Organic Farming (Minting)
⚠️Features discussed here are under development and are subject to change. They will be introduced during the MVP phase of deployment. Please check out our roadmap for details.
Organic farming describes a process that can involve multiple activities including, but not limited to:
- minting arUSD, Arable's stablecoin
- liquidity mining by providing arUSD liquidity at a 3rd party DEX and staking LP tokens at Arable
- engaging in native yield farming operations on other chains ('mirror farming')
These activities result in various incentives, such as ACRE rewards and fees from Synthetic Farmers. On the other hand, Organic Farmers are responsible for paying farming rewards to Synthetic Farmers.
This creates a finely tuned and balanced synthetic ecosystem allowing for many profitable strategies, and it is up to the minter to find the most effective and profitable one.
Minters as providers of liquidity
Minters play an essential role in the Arable protocol. They act as the suppliers of synthetic liquidity to facilitate the trading and farming of synthetic assets (synths) at Arable. They create this liquidity by minting arUSD. arUSD is Arable's native stablecoin which is pegged to the USD.
Minters earn ACRE rewards for minting arUSD and also receive a share of the transaction fees of the Arable DEX for synthetic assets.
By providing arUSD liquidity at the arUSD Tri-pool at Curve , Minters can stake the LP tokens at the Curve-arUSD pool for ACRE rewards. This arUSD liquidity allows Synthetic Farmers to buy arUSD and swap them at the Arable DEX for synthetic cryptocurrencies and synthetic LP tokens that they can then stake at any available synthetic farms.
Minters earn from exchange fees when synths are swapped at the Arable DEX. Exchanging synths incur a trading fee of 0.3%. The fees will go to a minting rewards pool and protocol revenue. Minters will be rewarded from the Minting Rewards Pool on a fair share basis.
Collateral Value and Maximum Debt
Minters mint arUSD by first depositing supported collateral assets in the Arable app. The USD value of the provided collateral is called Collateral Value. This value can change if the market value of the collateral changes.
Minting of arUSD is over-collateralized. Over-collateralization helps protect the protocol against sudden price movements of the collateral assets. The amount of arUSD that can be minted based on the Collateral Value is called Maximum Debt.
- USDT: 200%
- FRAX: 200%
- YUSD: 200%
- AVAX: 300%
- ACRE: 400%
These collateralization ratios will be able to be adjusted via governance.
Current Debt is the amount owed to the protocol by the individual minter, it is driven by:
- Minted arUSD
- Farmer Rewards paid out by protocol
- Market price changes of all synth assets in Arable
Minting arUSD is essentially borrowing arUSD against the collateral, thereby increasing the Current Debt.
The Current Debt also moves as farming rewards for Synthetic Farmers are generated, and the market prices of the assets underlying the synths fluctuate. The movement of the Current Debt is proportional to the minter's share of total minted arUSD in the system.
The term "System Debt" refers to the total Current Debt of all minters. Each minter's Current Debt varies proportionally to the amount of arUSD they minted as this collective debt pool rises and falls. The amount of the System Debt, and consequently, the Current Debt, can vary depending on a number of factors:
|Rewards for synthetic farmers are generated||▲|
|arUSD is minted||▲|
|arUSD is burned||▼|
|Price of the underlying asset of a synth rises||▲|
|Price of the underlying asset of a synth falls||▼|
Risk Ratio and how it relates to Current Debt
The Risk Ratio is the ratio between the minter's Current Debt and the maximum allowed arUSD to be minted based on the provided collateral. The Risk Ratio is affected by market price changes of their collateral and changes in Current Debt. Minters need to keep their Risk Ratio at 100% or below and can adjust their Risk Ratio by either burning arUSD or adding more collateral if they go above 100%. They risk getting flagged for or even immediate liquidation if they fail to do so.
The Risk Ratio expressed as a percentage is calculated like this: (Current Debt / Maximum Debt) * 100
To stay fully collateralized, a minter has to keep a Risk Ratio at or below 100%. Otherwise, their position is flagged for liquidation or even immediately liquidated:
- If the Risk Ratio goes above 150%, a minter will be flagged for liquidation. If the Risk Ratio stays above 150% for more than three days, the position can be liquidated immediately.
- If the Risk Ratio reaches 200% or more, the minter risks immediate liquidation.
The Risk Ratio of 200% at which a minter is eligible for liquidation is also called the 'Liquidation Ratio.'
In the event of a liquidation, an extra 10% penalty is removed from the collateral and credited to the liquidator.
Example of debt movement
As synths are traded at the Arable Dex. This example shows how price movements of synths affect minters and farmers. For this example, the farmer only speculates on the price by holding synths and does not stake into a synthetic farm. They only act as a trader. This example excludes fees and rewards paid between minters and farmers.
- Minter A and B mint 6000 and 4000 arUSD respectively. The combined debt is 10.000.
- Trader a and b each swap for 2000 arUSD at Curve and subsequently swap their arUSD for arETH and arBTC respectively at the Arable DEX.
- The price of ETH rises by 25%. The price of BTC falls by 50%. The combined debt changes accordingly.
The final share of the total debt is proportional to the amount of arUSD minted by each minter.