Anchor & DOLA: Capital efficient lending, borrowing and synthetic assets

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InverseFinance

6 min readFeb 25, 2021

Disclaimers: This is a HIGHLY experimental unaudited protocol. You may lose 100% of your funds. If you don’t understand the risks, you may also get arbed by other traders. There are no refunds.

Compound, Maker, Synthetix and the Iron Bank all inherently offer the same service. They are protocols that allow users to exchange their collateral for borrowing credit.

Lending protocols issue credit in the form of an allowance that can be used to withdraw supplied assets. Synthetic protocols also issue credit but in the form of an ERC20 token such as Dai, sUSD or sTSLA for example. A synthetic asset and a borrowing allowance both allow the user to achieve the same result: borrow on collateral.

This unnecessary separation of synthetic and non-synthetic credit issuance in DeFi has become most obvious when the Iron Bank issued non-tokenized USD-denominated lending credit to other protocols. The Iron Bank basically re-invented Dai in a non-tokenized form but kept its existence internalized to their system and issued it only to audited partners who would use it to borrow other assets from the Iron Bank.

Maker DAO could achieve a similar result by issuing Dai to select audited partners. But unlike the Iron Bank, Dai as a form of credit cannot be used to borrow assets from Maker.

Combining a tokenized form of credit together with an accessible pool of capital would allow for much greater capital efficiency.

Anchor, DOLA and Synths

We combined synthetic and non-synthetic credit into a single capital efficient lending pool named Anchor Protocol. Additionally, we issued the first native synthetic/credit stablecoin on Anchor named DOLA.

Anchor is a money market based on a modified fork of Compound. What is unique about Anchor is its relationship with DOLA, a debt-based USD stablecoin issued on Anchor. But in the eyes of Anchor, DOLA is just a transferrable credit line. On Anchor, each DOLA always represents $1 collateral that can be used to borrow other assets regardless of DOLA’s market conditions or peg. This achieves some interesting side effects:

As available capital on Anchor grows, demand for and utility of DOLA as borrowing credit grow and the dollar peg is strengthened.
Unlike Maker, DOLA borrowers also earn interest on their collaterals while borrowing DOLA.
DOLA is a natively yield generating asset. Users can market buy DOLA and supply it to Anchor to earn interest from DOLA borrowers/minters.
As additional synthetic assets are issued on top of Anchor, different synths can be used to collateralize one another, allowing traders to enter an unlimited number of unique leveraged positions which would otherwise require custom derivatives.

Protocol-To-Protocol Lending

By issuing DOLA and sending it to audited protocols that are guaranteed to pay back with interest, Anchor achieves the same functionality as the Iron Bank where protocol credit limits are replaced with a DOLA balance.

Under-collateralized Lending

While INV is currently a non-tradable valueless token, if Inverse DAO votes to enable trading in the future, this can unlock some exciting possibilities for Anchor.

Given high liquidity, INV can function as a reliable backstop token for DOLA and Anchor (akin to MKR). This would allow Inverse governance to act as an institutional DOLA lender, where the DAO mints DOLA and uses it to finance vetted smaller (potentially non-crypto) lenders who lend it to others and pay back later with interest. These borrowers have the option to either use DOLA in its collateral form on Anchor to borrow other tokens or use it directly as a stablecoin. In a case where a borrower defaults, INV holders would repay/burn the outstanding DOLA debt.

Whale Extractable Value Acquisition

Given a highly liquid and diverse pool of borrowable assets on Anchor and sufficient DOLA liquidity on AMMs, Inverse DAO can capture yield opportunities of its listed assets from other DeFi protocols by following these steps:

Inverse DAO finds a yield opportunity generated by another protocol
The DAO “lends itself” an amount of DOLA.
If the required deposit asset is a stable, the DAO swaps DOLA to the stable using Curve. If it’s a non-stable, it uses DOLA as collateral on Anchor to borrow the asset
The DAO uses the asset to generate yield using the appropriate strategy
At a later time, the DAO reverses the steps above and burns the minted DOLA amount and keeps the generated yield.

The generated profit from these WEV crusades would be kept in the DAO treasury. Alternatively, it can be used to leverage Inverse vaults yield. However, when DOLA is used as collateral in Anchor in step #3, the profit would trickle down to Anchor suppliers who are paid borrowing interest by the DAO, which maximizes utilization of depositors funds, further increasing capital efficiency.

Launch Plan

The primary goals of the launch plan are:

Carefully transition DOLA into a decentralized and reliable stablecoin
Ensure sufficient DOLA liquidity for liquidations before Anchor is open for borrowing
Reduce Anchor’s risk of insolvency due to ETH price fluctuations during launch

Phase 0 (now)

Borrowing on Anchor is disabled. DOLA is temporarily pegged to Dai and can be purchased or sold 1:1 (for a 0.1–0.2% fee) in exchange for Dai using the Stabilizer contract (similar to Maker’s PSM).

The goal of this phase is start building up liquidity of the DOLA-ETH Uniswap pool which is required for efficient liquidations when Anchor borrowing is enabled later.

Phase 1 (ETA 5 days)

Inverse DAO votes for non-transferrable INV rewards for DOLA-ETH Uniswap LPs and DOLA-3CRV Curve Metapool LPs, boosting DOLA demand and liquidity.

Curve Metapool liquidity will further strengthen Dola dollar peg in preparation for removing the 1:1 DOLA:DAI peg.

Phase 2

In addition to the existing supply minted via the Stabilizer, borrowing Dola on Anchor is enabled with a relatively small debt ceiling. Only ETH can be used as collateral initially. Collateralization ratio will be set to 200% for launch safety but quickly lowered in later phases.

Non-transferrable INV rewards for Anchor lenders and borrowers are activated.

Dola holders can deposit to Anchor to generate yield.

The Stabilizer still allows buying and selling DOLA for Dai. However, DOLA becomes an independent stablecoin, pegged to the dollar instead of Dai.

Phase 3

ETH collateral ratio is decreased to 130%.

More assets are added to Anchor.

Borrowing ETH using DOLA as collateral is enabled.

DOLA borrowers using ETH as collateral earn yield on their collateral.

How To Ape

First take the time to fully grasp the risks associated with this UNAUDITED, EXPERIMENTAL and UNPROVEN new protocol
Get some Dai and visit https://inverse.finance/stabilizer to sell it for an equal amount of DOLA
Visit the DOLA/ETH Uniswap pool and add liquidity to earn swap fees (impermanent loss risk)
Join our Discord and Telegram and follow us on Twitter to be notified of the future Curve pool and INV staking rewards in the next few days

Potential Risks

This is NOT guaranteed to be a full nor accurate list of risks associated with using our product

Smart contract failure risk: Our contracts may get exploited and drained
Counterparty risk: Most of Anchor and DOLA contracts admin keys are currently controlled by the deployer address. This is a temporary situation during the initial launch phase only. They will be transferred to governance after launch is successfully complete.
Arbitrage risk: If you buy DOLA and pay over $1 or sell it for under $1 (e.g. on Uniswap) OR supply liquidity at the incorrect price, you will get arbed.
Liquidation risk: This is not yet a possible risk. However, as soon as Anchor borrowing is activated, if you do not add sufficient ETH collateral in your position, you may get liquidated
Dollar peg risk: The DOLA stablecoin USD peg may simply fail. This risk is currently lowered by the DOLA:DAI peg offered by the Stabilizer contract. However, the risk is still present and will become greater when Anchor borrowing becomes active.