- Title: Promote MATIC to collateral tier
- Author(s): Seraphim Czecker
- Submission Date: 29.03.2022
eIP 7: Promote MATIC to collateral tier
Simple Summary
Proposal includes promotion of the native token of Polygon (MATIC) on Euler to the collateral tier. Increase of MATIC collateral factor to 0.63.
Abstract
This is a proposal to promote MATIC to the collateral tier on Euler, enabling Euler users to borrow against it. MATIC fits the collateral eligibility criteria of a collateral asset. It is backed by a robust oracle on Uniswap v3. It is widely distributed and decentralised. It has relatively high liquidity on numerous decentralised exchanges. Smart contract risk is relatively low. On the upside, adding a new collateral asset to the protocol would increase capital efficiency and provide more utility for users. On the downside, adding a new collateral asset always introduces a degree of systemic risk. In the case of MATIC, the benefits outweigh the potential risks.
Motivation
The goal of the proposal is to boost the capital efficiency and utility of the Euler protocol. The current risk factors on the protocol are purposefully restrictive as a part of Euler’s soft-launch in late Dec 2021. Since then, the protocol has performed well against a backdrop of extreme price volatility and a large number of liquidations across DeFi. Furthermore, there have been no reports of any critical bugs on the protocol in spite of a $1m public bug bounty being live for nearly a month. Promoting MATIC to collateral status is meant to ramp up capital efficiency in a risk-managed fashion on Euler.
Specification
1. What is the link between the eIP author and the asset?
None. The proposer is the head of risk at Euler Finance and has no link to MATIC.
2. Provide a brief description of the asset
MATIC is the native token of the Polygon network.
3. How is the asset primarily used?
It is used to govern and secure the network by staking. It’s the currency of Polygon apps that enables users to interact with hundreds of dApps involved in Polygon’s ecosystem.
4. Explain why the eIP would benefit Euler’s ecosystem?
Polygon is an established network in DeFi and listing it as collateral would allow users to tap into Euler’s capital efficiency without swapping it for the already-listed collateral assets like USDC, DAI and WETH.
5. Where does the asset trade?
MATIC trades on almost every major centralised exchange, including Binance, FTX, and Coinbase. It also has liquid markets on key decentralised exchanges, including Uniswap, Bancor and Sushiswap.
Consequently, it would allow liquidators to easily offload MATIC on various CEXes and DEXes in the event of a liquidation spiral.
6. What are the volumes and market capitalisation?
Market capitalisation is $11 billion with $900 million traded in the last 24h.
7. What is the liquidity like in the Uniswap V3 liquidity pool versus ETH?
The 0.3% MATIC/WETH Uniswap V3 pool is extremely liquid as it has a TVL of $31 million and, crucially, has full range liquidity.
8. What security/auditing reports have been done?
Polygon has been audited by multiple teams of engineers like Nomic Labs and Quantstamp and has stood the test of time.
Implementation
| Contract | Method | Token | Token Name | Token Address | Updates |
|---|---|---|---|---|---|
| governance | setAssetConfig | MATIC | Polygon | 0x7d1afa7b718fb893db30a3abc0cfc608aacfebb0 | collateralFactor:0.63 |
Risk Assessment
Oracle Grading
According to our inhouse research, meaningful attacks on the 0.3% MATIC/WETH Uniswap V3 oracle appear unfeasible. The substantial TVL spread across the entire price range is able to prevent both artificially elevated and depressed oracle prices.
We therefore give MATIC a strong oracle rating.
For more details, check out the full report.
Decentralisation
MATIC appears well-distributed amongst different holders.
Volatility
MATIC/WETH annualised realised volatility fluctuates between 16-200%, which is manageable.
Liquidity
MATIC is listed on practically all exchanges (both CeFi and DeFi) with most volumes occurring on Coinbase, Binance, FTX, Uniswap. Given the depth of liquidity pools and order books, it is unlikely that liquidating users in an adverse scenario will be challenging.
Smart Contract Risk
MATIC has been audited by multiple teams of engineers and has been extensively used by key DeFi protocol for years.
Conclusion
MATIC ranks high on oracle security, volatility, liquidity, decentralisation and smart contract risk. We therefore recommend implementing the proposed eIP.
Relevant Links
Oracle grading tool: https://oracle.euler.finance/
