# Astaria

Astaria is an isolated lending market that utilizes synthetic assets as an intermediary to increase liquidity in the lending market.

For example a user can take a loan against a synthetic asset that is then swapped for the actual backing asset. This strategy increases the capital efficiency of the lending protocol by not requiring each asset that is lent to be present in the protocol.

In the initial version Astaria will be designed as a permissioned protocol. While a v2 is designed with the goal of making the entire lending market permissionless.

### Design

**Below is a diagram of how the protocol operates:**


#### *ETH
*ETH is a synthetic of ETH that is used for debt accounting. The validity of the peg is backed by liquidity providers who will take concentrated liquidity positions to allow the user to easily exit the synthetic asset for the actual asset.

#### Borrower
In the following diagram the borrower collateralizes a position using USDC. That collateral position is then used to borrow *ETH. The borrower can then take their synthetic position *ETH and swap for ETH in the concentrated liquidity pool.

#### Lending Pool
The lending pool will be an isolated lending pool comprised of a real collateral token and a synthetic token. The amount of synthetics made available for any particular pool will be determined on heuristics of the underlying collateral (depth of liquidity and volatility).

#### Concentrated Liquidity Pool
This pool is a concentrated liquidity automated market maker (AMM) pool. This pool is used for backstopping the peg and allowing for borrowers to exit their synthetic position.

#### Staking Rewards
Staking rewards will be LP tokens for concentrated liquidity positions. Each loan will have additional interest accounted in the synthetic asset, this additional interest will go to stakers for backstopping the peg.

#### Capital efficiency
Currently we are working on a simulation to bear out the design. However, our current estimate for enabling the same amount of lending is as other lending protocols with 10-20% of the same capital requirements.

The way that this is possible is that the swap pool that is backstopping the value of the virtual assets only needs to be sufficient to respond to demand in either direction of trade (borrow and repayment). Since the trades will flow in both direction the capital necessary will be reduced to achieve maximum borrow with minimal slippage.

Meanwhile, the collateral being utilized for yield bearing strategies is 5x the value in the swap pool. 5x the yield bearing strategies in terms of incentives, and 5x the interest rate on the virtual assets when compared to actual underlying assets.

#### Interest rates
While we initially envisioned a 0% interest rate, based on design feedback we will add an interest rate mechanism for borrowers. This will be used to incentivize new borrows as well as repayment to bring the swap pool into balance.

The interest rate will be a PID control loop as a product of outstanding borrows when compared to the depth of liquidity in the swap pool.

Additionally we would like to simulate punitive price impacts on a basis of implied volatility for the swap pool. This design is still under review and will be resolved with simulation.

Calculation of PID values and implied volatility as a factor may be gas inefficient so it may need an offline oracle to perform the calculation. (No decision on implementation made)

#### Liquidations
Liquidations in the system will be flat fee liquidations. The liquidation keeper calls a liquidation method that will route the sale of the collateral through an AMM (undecided where and how to configure routing). The remainder after the liquidation is split between the liquidator, the swap pool LPS, and the protocol. Those values for how the split will occur is configurable and will be established initially using our simulation.

#### Simulation
As a team with an established background in defi and research we think that simulation is key to the success of the platform. We will begin our research with an initial implementation of the entire protocol in a Python simulation. This will give us the opportunity to evaluate the protocol before moving to make an implementation. Implementations of defi protocols have different considerations than economic namely gas and security. To design the optimum system we must first understand the generic properties of the system before layering on security and gas concerns.

### Why create Astaria?
Astaria allows users to borrow assets with deep liquidity giving them exposure to assets at ideal interest rates. Liquidity providers backstop the asset peg because it gives them swap fees with the additional synthetic rewards. The model for Astaria is a compromise between capital efficiency and collateral diversity.

Isolated lending is inherently capital inefficient, by lending a synthetic asset as an intermediary the lending side of the market becomes more capital efficient. Typical isolated lending markets require huge amounts of capital for each pool, in this way we make available the same capital to each pool and simply backstop the redemption of the synthetic.