[INVESTMENT] make cMETA great again

As you may have heard, Solend recently announced their permissionless pools. Together with @Crypto_notte , we started discussing the listing of a potential MC pool, which would include cMETA and eg USDC. This would unlock the possibility of shorting cMETA , thus providing a mechanism helping cMETA trade closer to NAV, even without the treasury trading directly. In other words, this would enable an “arbitrage” mechanism which right now is only available to the treasury, i.e. when cMETA trades too far away from the NAV.

There are still a few things to consider and discuss:

  • what would be the right borrowing cost for cMETA? Solend works with parametric rates curves (similar to Aave) which react to market demand/supply. But we would still have to set an optimal borrow rate. The higher the rate, the harder is the “arbitrage” trade
  • there is currently no liquidity on the cMETA OB, which makes it harder for liquidators to close defaulting positions. Should the treasury provide some kind of backstop liquidity?
  • again because of the low liquidity, some manipulation is possible as the cMETA price can be artificially inflated to be used as collateral against the USDC in the pool. A possible way to counteract this is to put a very low collateral ratio for cMETA (possibly even 0%)

Will post more if anything else comes to mind.

Happy to hear your thoughts on this

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I think the mechanics here are a bit fuzzy for my feable mind. How would it differ than the current - low liquidity exchanges we have? To make the arbitrage wouldn’t we need a counterparty willing to lend their META?
I’m interested to hear more.

Correct, right now it’s impossible to short cMETA because there is no synthetic contract or people willing to lend them out in a trusted way. The permisionless pool allows people to deposit and earn yield while others can deposit collateral and borrow cMETA to short it.

So for I example if I’m not planning to sell my cMETA I can deposit them in the pool. Someone else wants to short it so they deposit USDC as collateral and borrow cMETA (paying interests to me) to short it on the market. If the price goes down they can repay their loan cheaper and make money, and viceversa.

The issues above remain though (especially liquidating defaulting cMETA positions)