Overview

Overview of CygnusDAO strategy

CygnusDAO is a stablecoin lending and leveraged trading protocol for Liquidity Providers, with the aim of maximizing profit for both stablecoin holders and LPs in DeFi.

Smart Contract schema

The aim of Cygnus is simply to allow liquidity providers to borrow a stable value (ie. USDC) using their liquidity as collateral, thus essentially going long on their liquidity. At the moment there is not many protocols where different LPs from Balancer, Uniswap, Velodrome, Sushi, Swaap, etc. can go to to borrow against their liquidity.

The benefit for lenders is that LPs usually earn high returns from LP'ing, and would therefore be willing to pay higher interest rates to borrow against it, thus increasing stablecoin returns.

The benefit for borrowers is that they can now use a platform to etiher leverage their position (by borrowing USDC and converting it into more liquidity) or simply just borrow USDC against it. As opposed to other lending protocols, since the collateral is never removed from the pool, the borrowers' collateral is constantly earning in value from trading fees and/or liquidity mining rewards.

There's 2 main ways to borrow using Cygnus:

1. Leverage. If a user chooses to leverage then they are borrowing more USDC than their collateral currently allows. The protocol will do the loop all in 1 transaction. Users are able to leverage depending on the debt ratio and liquidation incentives of the pool, but most pools allow up to 10x leverage.

2. Borrow. If a user doesn't want to leverage they can also just borrow USDC, leaving their liquidity locked as collateral until the full loan plus interest is repaid.

In case the borrower's loan goes underwater, meaning the present debt surpasses the current liquidation threshold (expained here collateralization model), the loan can become liquidated by anyone on the network. The liquidator can pay back the whole loan, or part of the loan, and in exchange they get a cut from the borrower's original collateral, currently set at 2.5%.