Summary
Overview of the Eggs Finance Ecosystem
The Eggs Finance ecosystem consists of multiple tokens that enable strategies involving borrowing, looping, yield and arbitrage.
Up Only Mechanics
All tokens in the ecosystem are backed by an underlying token, held in smart contracts, which provide intrinsic value to the ecosystem tokens. Ecosystem tokens can always be redeemed on the app by burning them to receive the underlying token. Fees applied to minting and redemption are added to the backing, ensuring that the ratio of underlying tokens to ecosystem tokens can only increase.
Minting: fees ensure that backing increases at a greater rate than supply
Redemption: fees ensure that supply is burned at a greater rate than backing is removed
Loans
Ecosystem tokens can be used as collateral to borrow the underlying token from the backing. Loans have a 99% loan-to-value ratio, meaning 99% of the collateral value can be borrowed. Loans are time-based from 0 to 365 days. Liquidation occurs if a loan is not repaid or extended by the expiration date. Price fluctuations do not create liquidation risk because loans are based on token quantity rather than dollar value. Upon liquidation, the collateral tokens are burned. Loan interest is collected up-front, upon initiation of a loan, and added to the ecosystem token's backing. The combination of burning collateral and adding interest to backing further supports the up only mechanics described above.
Leverage (Looping)
Loans can be 'looped' to create leverage positions on ecosystem tokens. This process involves using the ecosystem token to borrow the underlying token, using those funds to acquire more ecosystem tokens, and repeating this process. For tokens that have finite supply and can no longer be minted (EGGS), this process must be done manually. For infinite supply tokens (NEST, YOLK), looping can be done automatically, through a UI on the dApp, since new tokens can be minted to build the position.
Liquidity Incentives
A portion of protocol revenue (fees and interest) is allocated to a treasury that is used for incentivizing liquidity on decentralized exchanges and other markets that utilize Eggs Finance ecosystem tokens. Incentivizing deep liquidity provision aims to boost yield, drive demand, and enable healthier trading conditions.
Arbitrage
The nature of Eggs Finance ecosystem tokens may result in price discrepancies between markets. On one hand there is the intrinsic value of tokens, where price is derived from the total backing within the protocol's smart contracts. On the other hand there are outside markets, such as decentralized exchanges, in which tokens trade independently of the protocol and its mechanics. This may result in a price discrepancy where one token trades at a different value in one market than it does in another market. When this happens, it is possible to realize a profit, or arbitrage, by acquiring a token in one market and selling it in the other. The following are examples of potential arbitrage situations:
If a token's DEX price exceeds its minting price, then profit can be realized by minting via the protocol and selling on the DEX.
If a token's redemption price exceeds its DEX price, then profit can be realized by buying on the DEX and redeeming via the protocol.
Available Assets
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