Use Cases & Users
Once it's launched we have three main use cases or types of users.
- Stability Providers
For the Borrower you can just think of people who are already invested in ETH or BTC and who want to hold onto it.
They can use our protocol to take out a loan in a reliable stable coin with 0% interest rate. Therefore, they are still invested in their favorite cryptocurrency but at the same time can spend the money, reinvest it into something or use the DCHF to generate Yields.
A borrowing Position needs to be 110% overcollateralized at all times. If it falls under the ratio of 110%, the Position will get liquidated; the Borrower loses his Collateral but gets to keep the DCHF.
The second user type are the Stability Providers. To further understand this, a little background about the liquidations of the Borrowers is required. If the deposited collateral (in ETH or wBTC) becomes too low in regard to the borrowed stable-coin (it falls under a ratio of 110%), the position of the Borrower is being liquidated. In other words, their deposited ETH or wBTC is taken away from them and they are left with the loan they took. This means, the liquidated Borrower only loses 10%.
The main mechanism for this liquidation is the stability pool. In the stability pool users can deposit their DCHF.
At every liquidation, the amount of borrowed DCHFs of the liquidated Position is burned out of the Stability Pool in order to reduce the DCHFs in circulation to the desired ratio again. In return, the Stability Providers get the collateral of the liquidated Position - which is always more than the DCHF that is taken out of the pool.
Therefore, liquidations of borrowers are beneficiary to Stability Providers because they gain Collateral (ETH or wBTC) at a 10% surplus. As a second incentive, Stability Providers are given a continuous reward in the $MON token.
This brings us to the third use case, staking the $MON token. The $MON token can be staked in order to receive the fees, the protocol is generating.
- Borrowing Fee
- Redemption Fee
For further clarification, let's classify the Borrowers into their risk tolerances;
- The Risk Averse
- The Calculated Risk Takers
- The Leverage Lovers
The Risk Averse Borrowers who have a long-term hodling perspective would open a position with a collateral ratio of about 200-300 percent. They wouldn't be too much concerned with capital efficiency, but rather with safety and not being subject to liquidation. Given the fact that the Moneta Protocol does not charge any interest, this allows them to have the position open for as long as they want as long as their collateral ratio is high enough.
The Calculated Risk Takers might have a shorter term perspective. That could be traders or fulltime Yield Farmers who need some money and are monitoring prices constantly. They can lock up some ETH or BTC, and take out a relatively high amount of DCHF - therefore keeping the Collateral Ratio rather low. The DCHFs they can then use to their free disposal.
The Leverage Lovers are into risk and high profits. They can also take a loan with a low collateral ratio, but can then use that money to amplify their exposure to ETH or BTC.
- 1.deposit ETH or wBTC
- 2.take out a loan in DCHF
- 3.sell DCHF for ETH or wBTC
This way, you can amplify your exposure to an asset exactly to the risk level that you are still okay with. In the future, the Defi Franc Platform will enable users to automate this process.
One of the main-mission of the DeFi Franc is to automate this process for the user and allow leveraging on Stablecoin LP-Tokens (Yield Generating Assets)