Lended Assets (lAssets)
lAssets are liquid, tokenized representations of staked (lended) assets in a PoS blockchain. They allow stakers to gain liquidity over their staked assets, enabling the locked value in staked assets to be utilized in financial applications such as Lucra.
lAsset tokens are an entitlement of the underlying staked asset position, where staking rewards are distributed to its holders. Financial applications that incorporate lAssets can use distributed rewards to incentivize adoption.
While lAssets may have varying characteristics across implementations, they should include certain attributes to be implemented as a valid collateral in Lucra.
An ideal lAsset to be used as a collateral has the following properties listed below.
lAssets should be made fungible across all staking positions, regardless of their underlying validator and their properties. Having multiple lAsset types for a single blockchain leads to fragmented liquidity, drastically decreasing their attractiveness as a collateral.
As fungible resources, each unit of lAsset must have the same risk and reward profile. Underlying assets lost from slashing and rewards gained from staking should be shared pro-rata to all lAsset tokens.
As the price of lAssets determine whether a loan is liquidated or not, borrowers should be able to easily estimate the value of their lAsset collaterals. This is best done by introducing a one-to-one conversion peg between lAssets and their underlying assets, where bAssets mimick the price of their underlying assets.
Exceptional occurrences such as slashing may cause the peg to break. lAsset implementations however, should possess mechanisms to recover the one-to-one peg. Example mechanisms include the peg recovery fee and the slashing insurance pool:
- Peg recovery fee: slashed assets are recovered by a fee is attached to further lAsset minting and burning.
- Slashing insurance pool: slashed assets are covered from a separately-kept reserve pool.
Via the peg recovery mechanism, redeeming lAssets at its default state should result in an equal amount of underlying assets and vice versa.
Having well-established secondary markets for lAssets is vastly beneficial for Lucra liquidators. For fluid arbitrage between secondary markets and the primary market (i.e. lAsset contract), implementations should support frictionless lAsset redemptions, where:
- Redemption of lAssets should be fully executed within a predetermined time period.
- Any holder should be able to redeem their lAssets without significant loss.
Lucra's deposit rate subsidies are funded by lAsset rewards. lAsset rewards should be given out without interruption, as subsidies must be constantly distributed.