Summary
This governance proposal seeks to add Polkadot’s native token, DOT, as a collateral asset within the Red Bank. This can now be made possible using Composable’s Centauri bridge, an IBC-native bridging solution connecting Polkadot to the Cosmos ecosystem.
Motivation
Polkadot (DOT) is the native token of the Polkadot Network, commanding a nearly $7bn FDV, and offering the potential to inject massive value to the Red Bank.
To date, bridging solutions exist to bridge DOT to the Cosmos ecosystem, but most entail the use of an additional wrapping of an asset in order to bring it into the eco. Composable’s Centauri Bridge is the first bridging platform to integrate a native IBC connection between the Polkadot ecosystem and the Cosmos, and as such, servers as an idea candidate for bringing IBC-native DOT to the Red Bank.
Despite DOT’s position as a large-cap asset, it has lacked the ability to move outside of its own ecosystem in a way that becomes beneficial for holders and new users. By adding DOT as collateral within the Red Bank, current users may unlock addition utility from their DOT holdings by lending their holdings out, while new users within the Cosmos ecosystem have the ability to borrow this new asset. This should server as beneficial to the Red Bank by adding value to the lending side, while motivating additional user activity through the platform.
Technical Risk - DOT
| Metric | Requirements | Polkadot Network |
|---|---|---|
| Time Since Launch | Ideal | DOT’s multi-stage launch began in May 2020 and was completed on December 18, 2021. Polkadot released 10 million DOT into circulation via an initial coin offering (ICO) in October 2017, with the tokens publicly becoming available in May 2020 |
| Custom Public Audit | Ideal | The Polkadot Network has made two audits available here. |
| Recent Audit | N/A | Polkadot has not published any audits within the past year. However, XCM v3 was merged into the Polkadot codebase and is presently undergoing the audit and approval process. |
| No Critical Vulnerabilities | Ideal | No critical vulnerabilities have been exploited. |
| Bug Bounty Program | Ideal | Polkadot offers an ongoing bug bounty program; it does not report the size of the program (details here) |
Centralization Risk
| Metric | Requirements | Polkadot Network |
|---|---|---|
| Owner Decentralization | Ideal | The Polkadot Network itself is decentralized and governed by DOT holders using OpenGov. Automated enactment eliminates human involvement. Instead, DOT holders handle all network operations. |
| Admin Decentralization | N/A | N/A |
| Other permissioned addresses | Ideal | No other permissioned addresses. |
Oracle Risk
Unlike similarly bridged L1 assets into the Cosmos ecosystem, ie. wBTC or WETH, DOT would be transferred using IBC as the native solution (uniform across the Cosmos). As such, there is not additional wrapping, or an underlying custodial asset to be aware of.
Pricing information for DOT should be robust and easily accessible for DOT using well-known solutions such as Chainlink or Pyth Network.
Market Risk
The following metrics were calculated to determine the LTV of DOT, according to the Mars Risk Framework 1:
- Daily 95% Conditional Value-at-Risk (CVaR, 365-days): 7.01%
- Maximum intraday drawdown (90-day): 13.01%
- Median 24hr volume (90-day): $95,031,789
- Median 24hr market capitalization: $6,720,815,011
- Average high-low percent quoted spread (30-day): 4.77%
- Amihud’s illiquidity measure (90-day): 0.0000000049800
Based on these quantitative metrics, in the next section we propose the LTV and other associated risk parameters.
Max Loan-to-Value: 53%
Liquidation Loan-to-Value: 65%
Liquidation Bonus: 12.5%
Usable as collateral? Yes
Available to borrow? Yes
Implementation
This is a proposal for discussion; if received well by the community we will update below to reflect the message to Execute the Red Bank contract and initialize the (ibc) DOT market