EVI DAO - Request for Fast-Lane Grant.
Whitepaper - ZSS-whitepaper.pdf - Google Drive
Live (testnet) dapp - https://testnet-app.evidao.finance/ (RSK Testnet)
Video Demo - zBTC interface demo - YouTube
Investment Deck - EVI_DAO_deck_updated.pdf - Google Drive
Medium - https://evidao.medium.com
Twitter - https://twitter.com/evi_dao
Technical Docs - XSS/Docs at governance · FoundationCryptoLabs/XSS · GitHub
Description of Problem or Opportunity
USD-pegged stablecoins dominate stable asset holdings and crypto payments today. These stablecoins are typically centralised and vulnerable to censorship risk - moreover they are subject to a heavy inflationary tax on holders. Both these problems have come to head in recent months, with regulators showing willingness to sanction decentralised protocols, as well as USD inflation reaching 4-decade highs.
How serious or urgent is it? What arguments/motivation/evidence do you have for that claim?
Crypto-Native Stable Assets that retain purchasing power independent of USD are required for fully decentralising DeFi ecosystems.
Following the OFAC sanctions on tornado cash, the stablecoin space has been thrown into major upheaval. USDC, a centralised stablecoin, has shown to be unilaterally censorable and has previously blacklisted entire protocols. The leading decentralised stablecoin, DAI, is thus facing a challenge due to the bulk of its collateral being composed of USDC.
Given the importance of decentralised, censorship-resistant stablecoins, the only way forward appears to be using native crypto collateral (BTC, ETH) to back these stablecoins (as the Maker DAO founder is proposing right at this moment). Ref. https://forum.makerdao.com/t/the-path-of-compliance-and-the-path-of-decentralization-why-maker-has-no-choice-but-to-prepare-to-free-float-dai/17466
However, utilizing volatile collateral to back stables can run into collateral sufficiency issues. Moreover, pegging to the dollar caries with it increasing regulatory as well as inflationary risks as of September, 2022. Thus it is paramount for the survival of the DeFi space that there exist uncensorable, crypto - native stable asset, that pioneers effective collateral mechanisms to support a stable redemption rate.
Have you validated this problem or opportunity, and if so how?
There are very few existing solutions to this problem. Notably among them, RAI (reflexer finance) also is a non-USD pegged asset, backed solely by Native Ether collateral. However, the redemption rate of RAI has in practice not exhibited inflation-resistance, and remained effectively constant in USD terms. We have discussed this idea with the founders of RAI, who agree that this is an interesting solution worth trying.
How big of a problem would it be to not solve this problem?
If the backbone of DeFi continues to be partially or fully centralised stablecoins like USDC and DAI, it becomes remarkably easy for regulators to sanction, block, or otherwise disallow access to any of these protocols - rendering their decentralised properties completely moot. If USDC all collateral is frozen today, that would effectively signal the end of the DeFi ecosystem, as Tens of Billions of Dollars of collateral would suddenly disappear. Meanwhile, stablecoin holders continue to lose substantial amounts of wealth to the US Treasury via inflation, defeating one of the most basic use-cases of crypto.
EVI DAO is a protocol on RSK and Ethereum, that backs and stabilises the value of zBTC through a dynamic system of Collateralized Debt Positions (CDPs), algorithmic redemption rate adjustments, and an autonomous, dynamic collateral ratio mechanism. EVI DAO enables anyone to leverage their Bitcoin assets to generate stable zBTC on the EVI Platform.
Describe the solution
“A path to any cryptocurrency becoming used as money is only viable if you can use it to efficiently and cost effectively pay for goods, services and scarce resources across space and time."
zBTC is a stable version of BTC. Each zBTC is backed by at least one full BTC, however it is only redeemable for a part of a BTC based on the current redemption rate. The redemption rate is based on the 1458-day Simple Moving Average of the BTC/USD exchange rate, computed as follows:
=> SMA1456 =(day1+day2+…+day1458)/1458
t= Date of calculation
i=1 => t-1 days BTC/USD exchange rate (day1)
i=2 => t-2 days BTC/USD exchange rate (day2)
i=1458 => t-1458 days’ BTC/USD exchange rate (day1458)
zBTC can be understood as a dampened version of BTC, that avoids short-term volatility while aiming to capture some of the long term appreciation of BTC.
Instead of significantly fluctuating like BTC, it aims to maintain a stable exchange rate that rises slowly with time, as bitcoin gets more valuable after each halving. If BTC price were to stabilise someday, zBTC price would eventually stabilise at a similar value - however the zBTC would be more immune to demand/supply shocks affecting BTC price, even in such a scenario. (See the whitepaper for further analysis on this point). In the graph below, the green line represents the historical redemption rate of ZBTC.
Further, ZBTC implements a novel, dynamic collateral ratio that automatically adjusts the required collateral based on future risk of price volatility, evaluated as
CR = c * Px / Psma. This minimizes the chances of liquidation of users and protects the protocol from depegging risks.
Describe the users and stakeholders that are affected by this and will be interacting with the solution
A number of retail users are afraid of obtaining significant exposure to Bitcoin, due to the extreme volatility in price. Having access to a dampened Bitcoin-derivative asset that captures some of the value appreciation, without subjecting them to the same risks of downside, would serve as a more attractive asset class to onboard a large amount of retail users.
As a crypto-native unit of account
Denominating invoices and payment schedules in Bitcoin is impractical, given that over 50% fluctuations are common within a year. There is a need for a crypto-native unit of account, that is independent of the devaluation of fiat currency, and retains stable purchasing power over the medium to long term.
As an institutional Balance Sheet Asset
Institutions are increasingly recognising the value of diversifying their balance sheet away from USD, as they watch the purchasing power of their assets melt away at an alarming rate due to inflation. Native Bitcoin however, carries high volatility risk, and thus does not suit the risk appetite of these institutions. ZBTC could serve as the ideal inflation-resistant stable assets for institutions to add to their balance sheets, as a hedge against inflation.
How would this proposal benefit the Ren ecosystem, RenVM and/or the node operators powering RenVM?
RenBTC would be the sole collateral type utilised by EVI DAO on ethereum, to mint stable ZBTC. This would increase demand for RenBTC and thus increase in the resultant fees earnt by dark node operators.
In addition, we are open to structuring the grant as an investment against EVI tokens - These EVI tokens would be directly issued to the Ren Ecosystem treasury, providing direct benefits to Ren linked to the success of the EVI DAO protocol. Ren would be granted 0.7% of the total supply of EVI tokens, in exchange for this grant.
Can you quantify the benefits, comparing worst-case scenario and best-case scenario? Does the benefits grow or shrink over time?
A successful scenario would result in us building a stablecoin comparable to Maker DAO’s DAI token. This would mean that there would be over $6.5 Billion in required RenBTC collateral, massively benefiting the Ren Ecosystem.
An acceptable scenario would be where we roughly match the uptake of Reflexer Finance’s RAI token, which would imply a demand for around $50 million in collateral RenBTC, a providing a significant use case for Ren.
The worst-case scenario is a low uptake of the protocol, with less than $1 million TVL.
The EVI DAO codebase is inspired by the mechanisms behind Maker DAO and Reflexer Finance; however, the codebase has been built from the ground up by us, optimised to support the functionality we’re developing.
A full deep dive into our technical approach can be found in our technical documentation : XSS/xBTC - Technical Documentation (2).pdf at governance · FoundationCryptoLabs/XSS · GitHub
We’ve already developed and deployed much of the core functionality on RSK-testnet:
This demonstrates the CDP mechanism as well as the stablecoin redemption mechanism.
In light of the urgent need for crypto-native stablecoins on Ethereum to support the DeFi ecosystem, we’re now going ahead with an Ethereum Mainnet launch, utilising RenBTC as collateral.
The core contract prototypes are ready and open-sourced here :
We’ve been publishing articles analysing the use-cases and behavior of ZBTC in various scenarios - https://evidao.medium.com
CDP minting incentives - It is possible due to the appreciating nature of ZBTC, that there would be reduced demand for users opening CDPs. This can be offset by increased demand in open markets for buying ZBTC as a savings asset, which would drive up the price and enable arbitrageurs to open SAFEs for an instant profit. Further, we may experiment with negative interest rates and EVI token incentive programmes to bootstrap liquidity in the initial phases.
A fast Depeg scenario is possible in case of an extreme price drop coupled with insufficient liquidity in the markets. This would only happen in very extreme scenarios, eg. if Bitcoin drops below $5k overnight. In such an event, all stablecoins and lending protocols will likely go underwater, not just ZBTC.
The product v1 as described by the docs will be audited and launched on Ethereum Mainnet, utilising RenBTC as the sole source of collateral. We will offer an easy-to-use dashboard for opening and closing SAFEs and for redeeming ZBTC. Open to community suggestions on optimising our UI/UX for best experience.
We’ve already prototyped the core functionality of EVI DAO.
We only need to integrate dynamic collateral ratio, oracle and debt auction mechanisms, as well as audit our protocol, before main net launch. This grant is targeted to raise funds for these last steps as well as fund integration of RenBTC into our protocol, and contract publication on Ethereum mainnet.
We anticipate a complete v1 launch in the next 60 days after being funded by this grant. There are two key milestones:
- Development of peripheral functions, including liquidation/debt auctions, dynamic over-collaterlization, oracle integrations, and RenBTC integration. (45 days).
- Audit, security review, community engagement, and Launch. (15 days)
We’re requesting a fast-lane grant of
USD 75,000 to develop, audit, and launch v1 of EVI DAO on ethereum. The cost break down is as follows:
Development cost : 3 developers * $50/hour * 160 hours a month * 2 months = $48,000
Audit cost : $12,000
Community, Media, and Content : $7,000
Ethereum Gas fees for contract publication : $4,000
Testing, Hosting, and other costs: $4,000
Our team of 3 at Foundation Crypto Labs has worked in the DeFi space for 2+ years, developing 4 novel protocols and with over 6 hackathon wins. This included Bridges, NFT-financialisation products, including Lending and Fractionalisation, as well as decentralised AI inference in partnership with Ocean. We have received over $300k in grants for successful delivery of these varied products. Example projects - CFY Finance - Harmony Mainnet demo - YouTube, LiquiNFT: Fractionalise your NFTs on Zilliqa - YouTube. Most recently, we recieved 2 BTC in grant funding from Sovryn, using which we developed the prototype of EVI DAO.
0xCryptoSeldon (Dhruv Mehrotra)
Smart Contract Core developer - Solidity, Scilla, Rust, JS, Testing frameworks.
Github: dhruvluci · GitHub 1
Gitcoin: @dhruvluci | Gitcoin @dhruvluci | Gitcoin
LinkedIn: https://www.linkedin.com/in/dhruv-mehrotra-luci/ 1
- Multiple hackathon winner and leading weekly earner, Gitcoin.
Aranyani01 (Hetal Kenaudekar)
Core developer - Back-end infrastructure, Databases, Solidity, Typescript.
Gitcoin: @aranyani01 | Gitcoin
GitHub : Aranyani01 · GitHub 1
LinkedIn : https://www.linkedin.com/in/hetal-kenaudekar-796715178/ 1
CitizenKhan (Joshua Nazareth)
Core dev - JS/Frontend, UX Design.
Has worked for leading mobile delivery apps in building key components of their frontend, with over 500k downloads.
Team Github: FoundationCryptoLabs · GitHub