Rewards for the Hiding Vault will go live approximately 24 hours after launch, beginning at block 12865000.
Today, we are ecstatic to launch the Hiding Vault, the Just-In-Time-Underwriter and kCompound, which make up the foundations of our borrowing protocol. Together, they give borrowers an optimal way to protect borrow positions on Compound while also earning ROOK in the process.
Since first announcing kCompound and the Hiding Vault, we have made significant iterations (and faced a few challenges), and are excited to walk you through them.
The Hiding Vault
The centerpiece of KeeperDAO’s borrowing protocol is the Hiding Vault. A Hiding Vault is an NFT, designed to be a modular, multi-positional collateral hub, built to automatically upgrade with future iterations.
The Hiding Vault protects your position from the open market by cloaking it and using the Just-In-Time-Underwriter (JITU) to automatically put up additional collateral (buffer) if the health of the loan falls below its borrow limit threshold. When a position is buffered by the JITU, the user would not be able to borrow further or withdraw, but if the health of the loan recovers, or you add more of your own collateral, the JITU can withdraw the buffer, and the borrower has just avoided a costly liquidation.
As explained when the JITU was introduced with kCompound, it is the evolution of our Liquidity Pool. When we migrated funds to the new JITU contract, we unlocked its unique underwriting functionality to add to the current flash lending. The JITU will only be able to utilise the different tokens in the Liquidity Pool, which means that the JITU will only be able to buffer borrow positions that use these tokens, but additional protections will be added in the future.
Once you mint your Hiding Vault, you will be able to utilise any protocol that is supported, and take advantage of the root protocol’s APYs, borrow limits and liquidation thresholds. Compound is the first protocol of many to be supported by the Hiding Vault.
Borrowers will need just one vault for all borrow positions, across any underlying borrowing protocol, such as Compound, Aave, MakerDAO etc. that are supported in the future. This functionality will automatically be added to all opened vaults when it is ready. That isn’t to say that you can’t have multiple vaults, and one reason to have more than one is to isolate your loans from one another in case of liquidations.
Liquidations, as stated above, occur based on the underlying protocol’s risk management strategy. Once the health of your loan has been flagged as eligible for liquidation, JITU will step in and buffer your position. If the health of your loan continues to fall after the JITU has intervened beyond the buffer provided, liquidation will begin and a KeeperDAO Keeper will find the best price for your collateral.
While we do buffer your loan, we do not prevent all liquidations. We are able to hide your at-risk loan from external keepers, and give borrowers that closely follow their positions a temporary window where they can add additional collateral, repay a portion of the loan, or fortunately have the health of their loan simply improve again.
In this Act, if a liquidation occurs, borrowers will not see a difference between the Hiding Vault and Compound. But in future, KeeperDAO will offer partial collateral refunds to borrowers.
Compound. KeeperDAO style.
So finally we get to kCompound. As we have mentioned, it is a wrapper built around Compound’s borrowing engine. APY’s earned and accrued, borrow limits and the liquidation process from Compound’s Comptroller will also be utilised.
With kCompound, each position is individual, while other borrowing wrappers cross collateralised all their positions. Because they pool positions, it increases the risk, gradually, to positions overall which means if one position goes horribly wrong, it will affect all the other users positions. Our approach is completely different. Every kCompound position is 100% isolated from everyone else’s positions, so the risk is not shared, as kCompound does not socialise risk or loss.
To ensure kCompound will operate as efficiently as possible, our Liquidity Pools will provide a long term loan of ETH, DAI, and USDC to JITU, which will be deposited into Compound to give JITU c-tokens. These loans from our Liquidity Pools will earn both interest and COMP distribution. Currently, this COMP distribution captured by JITU will transferred to our treasury. This can be modified through governance later on.
As we are deeper into Act 3 than anticipated, the ROOK to be minted previously detailed in the May Development Update needed to be adjusted, but we are still distributing borrowing rewards in the same manner. Borrowers that have an open or migrated loan in a Hiding Vault will earn ROOK on a per-block basis. ROOK rewards will only be earned for having a loan, so users that only supply collateral to a Hiding Vault but do not open a borrow position will not earn rewards. This will be replaced with partial liquidation fee refunds in the future, but given that liquidations occur less frequently, we wanted to reward borrowers that maintained loans in Hiding Vaults.
ROOK rewards are earned based on the USD borrow amount of your position relative to the total amount borrowed through all Hiding Vaults, similar to our LP pools, but do not differentiate between loans in different tokens. Borrowing any supported asset will earn rewards based on the loan’s total USD value. For the rest of Act III, we have allocated 6125 ROOK for kCompound rewards, which is roughly 260 ROOK per day until block 13019514.
How to Open a Borrow Position using a Hiding Vault and kCompound
Borrowers can get started by navigating to the “Vaults” section at app.keeperdao.com, click on “New Vault”, and mint their very own Hiding Vault. Once minted, you can begin supplying collateral to the Just-In-Time-Underwriter. If you have an existing Compound position, you can migrate it straight to a brand new Hiding Vault and not lose collateral or have your interest rates change. A migration is a one time transfer, so do not return to the original protocol you used to open a position to supply additional collateral. Any position can be migrated to a Hiding Vault, but some positions will not be able to be buffered by the JITU at launch, but can be in the future.
Assuming ETH price is $2000, DeFi Borrower A wants increased long exposure to ETH. They supply 50 ETH to kCompound to use as collateral to borrow 60,000 DAI. Borrower A uses the DAI to purchase 30 more ETH. Borrower A now has long exposure to 80 ETH, and owes kCompound 60,000 DAI plus interest. If ETH increases to $2500, Borrower A will be able to repurchase the DAI they owe kCompound for 24 ETH. They can then repay the debt, and keep the excess 6 ETH as profit.
Assuming ETH price is $2000, DeFi Borrower B wants increased short exposure to ETH. They supply 100,000 DAI to kCompound to use as collateral to borrow 30 ETH. Borrower B uses the ETH to purchase 60,000 more DAI. Borrower B now has long exposure to 160,000 DAI, and owes kCompound 30 ETH plus interest. If ETH decreases to $1500, Borrower A will be able to repurchase the ETH they owe kCompound for 45000 DAI. They can then repay the debt, and keep the excess 15000 DAI as profit.
The Journey So Far and Beyond
The Hiding Vault is a product of innovation around DeFi borrowing, but it is also a product of collaboration between Community Development and KeeperDAO Core development. The core technology and contracts were written by the core team, while the interface and integration has been developed and managed by the KeeperDAO community. While this may not seem mind-blowing, it marks a significant step in the process of decentralisation of our tech stack. With hands on deck from all sources, we are able to build at a quicker, more efficient, and more robust way.
The First Step of Many
The Hiding Vault enters the arena as a premiere option for borrowing in DeFi with liquidation buffering, sharing liquidation proceeds with the user and privacy. Potentially more exciting than becoming a leader in borrowing, this paves the way for taking the necessary steps deeper into the DeFi forest to expand KeeperDAO’s suite of products that redistribute MEV back to users.
We’re looking forward to taking these steps with you.