Shade Protocol is a suite of DeFi Apps built on Secret Network. SILK is a privacy preserving, CDP stablecoin on Shade, pegged to a basket of currencies including USD, CAD, BTC.
Derivatives as Collateral
When applying liquid staked derivatives to the concept of collateralization, since this is Defi and not centralized finance, we have over-collateralized loans. If there is a stablecoin and you want to mint $1 worth of that stablecoin using ATOM, you put down around $2 for collateral, so a 50% loan-to-value ratio, or a 200% collateralization ratio. So for every dollar you are lending, you have twice that sitting there idle. Since this results in significant loss from the hurdle rate (about 40%), the only rationality in a rational market is to mint a stablecoin only when there is an opportunity to earn enough to at least cover the hurdle rate. SILK uses liquid staked derivates as collateral, meaning the hurdle rate is virtually 0%.
SILK Minting explained (from SHADE):
Clarification of Terms:
There’s a fixed number of SILK that the protocol allows to be minted, and those have all been minted already (“mint” basically meaning to create 1 SILK by putting in other tokens, e.g. stATOM). So, to get SILK now, you deposit a token, like stATOM, and actually borrow it from someone else who holds the SILK (instead of minting the SILK from nowhere). So technically, you will “borrow” SILK from someone else (maybe even the protocol itself), and you “mint” SILK from thin air (but it’s backed by deposits of other assets). When you see “Borrow” throughout this tutorial, this is the context, though the terminology of “minting” for SILK refers to this.
To mint SILK, use Stride’s stATOM or stOSMO.
Mint SILK: https://app.shadeprotocol.io/borrow
Preliminary requirements:
- You must have sufficient funds of stATOM available on Secret Network
Moving stATOM to Shade
- Open the Shade Bridge https://app.shadeprotocol.io/bridge
- select the chain where your stATOM is (Stride) and the chain you wish to send it to (Secret)
Example:
Approve the transaction in your wallet (make sure you have enough SCRT in your wallet for gas fees). You should see this pop-up sign when the transaction succeeds.
Minting SILK with stATOM on Shade
- On the left-hand column, select “Borrow” or visit https://app.shadeprotocol.io/borrow. You will see a list of all of the assets available as collateral on Shade. You can filter for the asset of choice using the search bar above the list.
- Select “stATOM.” You will see the vault containing information about your stATOM, silk balance, liquidation price and risk, loan-to-value ratio, etc. You need to select “Create Viewing Key” and “Create Permit” in order to view the actual numbers and prompts to deposit, borrow, etc. This is simply a privacy measure.
- Enter the amount of stATOM you wish to deposit as collateral.
4. Select “Deposit Collateral.”
- When the transaction succeeds you should see a window that shows your deposit amount and status.
- Enter the amount of SILK you wish to borrow. The closer your LTV is to the max LTV of the vault you are borrowing from, the higher risk you face of being liquidated.
- You have now successfully minted and borrowed SILK against your stATOM collateral.
