I have been trying to reframe my way of thinking so as to think of Defrost as a fintech. I have also been thinking about how we can provide the most amount of value to users. After all, the best way to get value is to give something of value in exchange.
In light of that, our greatest product is the super vault. The ability to use leverage for looping with stable coins to get high (mostly)non-ponzi apys is amazing. User are very happy with the product and getting unparalleled yields with little risk of liquidation.
The super vault user base is extremely sticky capital that is likely to stay in Defrost for longer periods of time. Not only that, they also contribute to the biggest portion of revenues generated by the protocol.
I strongly believe that any measure which de-incentivises looping or harms loopers in any way is extremely dangerous for the long term health of Defrost. While loopers are very much beneficial to Defrost.
There is only one issue with looping, the H2O exchange rate. At the moment we have made available too much H2O to be minted for looping purposes without having been able to secure enough stables in the H20-CRV pool to help with the peg.
For us to be able to offer more of this service we need to increase the amount of USDc-USDt-DAI in the H20-CRV pool.
There are 3 things I can think of to make this happen:
1 - Make it temporarily impossible for new H2O to be minted. With no new H2O hitting the market the peg can only get better.
2 - Direct efforts to encourage people to deposit stables in the H2O-CRV pool. Be it through CRV emissions, Avax rewards, Benqi Emissions, marketing proposals etc, what ever we can get our hands on.
3 - Try to seek 3rd party capital to deposit stables in the pool.
4 - Use our treasury funds to deposit USDc-USDt-DAI into the H20-Crv pool
Once the H2O-CRV pool is back towards a healthier state we can start offering looping services again.
To expand on the 4th point:
USDc-USDt-DAI deposited into the H20-Crv pool accrues Melt rewards which can be then staked by the protocol itself and used for further boosting the treasury reserves.
This in effect acts as a “burn” address because the melt rewards being accrued there will not be available for use and will keep accruing more melt putting continuous “burn” pressure in the token.
In the long run those treasury reserves make Defrost independent on 3rd party capital for providing looping services.
It marginally helps with the peg and gives the market a signal that we will defend the H2O peg.
With a treasury reserve that keeps increasing in value we could add a display in the front page which shows how much reserves the protocol has: