Abstract In this paper, we introduce a cross-chain protocol that accelerates stability of interest returns between cross-chain money markets, allowing users to monetise cross-chain capital market inefficiency. The protocol maximises APR per protocol while keeping the global utilisation rate as low as possible, balancing Yield generation from the money markets the protocol is connected to.
Contents
The deployment of protocols across multiple chains has gained significant traction as a means to realize value efficiently, especially for protocols with a proven track record on single EVM chains. This approach leverages battle-tested codebases and ensures user readiness for operating across multiple chains. While cross-chain and multi-chain approaches offer solutions in the blockchain space, they address distinct challenges and serve different purposes.
While multi-chain protocol deployments have seen success in capturing long-term demand, they typically necessitate user trust in bridge intermediaries for extended periods. However, the emergence of general-purpose messaging protocols has overcome bridge limitations by offering asset balancing and messaging capabilities, fostering extended value creation. These protocols can be utilized to construct Vaults that encapsulate various strategies employed by the Lazer protocol. The standardization of vault formats, exemplified by EIP-4629 drawing inspiration from EIP-20 and ERC-20 standards, ensures consistent metadata definition for token vaults within the Lazer ecosystem, promoting interoperability and compatibility.
The deployment of protocols across multiple chains has created a fragmented liquidity landscape with different money markets offering diverse lending rates. This fragmentation presents a compelling opportunity for yield generation by strategically balancing these protocols. By closely monitoring and analyzing the lending rates across various chains and money markets, users can identify lucrative disparities and allocate their capital accordingly to maximize their yield potential.
Lazer steps in to capitalize on the varying interest rates for users by actively managing their capital and rebalancing their positions across different protocols based on their choice of vaults. By dynamically adjusting their allocations based on the prevailing lending rates, users can exploit the higher rates offered in specific money markets. This proactive approach allows users to optimize their yield generation by capitalizing on the most favorable opportunities available at any given time.
The lending protocol facilitates lending and collateralized borrowing through money markets that consist of pools of assets. The interest rates for borrowing are determined by an algorithm that responds to changes in the supply and demand for the asset. This approach, which differs from peer-to-peer lending, offers better liquidity, transparent interest rates, reduces speculative risks, and simplifies the lending process by eliminating the need for a counter-party. Users can deposit assets from one blockchain and borrow assets from another without having to entrust funds to centralized intermediaries. The algorithmically determined interest rates fluctuate based on changes in supply and demand. When the amount of deposits increases, the interest rates decrease, making borrowing more attractive, and when the amount of borrows increases, the interest rates increase, making depositing more attractive. The interest calculation is designed to compound, and as the market activity increases, it increasingly approaches per-block compounding.
The interest rates for assets deposited and borrowed are determined algorithmically based on the supply and demand of each asset. The ratio of the total amount of borrowed assets ( $B_t$ ) to deposited assets( $D_t$ ) is defined as Utilisation ( $U$ ). The annual borrowing interest rate ( $R^B_{day}$ ) is determined based on the utilisation, the minimum interest rate for borrowers ( $R^B_{min})$ ), and the sensitivity of the rate to changes in utilisation ( $S$ ). Sensitivity is set based on a user’s personal selected risk profile, a protocol’s own risk profile and the strategy the user has selected. To maintain liquidity, Lazer establishes an optimal utilisation level ( $U_{optimal}$ ) and different sensitivity rates for situations above and below this level ( $S_{above}, S_{below}$ ). $S_2$ is set to be greater than $S_1$ to accurately reflect the cost of capital as liquidity decreases.
$$ R^B_{day} = \begin{cases} if \hspace{0.2cm} U < U_{optimal}, R_{min}^B + U.S_{above} &\text{} \\ if \hspace{0.2cm} U > U_{optimal}, R_{min}^B + U_{optimal}.S_{above} + (U-U_{optimal}).S_{below} &\text{} \end{cases} $$
The annual depositing interest rate takes into account the borrowing interest rate, utilisation, and spread ( $\rho$ ), which creates a difference between the borrowing and depositing rates that serves as insurance for the market and earned income for the protocol.
$$ R^D_{day}=R^B_{day}.U.\sigma $$
Finally, Lazer calculates per-block interest rates by dividing and by the number of blocks per day.
$$ R^D_{block}=\frac{R^D_{day}}{blocks\space per \space day} $$
$$ R^B_{block}=\frac{R^B_{day}}{blocks\space per \space day} $$