Liquity V2 Rate Managers: ICP-Based vs Summerstone
This article outlines how ICP-based managers differ from Summerstone's approach.
Liquity V2 introduced a novel model: immutable contracts, non-custodial borrowing, and BOLD, the USD-pegged stablecoin that accrues protocol-native yield. Central to Liquity V2 is user choice: borrowers are able to set and manage their interest rate bands or delegate to managers.
The Role of a Rate Manager
Why does rate management matter? In Liquity V2 the interest rate attached to every borrowing position is the variable that decides its place in the redemption queue. Too low and a user's collateral is first in line when BOLD trades below $1; too high and carry extra costs on a user's position.
To manage their rates users have to be in tune with market movements or build custom tools to monitor their positions. By delegating interest rate management to a batch manager, any borrower can reduce the operational burden while optimizing between rates applied, costs derived from modifying rates and the chance of their position being redeemed.
As a built-in feature of Liquity V2 any batch manager cannot withdraw collateral, borrow additional BOLD or make any changes to the borrowing position they manage. Batch managers can only introduce changes to interest rates.
Batch managers can inform and architect their rate management in different ways. To help Liquity V2 borrowers decide which rate management solution fits their needs, this article compares two delegation approaches:
- Internet Computer Protocol (ICP) based batch managers, where rate management is handled via autonomous canister smart contracts.
- Batch management powered by Summerstone, using offchain infrastructure to continuously monitor and enable adjustments based on protocol conditions.
ICP-based Interest Rate Managers
The Internet Computer Protocol is a public blockchain that serves as a compute platform. Batch manager modules can be built on ICP through canister smart contracts and act autonomously on behalf of Liquity borrowers.
To operate cross-chain, ICP-based managers use Chain Fusion, which enables them to read data from Ethereum and monitor positions. Every hour, the canister reads Ethereum state and evaluates the debt in front of its batch. If its internal conditions for an update are met and a majority of ICP nodes approve, it can adjust the rates of the managed positions.
As with other batch managers, ICP-based managers make a single update transaction for all troves in a batch to minimize gas costs and charge users a management fee. To cover ICP fees, part of the management fee is converted into cycles, which function as the module's operational budget. Cycles power ongoing execution and must be regularly replenished.
The result is a fault-tolerant system that provides automated interest rate updates. However, this comes with its own additional tradeoffs: rate changes respond to measures checked on an hourly monitoring cadence, and all logic is constrained by ICP’s smart contract architecture.
Summerstone: Real time monitoring, for real time needs.
As long term players in the Liquity ecosystem, the Summerstone team created a new solution that helps borrowers manage their Liquity V2 loans interest rates automatically and optimally.
So where does Summerstone differ?
While ICP-based managers optimize for a hands off approach, it can set a users’ position with an overly safe rate in order to avoid redemption. Summerstone designs rates with a sharper target in mind. The solver keeps just enough debt ahead of user’s position to avoid redemption while maintaining the rate as low as market conditions allow.
Summerstone's rate adjustments are informed based on collateral type, are responsive to market conditions, and real-time protocol metrics. Including redemption risk, debt positions, network gas conditions, market price fluctuations and relevant Liquity V2 events. Once a user's borrowing position is delegated, Summerstone's offchain systems continuously monitor data and the solvers adjust users' rate band when conditions call for it. This allows for finer grained updates without the constraints of ICP's timer functionality.
Summerstone’s fee structure avoids ICP overhead like cycle management, keeping the fee structure straightforward and cost-predictable for users.
| Feature | ICP-based | Summerstone |
|---|---|---|
| Monitoring | Hourly | Real-time |
| Fee Structure | Fee structure can vary, with per adjustment fees or on the amount loaned | Fixed — 0.3% |
| Dependency | Threshold ECDSA, Chain Fusion ICP cycle upkeep Cross-chain execution | Ethereum-native Off-chain systems |
Interest rates might spike unexpectedly, and that's where real time adjustments come handy. Redemption waves, BOLD price fluctuations, preemptive or conflicting rate adjustments, and shifting market conditions might cause rates to suddenly change.
Where ICP strategies are predetermined, Summerstone's architecture facilitates the flexibility and adaptability to rapidly respond to market changes, optimizing for lower rates and avoiding redemptions.
Real time responsive, for real time needs.
For setup guides and documentation, head to the Summerstone Docs.
To start using Summerstone's rate manager, visit Liquity.app.
To get in touch, reach out to us at [email protected].