Sturdy is the first protocol for interest-free borrowing and high yield lending. Currently live on Fantom, Sturdy will be launching on Ethereum mainnet by the end of May. Unlike most protocols where borrowers pay interests to lenders, Sturdy is structured differently.
Borrowers typically pay no interest at all; instead, their collateral gets staked and the staking yield gets passed to lenders.
For example, ETH provided as collateral will be staked via Lido. The staking yield be periodically be harvested, swapped to stablecoins, and distributed to stablecoin lenders.
We realized that by supporting Curve LP tokens as collateral, we could enable liquidity providers to 10x their APRs while improving the ROI for protocols that want to drive liquidity to their Curve pool.
10x leverage on Curve LPs
Borrowers will be able to provide Curve LP tokens as collateral and borrow stablecoins against them at no interest or fees (besides gas). They can then add those stables to the Curve pool, deposit the LP tokens to Sturdy, and repeat. We plan to set an LTV (loan-to-value) ratio of 90% for most Curve LP tokens, enabling 10x leverage.
Borrowers will keep the Base Curve APR from their collateral. At the time of writing, sUSD has a Base Curve APR of 4.58%; with maximum leverage, users would earn 45.8% APR from recursive borrowing, with liquidation only occurring in the event of a depeg.
Better ROI for protocols sourcing liquidity
This model also transforms the way protocols can grow demand for their Curve pool.
A 2% incentive to provide the Curve LP token turns into an APR of 20% for the borrower at maximum leverage, on top of the Base Curve APR.
This is a 10x improvement in ROI for protocols that want to grow their Curve pool’s liquidity through incentives. Stablecoins that are have a low likelihood of downside depegging like Liquity’s LUSD may have greater LTVs, boosting APRs even higher.
Lending stablecoins on Sturdy
But if Sturdy’s loans are interest-free, what is the incentive for lenders to deposit stablecoins? On the backend, Curve LP tokens will be staked in Convex or Yearn depending on which has higher APRs. Staking yield will be periodically harvested, swapped to stablecoins, and distributed to stablecoin lenders. In the future, borrowers may keep some of the yield from staking.
Lending stablecoins directly on Sturdy will likely have a lower APR than recursive borrowing with maximum leverage. However it will require significantly less gas and carry lower risk since their positions can’t be liquidated.
Sturdy will be launching on Ethereum mainnet in a few weeks. In the meantime, we’d love to hear your suggestions for which tokens we should integrate on Discord or Twitter!
