Convexity enables users to create fixed rate deposits and stable rate borrowing. Rather than creating an entirely new fixed rate money market, Convexity adds a tokenized interest rate derivative to floating rate money market positions such as Compound or AAVE to create a fixed or stable rate exposure. The leverage inherent in the interest rate derivative enables a much larger amount of stable rate borrow or fixed rate deposit demand to be satisfied with a smaller capital pool.
There are two main modules within Convexity. They are ProxyWalletClone.sol and FutureToken.sol.
The ProxyWallet is the user's gateway to interacting with Convexity. It contains a contract factory that will create a new proxy wallet for each user in a deterministic manner that is owned by the user. Only the user will be able to withdraw from their proxy wallet.
For a fixed rate deposit, users will deposit funds to the proxy wallet and the proxy wallet will in turn supply to Compound and buy a Short cToken Future Token (SFT).
The FutureToken.sol contains the logic for creating new expiries and minting long and short future tokens.
Convexity leverages Compound's cToken exchange rate mechanism to create fixed rate deposits and stable rate borrowing. When a user supplies assets they mint cTokens. The user is exposed to the exchange rate risk between the cToken and the asset they had supplied. The amount of underlying asset the user receives at redeem will be determined by the exchange rate at that time. Since the cToken exchange rate is a function of the supply rates in a given Compound market (barring any fatal bug or hack), the user is thus exposed to the fluctuations of the interest rate. In order to hedge this, the user can sell their cTokens forward at a fixed price and a fixed value date/time. This guarantees the user a fixed rate deposit.
The difference between a forward and a future is in its standardization. By standardizing the expiry dates, Convexity creates a market for cToken futures. Our current implementation uses the Uniswap AMM infrastructure to provide liquidity in these instruments. In order to do so, we have tokensized the long and short future positions, which is discussed in more detail below.
The getOrCreateExpiryClassLongShort method creates 3 smart contracts:
- The FutureClass
- LongFuture token (LFT)
- ShortFuture token (SFT)
For the Hackathon, a script is used to invoke getOrCreateExpiryClassLongShort and to provide liquidity to uniswap pair pools.
The Long and short future tokens names follow the convention:
CVX/ underlyingAsset / expiryInHexadecimal / L for Long, S for Short
The CVX stands for Convexity. For example a cUSDC Long and short Future token that expires on block 12,746,752 will have the names
- CVX/cUSDC/0x00c28000/L for long
- CVX/cUSDC/0x00c28000/S for short
Expiries are currently limited to multiples of 4,096 blocks in block height. I.e. if the current block height is 12,744,514, the next possible expiry is 12,746,752.
When a user deposits USDC, that user's proxywallet contract will supply funds to Compound, minting cUSDC, and then using a portion of the cUSDC, will buy short future tokens (e.g. CVX/cUSDC/0x00c28000/S) from the uniswap amm pair that contains the short future tokens and cUSDC tokens.
This uses brownie. If you don't have brownie installed follow documentation here.
Once brownie is installed, you will need to make at least 2 changes for this project.
- Change the config file
~/.brownie/network-config.yamlto include your API key here by changing$WEB3_INFURA_PROJECT_ID.
networks:
- name: Mainnet (Infura)
chainid: 1
id: mainnet
host: https://mainnet.infura.io/v3/$WEB3_INFURA_PROJECT_ID
explorer: https://api.etherscan.io/api
If you have an Alchemy API, you can update it to
networks:
- name: Mainnet (Alchemy)
chainid: 1
id: mainnet
host: https://eth-mainnet.alchemyapi.io/v2/$YOUR_API_KEY
explorer: https://api.etherscan.io/api
- Make sure the forked chain is running with a
chain_idthat is not 1. Thehelper.pyscript that deploys theProxyWalletandFutureTokencheck that we accidentally do not deploy on mainnet. If you have not done so, include the line
chain_id : 1337
under cmd_settings for Ganache-CLI (Mainnet fork).
There are helper scripts to load the mainnet contracts to make it easier for development. You can call these scripts when you are launching a brownie development fork instance.
$ brownie run --interactive --network mainnet-fork helper
This creates a local fork of the mainnet and also runs the helper.py script that does the following:
- Deploy
ProxyWalletand instantiate a contract objectPW - Deploy
FutureTokenand instantiate a contract objectFUT - Create contract object dictionary
CONTRACTS - Creates several contract objects such as
WETH, USDC, CUSDC, UNISWAP.
The UNISWAP contract object will reference the uniswap-v2-router contract.
Creating new contract objects within the brownie console are now easier. For example, creating a contract object to interact with cDAI can be done as the following:
>>>CDAI = CONTRACTS['compound-cdai']
The deployed address of the contracts in brownie version 1.14.6 is stored under /client/src/artifacts/deployments/map.json
To create a clone, you can create a ProxyWallet contract object for the address returned by getOrCreateClone
>>> p0 = ProxyWallet.at(p.getOrCreateClone({'from':a[0]}).return_value)
p0.isClone() should return true (whereas PW.isClone() should return false)
Within brownie you can also pull existing contracts like so by using the Compound Comptroller contract address0x3d9819210A31b4961b30EF54bE2aeD79B9c9Cd3B from etherscan api. This scrapes the abi and exposes the methods of the Contract objects, making them easier to interact with in CLI.
>>>comp = Contract.from_explorer('0x3d9819210A31b4961b30EF54bE2aeD79B9c9Cd3B')