This is just an initial concept, your Feedback on the Good / Bad or any improvements you would like to see added is welcome.
(1) Introduction and Objective
Propose the development and launch of a decentralized lending protocol on Shibarium. This protocol will allow users to deposit their $knBONE (K9 Finance’s liquid staking derivative for BONE) as collateral to borrow other Shibarium ecosystem assets, $SHIB, $LEASH, $TREAT & include stablecoins USDC, USDT with a view to possibly add $BONE if the view was to do so.
The primary objectives of this initiative are:
• Generate Revenue: Create new income streams for the K9 Finance DAO treasury and liquidity providers (LPs) through interest payments and liquidation fees.
• Attract New Users: Enhance the utility of $knBONE and the K9 Finance platform, drawing new users to both K9 and the broader Shibarium ecosystem.
• Increase $knBONE Utility: Provide $knBONE holders with a way to access liquidity or leverage their staked assets without needing to unstake BONE.
(2) Benefits to K9 Finance Community
• Enhanced $knBONE Utility: Provides a significant DeFi use case for $knBONE beyond simply holding or farming, increasing its attractiveness.
• New Revenue Streams: Generates sustainable yield for the DAO treasury and for users who provide liquidity for the borrowable assets.
• Increased Platform Stickiness: Encourages users to keep their BONE staked with K9 Finance to utilize $knBONE as collateral.
• Ecosystem Growth: Drives activity and TVL on Shibarium by offering a core DeFi primitive (lending/borrowing) for key ecosystem tokens.
• Attracts New Users: Appeals to users seeking leverage or liquidity on their staked assets, potentially drawing participants from other ecosystems due to Shibarium’s low fees.
(3) Proposal Details
(a) WHAT:
A decentralized lending protocol built on Shibarium where users can:
• Deposit $knBONE as collateral.
• Borrow selected assets ($SHIB, $LEASH, $BONE, $TREAT as well as USDC, USDT) against their $knBONE collateral, up to a Loan-to-Value (LTV) ratio determined by the DAO.
• Pay interest on borrowed assets, calculated based on a variable rate model tied to pool utilization.
The protocol will feature automated mechanisms for interest accrual, liquidations, and reward distribution to LPs.
(b) WHO:
• Borrowers: Users holding $knBONE who wish to borrow other assets.
• Liquidity Providers (LPs): Users who deposit the borrowable assets ($SHIB, $LEASH, $BONE, $TREAT as well as USDC, USDT into lending pools to earn interest and potential $KNINE rewards.
• K9 Finance DAO: Will earn a share of the protocol revenue (interest and liquidation fees) and govern key parameters via voting. Will also potentially benefit from restaked liquidated collateral.
• K9 Development Team: Responsible for building, auditing, and maintaining the lending protocol smart contracts, automated bots (liquidation, interest rate adjustment), and user interface.
• K9 Management Council/Treasury Managers: Oversee the implementation, DAO revenue collection, the design of the LP incentive program, and management of the dedicated DAO wallet holding liquidated/restaked $knBONE.
(c) WHERE:
• The lending protocol will be deployed on the Shibarium network.
• A user interface will be integrated into the K9 Finance website/dApp.
(d) WHEN:
• Timeline for development, audit, and launch TBD, pending further community feedback and resource assessment.
(e) HOW:
• Development: Smart contracts for collateral deposit, borrowing, interest calculation, liquidation, and LP pools will be developed and audited. Automated bots will be created for:
• Liquidations: An automated bot will handle liquidations when collateral value falls below the DAO-approved threshold. The specifics of the liquidation mechanism (e.g., trigger conditions, penalties) will be determined by a DAO vote. A proposed mechanism is for the liquidated $knBONE to be transferred to a dedicated K9 DAO wallet. This wallet will then restake the $knBONE (potentially within the K9 ecosystem, e.g., RYS or farming, exact mechanism TBD via DAO vote) to generate long-term returns for the DAO treasury.
• Interest Rates: Interest rates will be variable, adjusted automatically by a bot based on pool utilization rates (supply/demand dynamics), similar to models like Aave/Compound. The specific interest rate model parameters will be subject to DAO approval.
• Governance: Key parameters like initial LTV ratios, the interest rate model, liquidation thresholds/penalties, the DAO/LP revenue split, and the exact mechanism for handling/restaking liquidated $knBONE will be determined via DAO vote before launch.
• Liquidity: Initial liquidity for the borrowable asset pools (USDC, USDT, $SHIB, $TREAT, $BONE, $LEASH) will be sourced entirely from external LPs. The DAO will design and implement an incentive program (e.g., distributing $KNINE rewards) to attract sufficient liquidity. The specific source and allocation of $KNINE for these LP rewards will require review and approval via a separate DAO vote prior to implementation.
• Marketing: Promote the new lending feature as a key benefit of using K9 Finance liquid staking, emphasizing the “Stake, Borrow, Earn” synergy and the ability to borrow popular Shibarium assets.
(4) Impact Assessment
• Short-Term Impacts: Introduction of a core DeFi service on Shibarium for key ecosystem tokens, potential increase in $knBONE utility and demand, initial revenue generation for DAO and LPs (dependent on LP incentive success).
• Long-Term Impacts: Sustainable revenue source for the DAO (interest, liquidation fees, yield from restaked liquidated collateral), increased TVL for K9 and Shibarium, strengthened position of K9 Finance within the DeFi landscape, potential for further integrations.
• Risks and Mitigation:
• Smart Contract Risk: Thorough audits are essential. Mitigation: Engage reputable third-party auditors.
• Liquidation Risk: Oracle failures or extreme market volatility could impact liquidations. Mitigation: Use reliable oracles and conservative LTV/liquidation thresholds decided by the DAO. The proposed restaking mechanism for liquidated collateral needs careful design to avoid creating systemic risk for the DAO itself.
• Liquidity Risk: Difficulty attracting sufficient external LP capital for all assets ($BONE, $LEASH might be less liquid than stables or $SHIB). Mitigation: Design attractive and potentially differentiated LP incentive programs for each asset pool. Requires careful economic modelling.
• Adoption Risk: Users may prefer other lending platforms or not see sufficient value. Mitigation: Competitive rates, strong marketing, seamless user experience, and unique borrowable asset offering.
• Metrics for Success:
• Total Value Locked (TVL) in $knBONE collateral and in each lending pool.
• Total value borrowed for each asset.
• Revenue generated for DAO and LPs (interest + liquidation fees).
• Value generated from restaked liquidated $knBONE.
• Number of active borrowers and LPs.
• Successful and timely liquidations without system failure.
Thanks for your time.