Teddy Cash is a decentralized borrowing protocol on Avalanche that allows participants to draw interest free loan against a Avax as collateral.
Teddy Cash Provides Following Benefits
1) 0% ongoing interest-rate
2) 0.5% one- time fee when operating a loan
3) Loans are paid out in the stablecoin $TSD and needs to maintain a minimum collateral ratio of 110%
4) Governance free, no DAO, no Intervention and no updates
5) Directly redeemable - $TSD can be redeemed at face value for the underlying collateral, always and at any time
6) Censorship Resistant - The protocol in controlled by nobody and can not be halted
7) No central UI that suddenly changes the rules
The Stability Pool
The stability pool promises both TEDDY and AVAX rewards on the dashboard and helps to maintain the TSD’s price.
Anyone can deposit TSD in the Stability Pool. These funds are then used to cover the debt of liquidated troves. Liquidated Troves burn TSD and earn a percentage of the underlying collateral.
The loans are secured by stability pool and the fellow borrowers collectively acting as guaranteer of last resort. As the protocol is governance free, and the $TSD can be redeemed at face value for the collateral at any time. $TEDDY the secondary token is issued by the protocol is used to capture for the revenue that is generated by the system.
Borrowers are charged a fee on loans as a percentage of the amount drawn. Redeemers are charged a redemption free on the amount paid to users by the system. Holders can stake their $TEDDY tokens on the platform to earn the share of the fees generated.
Keeping Price Up (with Redemption Arbitrage)
Let’s say TSD falls below it’s $1 peg. What then? Well,
We have a redemption mechanism. Which allows anyone to redeem their TSD for AVAX. At a pegged price of $1 (i.e. 1 TSD for $1 worth of AVAX).
Redemptions will mostly be performed by bots and arbitrageurs. So, there is a variable fee of a minimum of 0.5%. The fee adjusts to redemption volume and amount of AVAX withdrawn.
Redemptions can result in instant arbitrage profits. Withdrawing $100 worth of AVAX in exchange for 100 TSD, if bought below the $1 peg.Redeemed TSD is burned, causing circulating supply to shrink.
If TSD falls below peg, redemptions will increase. And so does the borrowing fee. These fees go to TEDDY token holders.
Keeping Price Down (with Trove Arbitrage)
What about a scenario where TSD is overpriced, how does the protocol handle this?
As we noticed, due to having a minimum collateral ratio of 110% there is a natural price ceiling of $1.1.
But, let’s say that TSD trades above $1.1. You can profit by depositing AVAX into a Trove. Borrow as much TSD as you can, then, sell your TSD for a different stable coin. You could make profit even if you’re liquidated as a consequence.
Make sure to calculate your trade before trying to arbitrage, because you must take the borrowing fee into account.
Soft peg mechanisms don’t offer arbitrage opportunities. Instead, Teddy Cash treats TSD as equal to USD.
Borrower debt is accounted for in TSD. Though, the value of AVAX held as collateral, is expressed in USD. The protocol-wide collateral ratio is defined by the value of collateral in USD divided by debt in TSD.
Taking this formula in account, parity between TSD and USD is established.
“Hard peg mechanisms”, and clear branding of TSD as a USD stablecoin, will ensure TSD always returns to $1.
Recovery mode
Let’s say: A lot of users take out loans at a low collateral ratio. The Total Collateral Ratio (TCR) will fall.Once the TCR drops below 150%, Recovery Mode is automatically activated.
Once the TCR drops below 150%, Recovery Mode is automatically activated.
Recovery mode does two important things:
1) It sets the liquidation ratio to 150%
2) The system blocks transactions that would further decrease TCR. Only actions made by borrowers and owners of active troves that improve TCR will be permitted. For example: opening new troves with a collateral ratio of >= 150%, or adjusting troves to improve collateral ratio.
While in Recovery Mode, borrowing fees are set to 0%. Encouraging users to take loans and depositing into the stability pool while also offering better arbitrage opportunities.
How does Teddy Cash handle liquidations if there isn’t enough TSD?
There is a secondary liquidation mechanism. Activated if the Stability Pool is empty.
The system redistributes debt and collateral from liquidations to existing troves, in proportion to the recipient Trove’s collateral.
Tokenomics
The $TEDDY token has the maximum supply of 82Million
Final Thought
Borrow up to 90.99% on your AVAX, interest free, with Teddy Cash, a decentralized borrowing protocol with interest-free loans and high capital efficiency.