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Autonomint has a unique design where apart from minting USDA+ stablecoin, we also hedge user’s collateral price fall. If you mint & borrow a stablecoin from any of the existing stablecoin protocols then you are require to deposit a high amount of collateral. There is also the risk of liquidations which can happen as soon as your collateral value decreases to 110% of your minted stablecoin value. So, you as a user are always anxious of getting liquidated with an excess amount of collateral. Thus, that’s why users like to maintain a high buffer to avoid this scenario.
At Autonomint, a user minting USDA+ against their ETH collateral is offered 100% synthetic LTV. It is composed of below
Currently, users can borrow $USDA+ stablecoin against their ETH collateral or Liquid Restaking tokens (LRTs) specifically Kelp DAO (rsETH) and Ether.fi (weETH).
Users start by depositing collateral and borrowing $USDA+ stablecoin at 80% LTV. In order to allow users to get 100% synthetic LTV, the user’s position will be attached with a put option giving user the right but not the obligation to sell the collateral at the deposited price.
User deposited ETH at $3000 to borrow $USDA+ at 80% LTV i.e. 2400 $USDA+ User position is attached with a put option giving the user the right but not the obligation to sell ETH at the deposited price i.e $3000 when the user repays back the loan.
This put option has an expiry of 1 month currently so user will be able to execute on this position anytime within a month. Initially the option fees is deducted from the LTV itself i.e the borrowed funds so nothing upfront is going out from user’s pocket. For user, it looks like that they are just getting 3%-4% less LTV i.e around 76% LTV.
After deducting the option fees from 2400 USDA+, the user finally gets 2304 USDA+
A month passes by and suppose the price decreases by 15%, the user doesn’t want to renew it’s position and instead want to repay back the loan.
Assuming negligible interest charged for 1 month, The loan to be repaid back is ( 2304 USDA+ ) - 450 USDA+ = 1854 USDA+
The thing to note here is that this put option comes without any tail risk for protocol because the user is only allowed to sell this put option at deposited price till the market price is within the 20% price fall range. As soon as the price has decreased by 20%, the protocol will initiate the liquidation process. This can be treated as user selling a call option to the protocol to buy the collateral at ( -20% of the deposited price). So, inspite of the user getting liquidated at 80% LTV, the user is still hedged from any downside ETH price fall due to USDA+ stablecoin being held. So, the user is protected for any ETH price decrease over & above 20% with the earlier borrowed stablecoins.
So, a cheap hedging cost is achieved by a combination of buying a ATM put option offering 20% downside protection with no tail risk and selling a call option at 80% strike price on the deposited price and using the earlier borrowed/minted USDA+ stablecoin to execute on this call option. As user is getting 80% of the liquidity back in USDA+ initially itself, so the collateral requirement are also on par with the margins taken on existing derivative protocols. There is no excess collateral requirement at Autonomint.
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Here, high Option premiums are paid because the entire ETH price loss is covered. These premiums are paid upfront and the option premium price is currently at $160+ for 1 ETH ATM (At the money) with 1 month expiry.
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No upfront Option Premiums as the amount is deducted from the LTV itself. So, a user borrowing stablecoin USDA+ at 80% LTV would need to give away 3%-4% of that LTV to be put up for option premium. This Option premium is not paid from user’s pocket so no cost to user initially. The option premiums are < 50% in comparison to the option premium of a typical put option payoff diagram. This is primarily because the user hedge of ETH is split into 2 components
20% ETH price hedge facilitated by dCDS protection 80% ETH price hedge through stablecoin borrowed
So, user is paying for a put option premium for only the 20% downside price risk and the rest 80% is covered through stablecoin minted. User is required to pay a borrowing interest rate on stablecoin debt over time as long as the position is opened. This borrowing interest rate is paid at the closing of debt.
Now, let’s look at the payoff diagram comparison of users participating in dCDS
Option seller receives high Option premiums for covering the entire downside price risk. So, the profits are limited to option premiums and losses are limited to 100% of ETH price.