Register fcSOL tokens to be a part of the Project Larix Lending Launchpad

Summary of Project Larix
Project Larix is a Solana defi protocol who maintains basic SPL lending needs and who aims to bridge new types of tokens like synthetic assets, and NFTs. They were one of the early movers into the Solana defi space and have accumulated over 238 million in assets.

Currently their platform allows a wide range of tokens you can supply, also they were the first to allow Raydium LP tokens as an asset. They also have decentralized liquidations where users can liquidate over collateralized accounts and obtain crypto at a discount during market corrections.

Larix Launchpad
Recently they have released a launch pad within the last month. Larix has decided to launch isolated asset pools alongside it’s existing cross-collateral pools, enabling more tokens to implement a lending functionality.

I would like to propose that Friktion registers fcMint tokens to be a part of the Larix launchpad. This will free up more liquidity for the users. Through Larix we can also liquidate over collatoralized accounts and obtain fcMint tokens at a discount.

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Interesting proposal!

Larix has solved an important and interesting problem on how to liquidate LP tokens and retrieve the underlying collateral. By setting the collateral requirements for the LP tokens tactically, there’s a buffer between 1. when the LP gets liquidated and converted to collateral and 2. when the converted collateral gets liquidated. This unlocks a lot more capital efficiency by allowing LPers to access liquidity while providing it in the pool. This unlocks another way to achieve leverage.

  1. Supply LP token
  2. Borrow assets
  3. Put assets into pool and receive LP token
  4. Supply that new LP token
  5. Borrow more assets
    until the collateral factor prevents it any more.

Assuming a collateral ratio for LP of 0.82 for SOL, as taken from Product Update - Larix, the leverage you get is equal to the sum of a geometric series, which in this case is 5.5x leverage.

This is much more than currently offered at tulip interestingly.

Relating to Friktion, there is additional complexity that prevents any imminent listing on Larix.

First of all, we need an oracle to determine a mark price for the fcTokens.
We have an oracle for the underlying spot position, but not for the value of the embedded option.

LP positions are also redeemable instantly. You can withdraw at any time and retrieve your underlying funds. This is not the case for Friktion fcTokens. We have to wait until the end of the epoch to withdraw. Because of that, there is risk in using it as collateral since we cannot be sure at what price the option will settle at.

So what do we need?

  1. Oracle for the value of the option. Difficulty: Medium. We can use basic pricers to estimate this and set the liquidation bounds very wide.

  2. Liquid market for fcTokens in case of liquidations. Difficulty: Hard. This can be implemented via AMM or on a CLOB. Since we cannot redeem funds until the end of an epoch, we need a liquid market where it can be exchanged.

If you or anyone has any interest in solving these problems, please let us know and we can get a grant proposal for them!

If we go the AMM route how would we incentivize liquidity providers? I think arbitrage might be one but how frequent would the price discrepancy be for that to incentivize arbitragers? Token emissions could work if we don’t fall in the same trap as others and we develop strong fundamental utilities with high demand. I’m however reluctant to use tokens as rewards.

If we go CLOB route, would we provide the DEX or is there a project we can partner with? Also, how does one incentivize market makers on this?

great questions. I, too, am stingy with token emissions.

If we set the fee on the AMM wide enough, that could be one option. We could also make the fee dynamic based on volatility measures, but takes some dev lift and more thought.

CLOB is hard to bootstrap continuous liquidity - we’ve already seen how hard it is on Entropy and even on markets like options markets Zeta.

One alternative to solving the intra-week liquidity problem is to allow people to exit early in the middle of the epoch. We would hold a channel RFQ auction with our market makers so that the users could buy back their options tokens. These auctions would have to be greater than some threshold to trigger an auction so that it would be worth the time for the market makers to participate.

Can the fee base model for the AMM be done on testnet to see how feasible and sustainable it is?

Wooo…I didn’t know early Epoch exists were possible. Now this sounds interesting.

Really interesting conversation here. I have been really curious where and how liquidity for fc and fp tokens would come from.
I was wondering if there is a way to almost do a bonding concept.
For example… lets say ita mid week and the SOL CC is below strike. I assume the team has a way to model the current price of the option snd therefore the price of the CC. I wonder if there is a way for the Friktion DAO to say, we will buy back a certain amount of fcSOL tokens, with a huge discount. Users would recieve less than model price and DAO wouls get back CC at a discount.
Huge risks obviously, dynamic markets. The price the DAO would offer would have to be constantly changing. Also idk if there is good IV pricing intraweek, so discount may have to be large!
Just a random thought. Offer semi liqudiity using a buyback method and also growing DAO treasury into a handful of different tokens (i love diversification :wink: )