Introducing QiDao V2
The QiDao Protocol’s first smart contracts were deployed to Polygon (then Matic) in May 2021, allowing users to mint stablecoins natively against MATIC. V1 then went on to become the first major stablecoin platform completely outside of Ethereum.
While the early version of QiDao only supported MATIC as collateral, the protocol now accepts over 60 collaterals on 10 chains. MAI has also expanded its liquidity presence through canonical bridging, allowing MAI to be bridged to almost 20 chains while maintaining fungibility.
QiDao V2 is an updated version of the QiDao Protocol that introduces new features and improvements to the protocol. The most notable changes include a new liquidation engine, improved risk management features, and chain-specific tailoring. These changes aim to improve the overall stability and security of the protocol while also giving users more control over their lending experience.
A brief overview of the features that QiDao V2 introduces:
- New liquidation engine: allows for dynamic liquidations in response to a vault’s collateralization.
- Risk management improvements: creates a new process for approving and monitoring new vault types.
- Chain-specific tailoring: adapts vaults to meet the specific needs of each individual blockchain related to gas fees, onchain liquidity, and ecosystem maturity.
- Vault deprecation measures: adds new tools for the DAO to deprecate vault types.
- Multiple frontends: opens MAI minting to various providers through a partnership with Manhattan Finance.
QiDao V2 also specifically addresses demands from the community:
- Vault size limits: caps the debt size that each individual vault can have, preventing vaults that are “too big to liquidate”.
- Constant liquidity monitoring: new contributor position will have the community create and maintain liquidity monitoring reports for all collaterals and chains QiDao is on.
- Insight into new deployments: all new vault and oracle code will have to be approved by the DAO before launches.
QiDao V2 Overview
QiDao V2 will look and feel much like the protocol currently does (modular borrowing, instant liquidity, 0% interest borrowing, debt transferability). Most updates will improve risk management controls and community participation. This will prepare the protocol for worst-case scenarios and keep ensuring MAI’s collateralization.
New liquidation engine
The new engine will address worse case scenarios in price volatility and provide for liquidations with lower capital requirements.
Risky vaults that fall under the minimum collateral to debt ratio (CDR) will be liquidated as normal,through the partial repayment of debt and the receipt of a bonus in collateral tokens.
If a vault becomes very risky, falling further in CDR to under 110%, liquidators will be able to acquire the vaults completely. In order to maintain ownership of the vault, the liquidator will have to pay back enough MAI to bring the vault to a healthy CDR. This will lower the capital needed to liquidate vaults in worse case scenarios and increase the expected payout to liquidators.
Risk Management features
Global and vault borrow caps: vaults under each collateral + chain combination will have a maximum borrow amount. This will limit the size of vaults to ensure liquidations can occur successfully in all scenarios. Global borrow limits will also impose a shared maximum amount of MAI that can be borrowed from each collateral + chain combination.
New asset listing model: following QIP111 (a QiDao community vote), there will be a new process for adding collaterals to MAI.
- Public risk grading for collaterals (performed by community).
- Minimum discussion and voting periods.
- Monthly reports with collateral onchain liquidity tracking (performed by community).
- Added step of approving new vault and oracle code through DAO governance.
Not all chains are made equally. Differences in gas fees, liquidity, and user activity necessitate a tailored approach to QiDao’s vault solutions. QiDao V2 introduces several novel tools to facilitate this tailoring process.
- Maximum vault size: caps the size of individual debt positions, based on available liquidity and the maturity of a chain’s DeFi community.
- Minimum debt: requires a minimum amount of MAI to be borrowed to open a debt position, based on gas fees and onchain liquidation activity.
Vault deprecation tools
New functions have been added to QiDao’s lending infrastructure to facilitate the deprecation of collaterals. When a collateral is no longer accepted, the DAO will have the follow tools to close open positions:
- Interest fee — increases debt positions to persuade debtors to repay positions.
- Global borrow maximum — prevents new debt positions from being opened without needing to continually remove available debt ceilings.
QiDao has partnered with Manhattan, a lending project built by QiDao community members. Manhattan allows other protocols to run MAI vaults. Under these arrangements, Manhattan will create vaults to mint MAI against assets that partners wish to run. QiDao will then seed these markets in exchange for an interest rate fee.
Partner protocols will have the option of setting borrow and/or repayment fees to earn revenue of MAI minting. The pilot program for multiple frontends has already launched with StellaSwap on Moonbeam: https://app.stellaswap.com/mai.
StellaSwap x Manhattan x QiDao partnership
Features maintained from QiDao V1
Currently, lending markets lack sufficient isolation. Major lending markets do not separate debt by collateral type or users — liquidity lent out is pooled together. This co-mingling of funds brings unsought risk to deposits made on these platforms. Users are exposed to each other’s bad debt as well as all collateral types in a market.
QiDao segregates all user deposits from each other. These deposits are additionally separated by collateral type, and can be further separated into multiple tranches. Through noncustodial NFT vaults, QiDao maintains collateral locked. Neither the team nor the protocol behind QiDao has any privileged access over deposits in vaults.
Assumed debt value for minted MAI
All debt in MAI vaults assumes MAI’s price at $1. This protects vault holders from peg fluctuations. It also creates arbitrage opportunities for users when MAI is trading away from its soft peg of $1.
The V2 codebase is a separate and independent set of smart contracts. Thanks to QiDao’s modular architecture, all V2 contracts are fully compatible with V1. The first V2 vaults will be deployed for collaterals on the current waitlist.
In the future, V1 contract usage will be migrated slowly to V2 contracts.
New functions available to the DAO
New updatable parameters:
- Repayment fee
- Interest rate fee
- Borrowing fee
- Minimum borrow
- Max debt per vault
- Partial liquidations
- Buy risky vault