Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned or any future Gravita token.
Two weeks ago, a new decentralized borrowing protocol built on Ethereum launched. Gravita aims to provide DeFi users with high-LTV, interest-free loans backed by ETH Liquid Staking Tokens (LST) and a Stability Pool (SP). Gravita Protocol is a friendly fork of Liquity, which is one of the most popular and most censorship-resistant, trustless protocols in DeFi. Gravita is self-described as “non-custodial and governance-minimized, with the goal of becoming immutable.” Here’s a breakdown of how it works below!
With Gravita, loans are issued in the form of minting GRAI, a USD-pegged stablecoin with similar volatility dampening mechanism as LUSD, and can be up to 90% of the value of a user’s collateral, 99% in the case of bLUSD.
Like Liquity, Gravita uses a Stability Pool of GRAI to power efficient borrowing and timely liquidations. A 0.5% borrowing fee is charged upfront on each new debt (or debt increase) for borrowers for positions longer than 6 months. In order to incentivize short-term borrowing, the fee is refunded pro rata if the user repays their debt within six months (182 days) but the minimum fee is equivalent to one week worth of interest. Other than a 0.5% fee upfront, Gravita borrowers enjoy 0% interest!
Similar to a Trove in Liquity or a Vault in Maker, a Vessel is where a user can deposit collateral against which they can borrow GRAI and maintain a loan. Each Vessel is linked to an Ethereum address and each address can have just one Vessel per collateral type. While Gravita has a unique multi-collateral design in which each Vessel has a single collateral type, they are all linked to the same stability pool.
Borrowers mint GRAI against the value of their collateral, which can then be used however users please but we can expect early Gravita users to:
- Swap for other assets or;
- Earn income by providing liquidity or participating in the Stability Pool, where their GRAI is used for liquidations.
Another feature of Gravita that users will want to be mindful of is the System Status. Gravita displays a System Status on the app website (see below in red). The value displayed is based on the current system LTV.
- Normal is displayed when the LTV of a specific collateral type is healthy.
- Caution is displayed when the LTV of a specific collateral type is approaching the Maximum System LTV (currently 71%).
- Recovery mode is displayed when the LTV of a specific collateral type is greater than the Maximum System LTV (currently 71%).
Despite the common Stability Pool, each collateral type has an independent System Status. As a consequence, a specific collateral type can be in Recovery Mode while others aren’t. Below are the current parameters for Maximum System LTV by Collateral Type. What’s most important to note here is that during Recovery Mode, Vessels with an LTV of 71.4% or more can be liquidated. To learn more about System Statuses and Recovery Mode, read the Gravita docs.
Today, I’ll demonstrate how I might mint/borrow GRAI stablecoins against a Vessel on Gravita backed by WETH, rETH, wstETH, or bLUSD, which is bbonded LUSD on Chicken Bonds by Liquity.
How to Borrow Interest-Free Against…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
