Matrixdock Gold XAUm As Blue-Chip Collateral
Unlocking Greater Potential of Curve’s Llamalend
Maintaining clearly defined stop-loss levels is a cornerstone of effective market risk management in leveraged positions. However, even the most well-thought-out strategies can falter if the collateral is subjected to forced liquidations in choppy market conditions. This makes the stability and protection of collateral critical for minimizing liquidation risks and achieving maximum capital efficiency.
Matrixdock Gold XAUm has been integrated into Curve’s Llamalend suite as high-quality collateral with a maximum loan-to-value (LTV) ratio of 93%. This integration represents a significant advancement in on-chain real-world asset (RWA) collateral efficiency in decentralized finance (DeFi), combining XAUm’s blue-chip collateral attributes with Curve’s innovative liquidation protection mechanism powered by Lending-Liquidating AMM Algorithm (LLAMMA).
Enhance Collateral Quality: XAUm Brings Physical Gold On-Chain
The price stability of the underlying asset is a key factor in determining loan size and managing risk exposure. The XAUm token, fully backed by 99.99% pure physical gold, is securely stored in Brink’s vaults in Singapore and Hong Kong and enables physical redemption in the key locations, with on-chain proof of reserves ensuring complete transparency. XAUm is effectively synonymous with gold. Unlike volatile cryptocurrencies, XAUm’s inherent price stability stems from its physical gold backing, an asset historically resilient to significant value declines. Additionally, gold’s low correlation with crypto market price movements further reduces the risk of liquidation, even during crypto market downturns.
Thanks to its price stability, Curve can offer a maximum LTV of 93% for XAUm. This allows users to optimize their capital efficiency further while minimizing liquidation risks.
The 93% LTV is determined based on historical price data of gold, simulated with suitable liquidation protection bands. This ensures optimal LTV while minimizing the risk of significant losses during market downturns.
Collateral Protection: Curve’s LLAMMA Revolutionizes Risk Management
Curve Finance, a pioneer in DeFi, offers an innovative and unique solution to this challenge through its LLAMMA feature. LLAMMA replaces abrupt liquidations in DeFi with a gradual process that incrementally converts collateral into borrowed assets as prices fall, minimizing borrower losses and market disruption. If the collateral's value recovers, this process is reversed through de-liquidation, restoring the borrower’s assets. This mechanism provides borrowers greater flexibility, higher LTV ratios, reduced risk of losing their collateral entirely, and a chance to recover during market fluctuations.
By minimizing the chances of a single large liquidation, the collateral protection mechanism significantly enhances risk management and complements the high 93% LTV implemented for XAUm.
XAUm is the Ideal Collateral for Yield-Generation Strategies
Borrowing crvUSD from the XAUm pool presents an opportunity to generate greater relative yields through multiple channels tailored to the user’s risk profile and return expectations.
Strategy 1: Obtaining scrvUSD through depositing into the Savings crvUSD Vault
scrvUSD represents shares of crvUSD deposited into the Savings crvUSD vault, which is instantly yield-generating and automatically compounded. The interest comes from a dynamic part of crvUSD fees generated in the Curve ecosystem and is also dependent on the ratio of scrvUSD to circulating crvUSD.
As of Dec 10, 2024, the estimated APY is around 14.3%. This strategy is akin to a “Carry Trade,” in which traders borrow at a low interest rate and invest the proceeds at a high interest rate, aiming to profit from the interest rate differential. In this case, the differential represents the difference between the scrvUSD yield rate and the borrowing rate of crvUSD against XAUm collateral.
Learn more about scrvUSD
Strategy 2: LP, PT, YT scrvUSD on Spectra Finance
Similar to a “Hybrid Security” that combines bond and equity payout characteristics in traditional finance, investors can choose payout options depending on their risk/return profile. XAUm holder can deposit to Spectra, with maturity on 15 May 2025 as an example, scrvUSD can be split into three components:
PT-scrvUSD (principal token): A bond-like component with a fixed coupon (currently 13% APY*).
YT-scrvUSD (yield token)
LP-scrvUSD (liquidity pool token), An equity-like component with a higher upside (currently at 69% APY*). Bonus LP rewards may fluctuate based on the user’s proportion of the pool’s Total Value Locked (TVL). Capital losses may occur if LP tokens are not held until maturity.
Users can allocate funds among these options based on their risk appetite. For instance, a 100% PT allocation is the most conservative, targeting a 13% APY, while a 100% LP allocation carries higher risk but offers a potential 69% APY.
Learn more about Spectra Finance
Strategy 3: Depositing crvUSD/scrvUSD into Curve liquidity pools
By adding crvUSD/scrvUSD to liquidity pools (LPs) with high rewards ranging from 10-150% APY*, which includes a base APY plus a boosted CRV rewards multiplier. Similar to the “Carry Trade” strategy, users can pick up additional yields for the borrowing cost of crvUSD from the XAUm lending pool. The APY of LPs are subject to gauge voting by the Curve DAO and earn boosted rewards up to 2.5x. For veCRV holders, this is a very attractive method to generate high yields. Alternatively, for users without CRV, LP tokens can be deposited onto Convex Finance to earn the boosted APY through its community staked veCRV.
The CRV token is the token for Curve DAO, which governs the whole Curve Finance ecosystem.
veCRV is an acronym for vote-escrowed CRV. The longer you lock, the more veCRV you receive.
Learn more about Liquidity Pools and CRV rewards boosting
The Bottom Line
The strength of XAUm as a physical gold-backed real-world asset (RWA) integrated into the Curve’s ecosystem enhances loan position security in DeFi, allowing users to capitalize on high-yield opportunities within the crvUSD space. XAUm, representing gold on-chain, provides greater capital efficiency and superior risk management for collateralized loans compared to more volatile crypto assets. Stay tuned for further expansions of Matrixdock Gold XAUm’s use cases and collaborations within the DeFi ecosystem.
(*APYs are generated as of 10 Dec, 2024)