Archimedes is an experimental protocol and carries significant risks: Smart contract risk, economic model risk, risk that the protocols Archimedes introduces and many other types of known and unknown risks. Archimedes' team never provides investment advice. This article is NOT financial advice. DYOR. Participate at your own risk.
Why Take Leverage with Archimedes?
If the Archimedes experiment is successful, our leveraged positions are going to:
- Top of the market APY on stablecoins: x5-x10 leverage on an average APY (and even below average APY) appreciating stablecoin.
- Sustain top of market APY: Leveraged asset APY’s are always changing (like the entire market). However, high leverage helps keep the position at the top of the market in terms of APY.
- Set and forget: No need to manage the position. No manual compounding or switching positions.
- Tradability: We package the position with an NFT, so users can trade it without unwinding it. Since leverage allocation is limited, some investors might pay a premium for these NFTs.
- Predictable fee model: Leverage takers pay all their fees upfront. No need to keep track of variable interest payments.
How does Archimedes work
What are “Metavaults”?
“Metavaults” have the following characteristics
- Pegged 1:1 to the USD (and in the future BTC, ETH etc…)
- Natively appreciating: Metavault protocol teams run a strategy that generates yield to the Metavault holders
- No negative yield scenario: When everything works, Metavault yields are always >0% APY
Metavaults are the types of assets that Archimedes leverages.
What Metavaults does Archimedes currently support?
We currently support only OUSD: https://www.ousd.com/
Step 1: Get ARCH to pay for access to leverage
Leverage means borrowing funds to increase the size of a position.
These borrowed funds are coming from somewhere. In our case, from the Archimedes Curve pool. That means:
- The amount of leverage available is extremely limited
- Someone lends these funds and expects some compensation
The first step in taking leverage is obtaining ARCH tokens
Leverage takers (borrowers) pay for their leverage allocation upfront. They pay for leverage using ARCH tokens. These funds are used to compensate the lenders (Archimedes Curve liquidity providers).
Step 2: Provide the underlying Metavault asset to Archimedes
Provide the underlying asset as collateral.
From here, Archimedes handles all the borrowing automatically.
Step 3: Hold the position NFT
Archimedes handles the creation of the position. The position is represented as an NFT in your wallet:
- It is tradable and transferable
- All interest is “written” under the NFT. When you unwind it, it will include the principle + any profit
- The position is alive for 1 year. After 1 year APY will go down to 0% and users will redeem their principle and any profit.
LT: Step by step guide
Taking Leverage: A step by step guide
Q: How are you different from other lending and borrowing protocols?
- No need for liquidations: We currently do not have a liquidation mechanism.
- Support only a few battle-tested projects (even if that means slower growth): As an example: Our launch partner is Origin Protocol's OUSD. OUSD survived both bull and bear markets, including the recent LUNA debacle.
- No variable unpredictable costs: Borrowers pay all position costs upfront. That removes the uncertainty of future fees and helps planning.
- The leveraged position is assigned to an NFT and not to the user's wallet address: This allows users to trade the position on NFT marketplaces.
Archimedes is an original protocol. We are not a fork of any existing one.
Q: How does the leveraged position change over time?
The basis APY from the Metavault will fluctuate, which also affects the leverage APY.
Q: What happens if OUSD losses peg?
We currently do not have liquidations.
We are working hard to align the incentives of all parties and move away from predatory revenue models.
Archimedes’ mechanism works as follows:
- If lvUSD loses peg or if OUSD de-pegs AND the user has enough principle+interest to cover their debt: the user can unwind the position.
- If OUSD de-pegs AND the user does not have enough principle+interest to cover their debt: The user won't be able to unwind to the position. Users can wait for future OUSD interest payments or can sell the NFT (probably for a discount).
Q: Why does one need to pay upfront with ARCH for access to leverage?
Leverage is the act of borrowing funds. The person that borrows the funds expects some compensation. In our case, Curve LPs are the lenders and the upfront payment is the source of their APY.
From a leverage taker’s perspective, it also gives predictability on the cost basis. It removes the need for a variable interest rate on the loan.
Q: What happens to the NFT after redemption?
We burn the NFT.