Simple Summary
This proposal aims to introduce a Lending/Borrowing market for SPOT on Seamless.
Sources
- SPOT Primer: SPOT
- Congecko: https://www.coingecko.com/en/coins/spot
- SPOT Dashboard: https://app.spot.cash/
- AMPL Dashboard: Ampleforth Dashboard
- Etherscan: $1.16 | SPOT (SPOT) Token Tracker | Etherscan
- Documentation: SPOT Documentation | SPOT Docs
Abstract
This proposal seeks to integrate SPOT, a decentralized low-volatility commodity money, into Seamless Protocol’s Lending/Borrowing market on the Base network. SPOT, recognized as one of the first flatcoins, has gained significant traction in the DeFi space, particularly on Ethereum and Base. By supporting SPOT on Seamless, the protocol would offer users access to a reliable and stable asset, consistent with its mission to provide diverse and secure options. The discussion of potential incentivization strategies, whether through esSEAM or other assets, must take place in the comments section, involving both Seamless and Ampleforth community members. These discussions will determine if the SPOT markets will be incentivized and for how long. Based on the community’s feedback, the proposal will be amended to reflect any agreed-upon changes or modifications.
What is SPOT?
SPOT is a low-volatility commodity money (LCVM) designed to provide a stable store of value by means of minimal price fluctuation. SPOT operates by splitting a medium-volatility asset, AMPL, into two derivatives: (1) a high-volatility derivative (stAMPL); (2) a low-volatility derivative (SPOT). The stability of SPOT is achieved through its collateralization by AMPL and stAMPL, where SPOT represents one-directional, proportional claim on a basket of these collateral assets. The value of SPOT is determined by the redeemable value of its underlying collateral, similar to ow a UNI-V2 LP token’s value is derived from the assets in its liquidity pool.
SPOT and stAMPL are both collateralized by fixed-term AMPL tranches, which mature into raw AMPL every 28 days. When the tranches in SPOT’s collateral set are fresh, SPOT maintains low volatility, akin to the 2019 CPI-adjust USD. However, in extreme scenarios/conditions where all tranches have matured, SPOT’s volatility mirrors that of AMPL.
When SPOT trades above the value of AMPL, arbitrageurs are incentivized to mint more SPOT, increasing its supply until tits price aligns with AMPL. Conversely, when SPOT trades below AMPL, there is an incentive to redeem SPOT, reducing its supply and bringing the price back to the target. This dynamic ensures that SPOT’s circulating supply is responsive to market demand for stability, rather than requiring continuous leverage or complex liquidation mechanisms typically seen through stablecoins like DAI. As a result, SPOT’s supply is primarily driven by the base demand for holding AMPL and can scale more effectively without the burden of maintaining open collateralized debt positions (CDPs).
Rationale
SPOT is a pioneering flatcoin, gaining significant traction on Ethereum (L1) and recently expanding to Base (L2). The strategic investment of $1 million by Coinbase Ventures into Ampleforth Foundation’s decentralized low-volatility commodity money, SPOT, underscores the growing recognition and potential of flatcoin technologies within the crypto ecosystem.
Coinbase CEO Brian Armstrong has described flatcoins like SPOT as the “next iteration of stablecoins,” emphasizing their role in creating a more resilient form of money throughout crypto. Unlike traditional stablecoins, which are pegged to fiat currencies, flatcoins like SPOT are designed to track the 2019 CPI-adjust USD, offering a more stable store of value in an inflationary environment. This innovative approach positions SPOT as a solution to challenges like inflation, durable value storage, and reducing reliance on centralized intermediaries.
TThe launch of the SPOT/USDC pair on Aerodrome not only further cemented SPOT’s role in the DeFi ecosystem but also emphasized its demand and the overarching community’s desire to see SPOT continue to scale, with the pair currently boasting a TVL of $1,215,700.81, a daily trade volume of approximately $2,323.36, an APR of 43.47%, and a stable pool balance of 613,391.07 USDC and 528,998.59 SPOT.
Beyond Aerodrome, SPOT has already demonstrated its broader value across the DeFi landscape, with a substantial Total Value Locked (TVL) of over $17,384,573.29 and an extremely stable volatility range of $1.13 to $1.15 for 339 days. This stability, combined with SPOT’s unique characteristics as a low-volatility commodity money (LVCM), makes it an ideal candidate for Seamless’ lending and borrowing markets. By integrating SPOT, Seamless Protocol can leverage the growing adoption of flatcoins, offering users a reliable and stable financial product that aligns with the protocol’s mission to support diverse and secure assets.
Risk Analysis
To ensure the successful integration of SPOT into Seamless, a comprehensive risk assessment will need to be conducted in collaboration with Chaos Labs. This analysis will evaluate key parameters including:
- Liquidity and Market Cap: ensuring sufficient depth for lending and borrowing activities
- Liquidation Threshold: determining the appropriate liquidation thresholds to minimize risk while maintaining an overall balanced market.
- Debt Ceiling: Setting a prudent debt ceiling to control the maximum amount of SPOT that can be borrowed, mitigating the risk of market instability.
- Supply Cap, Borrow Cap, and Liquidation Bonus: Establishing caps on the supply and borrowing of SPOT, alongside defining liquidation bonuses to incentivize liquidators.