RFP-1: Starting Loan Terms

What this is about

We’re hard at work on the successor to Volt Protocol v1, called the Ethereum Credit Guild. Those interested can follow along with the work on Github. The main features of the new version are a greatly simplified and immutable codebase, fluid and flexible governance of loan terms, the elimination of trusted oracles, and a change in focus from integration with external yield venues to the direct minting of the native debt asset (which we are now calling simply CREDIT) against various collateral tokens. This is a request for proposals for lending terms which could be whitelisted at system launch.

What is a lending term

When I say a “lending term” or “loan term”, I mean the following data structure:

address collateralToken;
address borrowToken;
uint256 interestRate;
uint256 callFee;
uint256 callPeriod;
uint256 creditLimitRemaining;

Quick run-through of what those last three mean: the call fee is paid to a borrower when the loan is called. The call period is the amount of time a borrower has to repay a called loan before it can be liquidated.

There can be more than one lending term per collateral token. The holders of the governance token, formerly known as VCON and now called GUILD, will vote to allocate a debt ceiling or credit limit among the approved lending terms.

While the protocol will have optimistic mechanisms to onboard and offboard lending terms, I am kicking off public discussion here about the starting set of approved terms. That way, we can take sufficient time to reach consensus regarding the liquidity and yield properties of CREDIT in the early system.

Collateral assets of interest

Off the bat, there are a few important categories for us to consider:

  • stablecoins or stablecoin/CREDIT LP positions, which can be used to encourage price stability and efficient arbitrage
  • yield bearing stable assets like Ondo tokenized securities
  • ETH and staking derivatives
  • long tail cryptoassets (ARB, OP, UNI, etc)

Of these, I think that the first is necessary to the healthy and smooth operation of the system, while the second is perhaps the best opportunity for growth and desirable yields at low risk available to us currently. Lending against ETH is relatively competitive, and pricing long tail crypto asset collateral for loans much more difficult than the other categories.

So the first set of lending terms I will propose will look something like this:

Asset: OUSG
Interest rate: 4.25%
Call fee: 0.25%
Call period: 3 days

Asset: ETH
Interest rate: 2.5%
Call fee: 0.50%
Call period: 2 hours

Interest rate: 2%
Call fee: 0.05%
Call period: 2 hours

Interest rate: 2%
Call fee: 0.01%
Call period: 1 hour

How to propose a lending term

For now, just talk about it here, and provide supporting reasoning. There is time for potential borrowers and CREDIT holders to express their preferences regarding rates and liquidity. Once the new protocol launches, there will be onchain mechanisms for GUILD holders to propose and vote for new terms. The hope is to create a much more flexible decentralized governance process where decision making is not forced through a central committee.


I’d like to propose terms for two popular stablecoin LPs on Convex, namely alUSD-FRAXBP and MIM-FRAXBP. Both of these LPs yield high rewards and their respective stable coins have moderate risk. I propose the following terms:

Interest Rate: 4%
Call Fee: 0.05%
Call Period: 1 hour

Interest Rate: 4%
Call Fee: 0.05%
Call Period: 1 hour

The reason for the terms is as follows:
Interest rate: both LPs have >8% interest rates and are not popularly used for leverage on chain, so we can be the first protocol providing that leverage while earning a nice reward ourselves.
Call fee: This is just enough to discourage manipulating positions while ensuring LPs who want a short term profit will still participate.
Call period: All assets involved are highly on chain, so our ability to sell them is very high, warranting a quick call period to react to hacks or other undercollateralization scenarios.


Guild Loan Terms

Along with the lending terms by which CREDIT can be minted, we’ll also define a starting set of terms under which GUILD can be minted for participation in market governance and liquidity bootstrapping. As discussed here, since GUILD is nontransferable, the GUILD minted in this way can only be used in market governance.

The preferred collateral assets that should be eligible for this are CREDIT and CREDIT liquidity pairs. CREDIT/USDC, CREDIT/DAI, and CREDIT/ETH are a given, but we welcome suggestions about pairs or more complicated pool structures where community members would be interested in providing liquidity.

Interesting RFP. Thank you.

One issue I’m starting to see is whether Ondo OUSG can be on-boarded. From the docs, it appears it can only be transferred between KYC addresses, so I’m not sure if it can be sent to a smart contract and also liquidated. I can’t confirm this (since I’m not KYC’d), but I also checked Nansen and other data providers. I don’t see any liquidity or many transfers, so I’m not entirely sure it would even be feasible to launch with that as a token. Happy to hear if anyone has more information.

If anything, I would say some other LSDs would be a better use of credit limits like rETH or wstETH, that have much more liquidity.

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Thank you for your comment. All major staked ETH variants will naturally be of interest as collateral. The question is how to induce borrowers to move over from a platform like Compound or Aave. With the callable loan framework I believe it’s possible to offer more leverage than is available in these legacy markets. Liquity allows a CR as low as 110%, but borrowers with low CRs are at risk of getting redeemed against with a redemption fee that has a 0.5% floor and increases based on the pace of redemptions.

I think the ECG system can support a similarly low CR, but with a higher call fee (so positions unlikely to be redeemed against) and a higher interest rate than would be charged on Compound.

We’re also thinking a lot right now about tools to improve the borrower UX that can exist on top of the core lending terms, such as borrower vaults, discussed in more detail here.

Regarding OUSG:

  1. Smart contracts must be whitelisted to hold/transfer OUSG, which is a separate process from users needing to be KYC’d. In this case, the main requirement is that the smart contract must not circumvent the transfer restrictions. For example, if someone can deposit OUSG and gets back a deposit receipt token cOUSG like on Compound, cOUSG must observe the same transfer restrictions as OUSG. I’ve already spoken with the Ondo team and confirmed this won’t be an issue for us since borrower positions are not transferable.

  2. See Flux Finance as a reference market for the level of demand and available rates.

Notes on Genesis Lending Terms

Lending and borrowing is in a way a chicken and egg problem – to get past that, someone has to “lay the first egg”, and in doing so, also be the first chicken. We need liquidity.

To be more concrete, the initial “lender” and “borrower” are the same person, who does the following:

  • mint CREDIT against an asset of their choice, likely a stablecoin, let’s say it is USDC
  • provide liquidity, let’s say it is CREDIT/USDC, and then mint more CREDIT against the LP pair
  • wait until someone comes along and either buys CREDIT for them, in which case they are now a net borrower, or until someone mints and sells CREDIT to them, in which case they are now a net lender

To facilitate this process, we can have a temporary initial set of lending terms with no interest rate and a minimal call fee of a few bips, intended purely for liquidity bootstrapping. GUILD holders voting for these terms would not be earning a return, so we’d expect only the core contributors or others assisting in the bootstrapping process to vote for them. Once sufficient liquidity has been established and GUILD holders have a chance to observe the returns that leveraged LPs are making, the temporary terms can be replaced with appropriate interest rates and call fees.

If anyone reading has a certain asset they would personally want to take leverage on in the form of a CREDIT LP pair in the launch period, please let us know here or on Discord.

1 Like

Great RFP. I’d like to propose some Curve pool assets with great liquidity & stablecoins.

Interest rate: 3%
Call fee: 0.25%
Call period: 12 hours

Asset: 3 POOL LP
Interest rate: 3%
Call fee: 0.25%
Call period: 1 hour

Asset: LUSD
Interest rate: 4%
Call fee: 0.25%
Call period: 12 hours

Would be great to integrate OUSG / OUSG LPs if it’s something possible.