MetaLend Litepaper
Version 2.0, January 2023
Authors: Sudjeev Singh, Nikhil Bhardwaj
Abstract
In this paper we introduce a protocol which leverages liquidity pools with algorithmically set interest rates to enable lending against yield generating ERC-721 assets, while keeping these assets in a productive state. MetaLend is a fork of and has been inspired by the Compound protocol.
MetaLend enables borrowers to take out ERC-20 based loans against yield-generating ERC-721 assets. Borrowers still have partial access to their ERC-721 assets and have full rights to any yield that is generated by that asset.
All MetaLend loans are over-collateralized to protect the protocol from the risk of borrowers being unable or unwilling to pay back their loans.
If a borrower crosses the max loan-to-value, their collateral is subject to liquidation as defined by the rules in the ‘Risk and Liquidation’ section below.
Current Max Loan-To-Value: 30%
The Max LTV is set by ERC-721 asset category (e.g. Axie Infinity) and will initially be set by the centralized authority MetaLend, Inc. before eventually passing over to the owners of governance tokens upon decentralization.
Payback Period
There is no defined payback period for loans - if a borrower’s collateral value drops or their interest accrues to the point where they’ve crossed the max LTV the protocol will initiate asset liquidation to pay down the loan.
The MetaLend protocol is deployed directly on the Ronin chain and all loans are processed via smart contracts on Ronin with no change of custody taking place, the only way a user can lose ownership of an asset is if the conditions of shortfall are met (see section on LTV/liquidations below).
MetaLend enables for asset owners to continue earning staking rewards during an active loan (e.g. Staked Land, AXS) - not only does it enable, but also has functionality to automate re-staking for the user directly via the dapp. In the future - MetaLend is working with the Ronin team to enable gameplay while an asset is being used as collateral for a loan.
Name | Address |
|---|---|
Metalend Comptroller | |
MetaLend Comptroller Delegate | |
Metalend MetaComptroller | |
Metalend MetaComptroller Delegate | |
Metalend WETH Market | |
Metalend WETH Market Delegate | |
Metalend cAxie | |
Metalend cAxie Delegate | |
Metalend Interest Rate Model | |
Metalend Liquidity Assessor | |
Metalend Price Oracle | |
Metalend Appraisal Oracle | |
Metalend cAxieLand | |
Metalend cAxieLand Delegate | |
Metalend Staking Mediator Delegate | |
Metalend Staking Manager | |
Metalend Staking Manager Delegate |
All ERC-721 collateral that is locked within the MetaLend protocol is ascribed a value based on it’s specific appraisal engine. A specific appraisal engine is built for each ERC-721 category that is accepted as collateral, and all collateralized assets are re-appraised hourly (frequency will increase over time).
The appraisal engines are currently run off-chain and are expected to move on-chain at a future date when MetaLend, Inc. verifies it is secure and feasible at scale.
Each appraisal engine uses a K-Nearest Neighbor Classifier to learn about token pricing from real-time marketplace transactions. Upon receiving a token ID, it effectively locates comparable ERC-721 tokens of the same type that have been sold or listed for sale. The appraisal is then calculated by weighting these transaction prices with the category's floor price, in proportion to the available pricing data for the token. Metalend's floor price model, adapted from the Coinbase Cloud floor price model, is used in the calculation and can be accessed here.
Axies (Non-Mystic)
The main traits used to identify ‘similar Axies’ include:
- Axie Class
- Breed Count
- Body Parts/Cards
- Purity
- Last Sold Time
Note: Non-mystic Origin, Meo and AgamoGenesis axies as well as axies with special body parts (ie summer axies) are not currently supported and cannot be used as collateral in the protocol.
Mystic Axies
Mystic Axies are valued based on the category's floor price, regardless of the number of Mystic parts they possess.
Axie Land:
Supported Axie Land types include Savannah, Mystic, Forest and Arctic. The main traits used to identify ‘similar Axie Lands’ include:
- Land Type
- Land Location (Row and Col)
- Last Sold Time
Protecting Appraisals Against Market Manipulation
Metalend applies well-established outlier detection techniques during the data preprocessing phase of modeling. Specifically, a median absolute deviation threshold on the log of transaction prices as well as an interquartile range on all transactions are used to identify and remove anomalous transactions from consideration in the appraisal process.
In simpler terms, the appraisal process eliminates unusual transaction prices by examining the average deviation from the typical price of similar transactions, aka outliers.
We have also added caps to certain collateral categories, such as Axies, to ensure that the protocol does not grow to the point where there are so many assets within the protocol that it could influence market pricing.
MetaLend now accepts Staked AXS as collateral for loans. Users can add their AXS to MetaLend, it will automatically be Staked for them and they can claim any rewards once every 24 hours (MetaLend takes a 1% service fee of the rewards claimed). Users can borrow up to 50% of the value of their Staked AXS in WETH.
MetaLend does currently have a 50,000 Staked AXS collateral limit within the protocol, this is to ensure financial stability and gradual growth of the protocol. We'll be working to hopefully raise this cap much higher soon!
For more details on this cap, please see the following analysis:
Metalend <> Katana Price Oracle.pdf
135KB
PDF
What happens if a borrower goes over the Max LTV (Borrow Limit)?
If a borrower exceeds their borrow limit, MetaLend will immediately list their collateral for sale with a 10% liquidation discount. The protocol will sell the minimum amount of collateral needed to get a borrower under the max LTV threshold.
If the protocol is forced to sell a larger asset to pay down the loan, the difference (minus gas fees) will always go back to the borrower. MetaLend leverages this liquidation strategy to mitigate risk during a market crash, but at the same time the protocol never profits from a borrower being liquidated.
Example:
If the max LTV is 30% and a user has 50 Axies with a total worth of $100,000 as collateral - their max loan amount will be $30,000.
If said user takes out a $20,000 loan, they’re below the max loan - but if the Axie market drops and their collateral goes from being worth $100,000 to being worth $65,000 they are now above your max loan by $500. As their collateral is dropping in value the borrower will receive notifications from MetaLend (if they’ve provided their email/phone) and if the borrower doesn't pay back part of their loan or add more collateral to get back below the 30% mark then the protocol will sell the minimum number of Axies needed to get them under the 30% threshold.
For example in this case the protocol may sell a single Axie for $1000 and use that to pay off the underwater part of the loan. This would bring the loan to $19,000 and the collateral value to $64,000 - the borrower can still pay off the entire remainder of the loan and remove collateral if they wish.
Communication
MetaLend will communicate via email and/or text notifications (if user information is provided) to ensure users are aware as they approach their max LTV threshold.
How does MetaLend Liquidate Collateral?
MetaLend sells collateral at a 10% discount on the appraised value. This collateral will initially be made available directly via API call to our smart contracts but eventually will directly be sold on marketplaces.
MetaLend will also be maintaining an open email list which will notify subscribers of collateral for sale; a number of guilds have requested this feature.
MetaLend enables suppliers to stake their ERC-20 tokens into “lending pools” in order to earn APY. The funds in these liquidity pools are then used to provide loans to the borrowers. Upon adding funds into the pool, the lenders receive a mToken which represents their deposit and tracks their interest earned.
Lenders are paid out 85% of the total borrower interest, 15% goes to the protocol.
Functionally speaking, suppliers interest is accrued per ETH block mined and they can remove their deposited ERC-21 plus interest at any point.
MetaLend leverages algorithmically set APYs to incentivize borrowers and lenders to behave in a way that ensures a base set of liquidity to remain within the MetaLend liquidity pools.
APY is variable and is a function of the Utilization of the liquidity pool - the higher the utilization of the pool, the higher the APY. We leverage two curves and an inflection point known as the ‘Kink’. The function of the kink is to define the utilization rate at which APY rapidly rises to incentivize borrowers and lenders to add more liquidity to the pool.
The exact APY curves for launch of the ETH pool to provide liquidity for Axie’s can be seen below:
Borrower Curve 1: y = 0.43x
Kink: 70%
Borrower Curve 2 Slope: y = 9x - 6
Lender APY Calculation: Borrow APY * Utilization Rate * Lender Rev Share
The APY curves are set by liquidity pool (e.g. ETH) and will initially be set by the centralized authority MetaLend, Inc. before eventually passing over to the owners of governance tokens upon decentralization.
MetaLend will begin with centralized control of the protocol (such as choosing the interest rate model per asset), and over time, will transition to complete community and stakeholder control.
The following rights in the protocol are controlled by the admin:
● The ability to list a new mToken market
● The ability to update the interest rate model per market
● The ability to update the appraisal engine per market
● The ability to withdraw the reserve of an mToken
● The ability to choose a new admin, such as a DAO controlled by the community; because this DAO can itself choose a new admin, the administration has the ability to evolve over time, based on the decisions of the stakeholders.
Last modified 7d ago