The inherent flaw of Loop Stake is the lack of lenders who are not willing to settle for low yield. Therefore risk seeking staking maximalists cannot lever up to squeeze out additional yield Loop Stake offers. While actively managed levered positions and passive lending yield are essential in a liquidity powerhouse spreading her wings.
SLPx provides great staking opportunities. Yet in order to provide a fully packaged yield offering, lending and borrowing must be included. So does the ability to capture value from liquidity provisioning. Unfortunately this comes with complexity, which can be abstracted with automation. I am proposing a new ‘standard’ token design that generates yield while not competing with the vToken. The new token captures lending, trading and a little staking yield in a simple package. Replacing ordinary tokens (non liquid staking) tokens by adding value to the holder without any fuzz.
Introducing proDOT. The hidden lender to Loop Stake with integrated liquidity provision. By combining the LP tokens from lending to Loop Stake and DOT-vDOT stablepool into another LP token. It’s very meta and potentially complicated. That’s why it's branded as proDOT to keep things simple, it provides diversified yield for idle DOT holders not interested in fully staked DOT. Besides modest ‘interest’ accrual from lending to Loop Stake, little staking yield from the DOT-vDot stablepool, trading fees from the pool are added on top. Hence the name, proDOT.
If integrated correctly in SLPx, the minting of proDOT should be as easy as minting vDOT. Conversion from DOT to proDOT and back does involve more steps and could result in not being able to close the lending position immediately. The yield might not be as obvious as with vDOT, but it yields better than plain DOT. Price discovery could be assisted by an oracle. Increasing the likelihood of further SLPx adoption. Especially if replicated for all the tokens already available as vTokens.
Bifrost’s unique offering with vTokens and SLPx could be the liquidity provider Polkadot has always needed. Yield comes with risk, and risk should be diversified. Adding another novel product line without adding much new complexity is a tempting prospect and aligns with the growth flywheel ambition.
By the way, Pendulum wants to integrate with DeFi yield in order to attract (fresh) stablecoins from the Stellar blockchain. SLPx should be a good start in my opinion. vETH deserves more love.
https://www.pendulumchain.org/ecosystem-grants/pendulum/requirements