WTF is…Aquarius Finance?
Editors Note (7–1–2021): We are saddened to learn that it seems as if the developer of Aquarius has abandoned the project. It does not seem like a rug, funds have not been stolen, the developer is simply not engaged. We have reached out multiple times and been unable to get in touch. While the content in this piece is still interesting as it relates to the Liquity protocol, we do not endorse Aquarius. Our hosted frontend for the project will remain up for the remainder of the month to allow users to withdraw their funds. We very much support the Liquity protocol and hope a committed team will bring it to Fantom.
If you’re an active DeFi user on Fantom you might have come across Aquarius, a Liquity fork co-signed by the Liquity.fi team. While the pitch is fairly straight forward and the product is much needed on Fantom there is plenty of complexity under the surface. In our inaugural WTF is…? piece we’re kicking off a series that will break down protocols, looking at the brass tacks, where they fit into the overall ecosystem and how DeFi users may use the protocol. Without further adieu lets get started.
The Brass Tacks
Before we look at how Aquarius differs from Liquity we should take a beat to examine how the Liquity protocol on the Ethereum mainnet works. The elevator pitch is interest free loans against your ETH. Users open what Liquity calls a trove. Really this just seems to be an account where you deposit some amount of ETH. Once you have opened the trove you can then take out a zero interest loan in the Liquity stablecoin $LUSD. The minimum collateralization ratio is 110%. Similar to most DeFi loans, if your collateralization ratio falls below this minimum threshold your loan, and trove, are subject to liquidation.
Anyone can trigger a liquidation on a trove that falls below 110%, though liquidations will mostly be triggered by bots. Actors that do trigger a liquidation are compensated for their service. Both Liquity and Aquarius give the liquidator .5% of the trove’s collateral plus a fee on top to compensate for gas. For Liquity that is 200 $LUSD and for Aquarius that is 10 aUSD.
While there are many lending protocols to choose between, Liquity’s killer app is allowing users to get fairly solid leverage on Ethereum itself. Additionally the protocol consists of just the backend contracts. The team does not provide a frontend. They do, however, incentivize developers to build their own frontend to interact with the contracts by allowing operators to claim a cut of profits from users who go through these third party frontends.
Finally, Liquity (and Aquarius) are governance free. The role that $LQTY (and $AQU) plays in the protocol is staking to collect platform fees. These fees are accrued via borrowing and redeeming the stablecoins. The stablecoins, aside from providing borrowers access to capital, can be staked in the protocol’s stability fund where users can accrue liquidation fees. Fees for both types of staking are distributed proportionally.
To bring the focus back to Aquarius the principles are all the same, except instead of getting a loan against your ETH you can get a loan against your FTM. Instead of LUSD you get aUSD. The tokenomics for $AQU are slightly different to account for the difference between the chains. You can read up on the details here.
To recap:
- Both Aquarius and Liquity give users the ability to get an interest free loan against the chain’s main token (FTM and ETH respectively)
- Both have a minimum collateralization ratio of 110%. Dip below that and risk liquidation. Remember this is the minimum. Giving yourself a buffer is a good practice when taking out any loans on volatile assets.
- Both are governance free and incentivize third parties to build out frontends through profit sharing
- The tokenomics for the core token ($AQU and $LQTY) and the stable coins (aUSD and LUSD) incentivize users to stake those tokens in the protocol to accrue protocol and liquidation fees
How Does It Fit?
Within the broader Fantom ecosystem Aquarius has an opportunity to be the go to dApp when it comes to either getting a line of credit against your FTM stack or getting interest free leverage on FTM. The lending landscape on Fantom is fairly under developed at this point. While Cream technically exists on the chain, liquidity is low. Protocols like Scream carry the promise of a native lending platform for Fantom but with no firm timeline for a mainnet launch there is definitely a gap in the market. This is where Aquarius has the opportunity to fill a need and provide much needed borrowing and lending to the chain.
Additionally Aquarius brings a native stablecoin to the Fantom Opera network with a built in mechanism to maintain the peg. This is huge, as relying on non-native ERC20 stablecoins like DAI, USDC and USDT puts additional strain on already tight liquidity. With the news of Curve rewards coming to Fantom on June 17th and a proposal for an aUSD-2POOL metapool, Aquarius is well positioned to become a growing force in stablecoins on Fantom. This development is not only good for the protocol but good for DeFi users in general on the chain.
What Can I Do With It?
We briefly touched on a few strategies in our Brass Tacks section. One strategy could be to either market buy or farm $AQU to stake within the protocol to accrue fees. This strategy would not require users to open a trove or take out a loan in order to gain exposure. Another strategy could be to either convert existing stables to aUSD or open a trove and take out an aUSD loan to stake in the stability pool, earning yield on stables, FTM, or both.
As with any lending protocol users can ultimate use their loans however they like. By opening a trove and minting aUSD users could long their favorite altcoin without having to sell the underlying Fantom. Additionally users can get up to 11x leverage on FTM through recursive borrowing at 0 percent interest. To be clear, this is not a strategy that Yunt Capital is recommending. Rather this is just an example of how DeFi users may use the protocol to gain additional leverage on FTM.
These examples are by no means exhaustive. There will certainly be additional novel strategies the clever degen will come up with while using Aquarius. Hopefully this is enough to whet the appetite!
Closing Thoughts
Aquarius brings much needed lending liquidity to the Fantom Opera network via zero interest loans against your FTM stack. Users should keep in mind that maintaining a lower collateralization ratio increases the risk of liquidation. That said with proper management Aquarius can be a key player in the growing Fantom DeFi ecosystem. If you are interested in Aquarius we highly recommend you check out their documentation here and join the Discord. When you’re ready to get started on some strategies using Aquarius you can go through our “Yunt-End”, currently the best kickback rate out there. Until next time, keep on yunting.
Editors Note: No projects discussed in this article have any direct working relationship with Liquity.org. Endorsement by the Liquity.Fi team should not be construed as an endorsement by Liquity.org.
Disclaimer: Some members of Yunt Capital are invested in Aquarius and Yunt Capital runs a frontend for the protocol.
As always, please do your own research. This is not financial advice. Every strategy is not for everyone. Each investor needs to understand what is right for them.
