# Initial Parameters

This document briefly reviews a number of initial parameters set at Sense v1 launch.

# Stripping Application

# Issuance Fee Cap: 5%

The issuance fee cap is a max cap on what adapters can set for an issuance fee, and is set at the Divider level.

At a basic level, the upper limit on this should be the highest level that an adapter’s builder could in good faith expect a user to be willing to pay. We landed on 5% to avoid malicious actors creating exploitative adapters.

This is the window around maturity where a sponsor has the special ability to settle a series and collect the settlement reward before anyone else can. See the series lifecycle (opens new window) documentation for more information.

# Settlement Window: 3 hours

This is the window after the sponsor window, during which anyone can settle a series and collect the settlement reward. See the series lifecycle (opens new window) documentation for more information.

# Adapters

Sense v1 is going live with two yield stripping (opens new window) adapters built by the Sense team available from the get-go: an adapter for each of following Targets (opens new window):

  • cUSDC
  • wstETH

Our adapters will launch with an initial issuance cap, which is explained in our Guarded Launch Strategy (opens new window).

# cUSDC Adapter

Available Durations: 0-12 Months

While the Sense team will initially only sponsor and surface 1mo and 3mo series to the Sense Portal, we have released adapters with durations up to 12 months available for use in the near future. The community can spend gas to initialize new series with a single function call (opens new window), deploying all the contracts needed for a future yield market with a maturity (opens new window) at the top of any month not yet occupied. In an effort to reduce liquidity fragmentation after launch, however, only series deployed by the Sense team will be surfaced on the portal.

Issuance Fee: 0.25%

The issuance fee (opens new window) is the fee charged when users issue new PTs and YTs for a series, and they are awarded to whomever settles that series. The purpose of the issuance fee is to incentivize proactive series sponsorship. Over time, as multiple adapters are available at multiple durations with their own issuance fee parameters, issuance fees will essentially be decided by the open market between adapters. For our initial release, we’ve used a small but non-trivial fee for users to get used to the UI around fees, and to make sure there is some pay-off for sponsoring new series to encourage direct interaction with the adapters.

It’s worth noting that, in the future, there are some important basic series that Sense would like to be able to create adapters and sponsor series for at a 0% fee as a public good.

Sponsor Stake: 0.25 wETH

The purpose of the sponsor stake is to backstop the settlement reward when issuance fees are non-existent — even in a high gas cost environment. To make sure we would cover this we looked at gas costs over the last six months.

The gas cost for settling a series is about 106,000 (give or take a bit depending on the token with which the series interacts). At the highest gas cost in the past six months (218 gWEI) that settlement would cost around 0.024 ETH. In order to make sure there was a significant buffer, we 10xed that amount to come up with 0.25 wETH.

Minimum/Maximum Maturity: 1mo - 12mo from present

While our initial portal will only surface 1mo and 3mo maturities, the initial adapters will allow for monthly maturities up to 12mos. This is to allow us to test out longer maturities with the same adapters (if there is demand), since the same adapter can be used for an arbitrary number of series.

Mode (Monthly or Weekly): Monthly

Cup: Sense Multisig The cup receives value when we backfill, which only occurs if no one settles the series. If the adapter is enabled, then the cup receives the entire settlement reward (stake + issuance fees). If the adapter is disabled (which should rarely happen), then the cup only the issuance fees, and the series sponsor receives the stake.

See the series lifecycle (opens new window) documentation for more information.

# wstETH Adapter

The wstETH adapter settings are the same as the cUSDC adapter.

Available Durations: 0-12 Months

Issuance Fee: 0.25%

Sponsor Stake: 0.25 wETH

Minimum/Maximum Maturity: 1mo - 12mo from present

Mode (Monthly or Weekly): Monthly

Cup: Sense Multisig

# Fuse Pool

Leveraging the permissive infrastructure of Fuse, the Sense Protocol will directly own a public Fuse pool that will permit:

  • Borrowing/Lending of PTs and yield-bearing assets
  • Use PTs, yield-bearing assets, and Space LP shares as collateral

Information detailing the specific use-cases can be found here (opens new window).

Leaning into Sense’s permissive design philosophy (opens new window), the Sense Protocol automatically onboards all supported assets with each series initialization.

Fuse pools allow a fair amount of customization on the part of the deployer. Our general principle on these was to use parameters that would be similar to what one would find elsewhere, in tried and true automated money markets, but applied to our own Sense assets.

All of these parameters are subject to change, and these docs may not be updated in a timely manner.

# Collateral: Principal Tokens, Targets, and Space LP Tokens

PTs, Targets, and Space LP tokens for any series of verified stripping adapters are available on the Sense portal will be supported collateral types in the Sense Fuse Pool.

# Collateral Factors at Launch

# ETH Underlying Assets: 50%

(wstETH, sP-wstETH and sP-wstETH/wstETH LP Tokens)

Each of these tokens (in most market conditions) will be highly correlated with the underlying (ETH). For something that will behave a lot like ETH, a 50% collateral factor is extremely conservative versus existing lending pools (Compound, as a market comparison, uses an 82% collateral factor for ETH). We are starting with a conservative parameter for this in order to limit leverage in the system, but are likely to raise these parameters in the future in order to increase capital efficiency.

# USDC Underlying Assets: 50%

(cUSDC, sP-cUSDC and sP-cUSDC/cUSDC LP Tokens)

Each of these tokens (in most market conditions) will be highly correlated with the underlying (USDC). For something that will behave a lot like USDC, a 50% collateral factor is extremely conservative (Compound, as a market comparison, uses an 80% collateral factor for USDC). We are starting with a conservative parameter for this in order to limit leverage in the system, but are likely to raise these parameters in the future in order to increase capital efficiency.

# Borrowing and Rate Models

Users will be able to borrow in Target and Principal Token terms. The rate model we use will vary by the target, but will usually be common across targets with the same underlying. In some cases where a target has a volatile yield profile we may use a more conservative rate model than we do for other targets of the same underlying. At launch, however, we will use the rate models below.

It’s important to note that assets in the Sense Fuse Pool will be a special case. More or less every asset in the pool (and in the loans from the pool) will have a baked in interest rate. This means that Fuse pool interest rates for a deposit denominated in a particular target asset are in addition to that target’s existing rate of return in underlying terms— and the same for loans denominated in target.

# ETH Underlying Assets JumpRateModel_Compound_Stables

# USDC Underlying Assets: JumpRateModel_Compound_Stables

This is similar to the model Compound uses for stablecoin borrowing and lending rates. While Compound uses linear models for ETH, the stablecoin model stays low for a long time and then hockey sticks up around 80% usage. This allows the model to stay more favorable to borrowers in most cases (vs a linear model), while sharply increasing depositors’ incentives when collateralization falls. Rates before 80% start at zero, and increase linearly and slowly to around 4% at 80% usage before rising quickly past that. We wanted to create a borrower-friendly environment for our fuse pool, so we decided to apply this model to tokens from the initial USDC underlying and ETH underlying series. More info on this can be found on Fuse (opens new window).

# Other Fuse Parameters

The rest of our Fuse Pool Parameters are modeled after the TribeDAO pool.

# Closing Factor: 33%

The closing factor is the maximum amount of a borrower’s collateral that can be liquidated in one transaction.

# Liquidation Incentive: 8%

The liquidation incentive is the amount of a users collateral provided as incentive to liquidators.

# Reserve Factor: 20%

The reserve factor is a measure of how much of a given asset’s interest will be kept for the Reserve Pool, which protects lenders against defaults and liquidation malfunctions. This is set at the asset level, but all assets in the Sense v1 pool at launch will have a reserve factor of 20%.

# Space Pool Parameters

# Swap Fees: 5% off implied APY

These take 5% off of implied APY in yieldspace. This means that if APY is 5%, it takes 5% of 5% (i.e. 0.05 *0.05 = 0.0025) which would be 0.25% of the principal amount being used to fix yield.

Last Updated: 3/24/2022, 2:34:48 PM