Short post to explain for new / existing users the purpose & use case for ib stablecoin tokens. Includes;
Why users hold ib stablecoin tokens
How ib stablecoin tokens are issued
How ib stablecoin tokens hold their value
Reserve Ratios as a safety mechanism
How vested KP3R token holders earn fees from ib stable token demand
Explaining the link between Fixed Forex & Iron Bank Assets
How users can earn yield on ib stable tokens
Directions on raising additional questions or queries
Any member of the team or community is free to suggest additions, corrections or updates.
Why users hold ib stable tokens?
The appeal is as follows;
To hold assets that are not exposed to the same variability in value as other (volatile) assets, for example wBTC, ETH etc.
To gain exposure to stable assets that aren’t based on a peg with USD (for example to invest in on-chain opportunities without having to have expose to USD currency fluctuations vs users fiat currency)
To seek yield opportunities that may exceed those available to users through fiat
Users can only borrow by providing collateral of accepted assets (available here)
How do ib token maintain their value?
Iron Bank is responsible for the oracles used
Fiat oracles are used (see here) rather than the on-chain value of the ib stable token
This means that;
As far as Iron Bank is concerned each ib token is worth the same as it’s fiat equivalent, for example 1 x ibEUR will always be worth 1 x EURO valuation for Iron Bank
Each ib token lent out is backed by collateral that is worth more in $ terms than the ib token - if the collateral is variable & loses value then the borrow risks liquidation of their collateral
This means, that even if curve pools are offering slippage on ib tokens, borrowers can take advantage of cheap prices to acquire ib tokens & because Iron Bank always values ib token at fiat price, can take advantage of the arb opportunity. Therefore rates offered on curve, inclusive of any slippage, will not impact the peg of ib tokens.
Safety mechanism; the reserve ratios
Additionally, it’s worth noting that Iron Bank builds up a reserve of funds for all assets borrowed, funded by the borrowing fee based on;
Users who borrow ib stable tokens can earn further yield by depositing ib stable tokens into LPs or LP wrappers that are making use of the liquidity to offer additional users swaps between assets. Currently these are available for;
Curve;
where users will earn fees from swaps + additional CRV rewards
Convex;
which accepts deposits of curve LPs & provides additional CVX rewards whilst charging a fee
Yearn;
which accepts curve LPs & auto-compounds based on the strategies deployed into the yearn vault
Note;
Curve pools can also receive additional boosts from other additional rewards such as rKP3R rewards that are provided to some ib stable token pools.
Assets that ib stable tokens are paired with in liquidity pools may also offer additional rewards.
The Keep3r treasury holds a vlCVX position that it utilizes to vote for curve gauges - this boosts the amount of CRV rewards that will be available per pool. Users should be aware that CRV rewards will naturally scale downwards as more TVL enters pools in a linear fashion.
There is no people that want to buy the ib-assets at their real price, this will get worse when the rewards for the pools goes down in the future.
It’s impossible to exit the ib-tokens because there is no liquidity and the people that have originally minted them have gone away from defi and does not want to earn the arbitrage-fees from closing their loans.
I am stuck with ib-tokens and will never be able to get them out for their real value
For a detailed breakdown on how the AMM at Fixed Forex works, then please refer to the post here but the TL;DR is that the Keep3r protocol via the AMM contract accesses loan facility from Iron Bank to offer swaps via the AMM. That means Keep3r treasury uses all USD stables received as collateral for the outstanding loans of ibXXX stables that have been sold onwards to end-users.
Liquidity exited the pools due to incentives (mainly CRV) leaving the ibXXX+sXXX pool pairs. This is critical as an equal amount of TVL in these pools helps with the maintenance of peg, whereas ibXXX+USDC doesn’t and chainlink oracles can easily be used as this reference point.
For example, it’s more advantageous to enter any pool whilst off-peg on the synth stable side exclusively, since the user will receive a bonus.
Incentives are now returning to ibXXX+sXXX pools as of votes placed on voting gauge week of July 7th 22 which should go some way towards helping restoration of peg & trust. Especially where these incentives are kept consistent.
Apologies all, this piece could be a bit clearer as pointed out by Yan dgdp on twitter. So let’s expand on some of the peg scenarios, and the method that users got access to ibXXX stables;
Scenario 1 - Curve pool off-peg on ibXXX asset side of pool; Example would be ibEUR+sEUR where balance is 35% ibEUR & 65% sEUR
In this case ibEUR can get a premium/bonus by swapping to the other pool asset or depositing into the LP solely on the ibEUR side
in short, this would mean that on curve ibXXX is the valued greater when comparing the two assets
What it means for a user borrowing ibXXX from Iron Bank;
if the user borrowed the ibXXX from Iron Bank their loan would be based on the fiat price of the stable (i.e. 1 x ibEUR = 1 x EURO)
Therefore if a user is borrowing ibEUR just to swap to sEUR then they need to check that the bonus for exchange would be greater than the cost of the loan rate
The user can also deposit into the LP, receiving a bonus for doing so and this will be supplemented by rewards available on the pool (i.e. CRV, rKP3R, etc.)
The user would need to re-acquire ibXXX asset at a later date in order to repay their outstanding loan
What it means for a user that acquired ibXXX from previously swapping to the ibXXX asset from another asset;
The user can make an immediate profit by swapping the ibXXX for the other stable in the pool
The user can earn a bonus for depositing into the curve LP on the ibXXX side only
This user does not need to worry about repaying any outstanding loans to Iron Bank
For the protocol, in cases where the user acquired ibXXX from the AMM (see guide here) this means that it would be MORE expensive for the protocol to swap treasury held assets in order to acquire ibXXX and repay outstanding loans taken by the protocol from Iron Bank
Scenario 2 - Curve pool off-peg on non-ibXXX asset side of pool; Example would be ibEUR+sEUR where balance is 65% ibEUR & 35% sEUR
In this case ibEUR would lose value by swapping to the other pool asset or depositing into the LP solely on the ibEUR side
in short, this would mean that on curve ibXXX is the valued the lesser when comparing the two assets
What it means for a user borrowing ibXXX from Iron Bank;
if the user borrowed the ibXXX from Iron Bank their loan would be based on the fiat price of the stable (i.e. 1 x ibEUR = 1 x EURO)
Therefore if a user can acquire sEUR & swap to ibEUR then they would get more ibEUR in return
This means the user can cheaply repay their outstanding loans through this method because they are buying ibEUR, in this example, at less than fiat value
The user can also deposit into the LP, but would be penalized for doing so if on the ibEUR side only (i.e. they’d be better off depositing sEUR into the LP position). This will be supplemented by rewards available on the pool (i.e. CRV, rKP3R, etc.)
What it means for a user that acquired ibXXX from previously swapping to the ibXXX asset from another asset;
The user can would take a loss by swapping the ibXXX for the other stable in the pool
The user has no incentive to deposit into the curve LP on the ibXXX side only
This user still does not need to worry about repaying any outstanding loans to Iron Bank
For the protocol, in cases where the user acquired ibXXX from the AMM this means that it can pay back it’s loan at a discount, by the protocol to swapping treasury held assets in order to acquire the assets on the opposite side of the pool & swapping to ibXXX, then repaying outstanding loans taken by the protocol from Iron Bank.
This should be qualified by stating that the treasury MUST have liquid assets available to execute this method.
The last scenario to consider is users that are already in the LP position & want to exit in either un-pegged scenario. A careful reading of the above would explain the benefits & challenges LPers would face when considering these options.
