Hifi DAO

Summary

This improvement proposal aims to integrate the “SHEETp” token into the Hifi Protocol as collateral. The objective is to offer holders of Sheet Heads NFT an opportunity to leverage their NFTs and borrow against them using the Hifi Protocol’s DeFi framework. The proposal comes with a conservative collateral ceiling and an admin-managed price feed to maintain the robustness of the protocol.

SHEETp is an ERC-20 representation of the ERC-721 Sheet Head NFT, and this integration means borrowers can utilize their $SHEETp as collateral, with the lending capital sourced from the Hifi Lending Protocol.

Background

Hifi Labs developed the concept of Pooled NFT to address challenges faced by NFT communities. The Hifi community has eagerly anticipated the opportunity to unlock borrowing against their NFTs. The Sheet Heads mint period provided ample time for SHEETp price discovery, making it an apt time for the token’s integration into the Hifi Protocol as collateral.

Potential Risks

The volatile and low liquidity nature of Sheet Heads, a digital collectible, presents a potential risk of bad debt to the protocol. Adversarial price manipulation could exacerbate this situation. However, several safeguards have been put in place by the core team to mitigate these challenges.

Safeguards

1. Durable Liquidity: Hifi Labs ensures on-chain liquidity, primarily in the SHEETp/USDC market. This liquidity backs the SHEETp TWAP feed from a Uniswap V3 pool.
2. Admin-managed Price Ceiling: A manual intervention is necessary to raise the price feed above a specified threshold. Initially, the ceiling is set at ~150% of the SHEETp’s current price. The initial price ceiling will be set to ~150% of the current price of SHEETp. At the time of writing SHEETp is valued at ~33 USDC which would put the price ceiling at 50 USDC.
3. Conservative Collateralization Ratio: Set at ~333%, this ratio signifies that SHEETp holders must deposit ~$3 for every $1 borrowed.
4. Generous Liquidation Incentive: A liquidation incentive of 150% provides liquidators with a significant buffer and motivation to liquidate undercollateralized positions.
5. Time-Weighted Average Price Feed (TWAP): Utilizing a 12-hour Uniswap V3 TWAP deters inorganic price manipulations.
6. Conservative Collateral Ceiling: Deposits as collateral are limited to 4000 SHEETp tokens, which helps minimize potential adverse impacts on the lending protocol.

Key Parameters

Upon execution of the proposal, the Hifi DAO will grant users the ability to leverage the SHEETp token as collateral to obtain credit symbolized by hTokens with the following parameters:

• Collateralization ratio: ~333%.
• Liquidation incentive: 150%.
• Collateral ceiling: 4000 SHEETp tokens.
• Price Oracle: 12-hr Uniswap V3 TWAP-based.

Benefits

1. Protocol Demonstration: This initiative showcases the protocol’s capabilities and potential constraints, providing insights applicable to future collateral types.
2. Enhanced Liquidity: Incorporating Sheet Heads as collateral in Hifi’s Lending protocol provides additional liquidity avenues for collectors.

Voting

• A majority approval will authorize the Hifi DAO to execute the necessary technical integrations to incorporate the SHEETp Token into the Hifi Protocol with the defined collateral ceiling and TWAP.
• Should the majority disapprove, no further steps will be undertaken concerning this proposal.

It’s strongly advised for DAO members to thoroughly examine the proposal to gain a holistic understanding prior to voting.