homora risk section

3. ETH Lenders share the risk of debts accrued by underwater positions in case liquidators did not liquidate in time
Note: This has not happened before.

And last, there are no major lending protocols that use ibETH as an collateral yet. There is an untapped demand of users who want a nice APY to there ETH, but also want to borrow against it. I believe CREAM could further improve this relationship and acquire Alpha lenders to ist user base.

I’m also worrying about the liquidation risk.

According to CoinMarketCap, there is only one trade pool of it: ibETH/ALPHA in Uniswap. This is not that ideal for liquidator to cash out. Thus, I’m not quite sure about this risk within.

Btw your first link leads to PICKLE’s CoinGecko page.

Yeah, i did post the wrong link, sorry. I’ve used the pickle proposal as a template. Thanks for highlighting it.

I don’t know how exactly does the liquidation mechanism works in CREAM, but a liquidator could seize a ibETH position and then proceed to redeem it for ETH in Alpha Finance.

ibETH is closely pegged to ETH, the additional risk is on Alpha Homora liquidators fail to liquidate the leverage positions and not having enough ETH to back ibETH. I see it relates to a systemic risk. We can picture it as an discounted ETH based on this risk (maybe ibETH = 0.9 ETH or 0.95, idk)

I’m not an expert on Alpha Finance but i think @Psittaci.Irati is right that ibETH is always redeemable for ETH for liquidations

ibETH is a great asset for lenders on Alpha Homora, but the one drawback of ibETH from a collateral perspective is that when Alpha Homora’s utilization rate gets closer to 100%, you cannot redeem ibETH tokens for the underlying ETH. Since the underlying ETH is being used for the leveraged yield farming, it cannot be withdrawn from the platform during those times of high utilization.

Alpha Homora V1 often had very high utilization rates, and one question that is brought up during the periods when the utilization rate is higher than 94-95% is: why can’t I withdraw my ETH from the earn pool?

Lenders do earn very high interest rates during times of high utilization (the closer to 100% utilization, the closer the rate approaches 40% interest), but that high interest rate is to attract more liquidity into Alpha Homora’s Earn Pool.

I believe that could cause issues for Cream if a position needs to be liquidated and the utilization rates are high on Alpha Homora V2. Alpha is migrating its liquidity from V1 to V2 right now, and I have ETH in the V1 Earn pool, so I can confirm on Alpha Homora V1 that the utilization rate right now is 91.44%.

I know on Alpha Homora V2 there is high demand for stablecoins, and the ibDAIv2, ibUSDCv2, and ibUSDTv2 are unable to be withdrawn for underlying assets because those assets are all being utilized and there is no underlying liquidity to access at the moment. The same will likely be true with ibETHv2 once the migration from the V1 pool to the V2 pool is complete.

Just my two cents. I think we should wait to evaluate the utilization rate of ETH on Alpha Homora V2 once they migrate and we are able to have a better idea what the average utilization rate for the ibETHv2 pool is.

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