10 sats \ 14 replies \ @k00b 3 Nov 2022 \ on: Fuji Money AMA bitcoin
Can you ELI5 how Fuji Money works under the hood?
- Alice and Fuji agree on parameters such as liquidation target, collateral, and amount to issue
- Alice decides to put $ 200 worth of Bitcoin to borrow 100 FUSD
- In the sam transaction there is the FUSD issuance and the funding of the contract
- Alice can close the contract to take back the BTC whenever she wants: she only needs to pay back the debt (ie. burning 100 FUSD in an OP_RETURN)
- If Alice fails to keep collateral value above $150, Fuji can perform liquidation burning 100 FUSD and confiscating the whole collateral.
reply
Wait a sec, why would Fuji "confiscate the whole collateral?"
Poor liquidated Alice should get $50 of bitcoin minus reasonable fees, right?
reply
Maybe the fee is 50% ?
reply
How does Fuji make money if there is no interest? Why would a user want to stake if they can't earn interest?
reply
When you borrow you pay a setup contract fee which eventually can be added on closing as well.
Also, when liquidations happen the difference between the amount of confiscated collateral and burned Fuji asset is another revenue stream.
Users can only borrow: their collateral can always be taken back and the redemption is non-interactive (ie no cooperation with Fuji is needed)
To earn interest you can eventually lend the borrowed Fuji to another party or swap for USDt and lend on HodlHodl
reply
Also, when liquidations happen the difference between the amount of confiscated collateral and burned Fuji asset is another revenue stream.
Let's get real with this for a minute: I think you are saying that Fuji makes the ENTIRE REMAINDER when you liquidate a borrower.
In your example, you make approximately $50 on Alice's $200 loan.
If I'm reading this right, and I think I am, your business and revenue models are so flawed as to bring your entire judgment set into question.
As in: nobody in their right mind would ever use such a usurious service.
reply
You can always redeem your collateral or topup before liquidation.
Liquidation can theoretically never happen in the contract lifecycle.
reply
That being said the liquidation is very important because rebalance the system. To perform timely liquidations Fuji must have capital allocated for each contract.
reply
Sorry to be such a downer on all your hard work to this point, but if you are absolutely clear with potential borrowers about this complete loss of bitcoin on liquidation, your chances of success with this product are essentially zero.
It's an enormous penalty, Outrageous, even. Again, brings into question all of your thinking on this project for you to think this would work in the real world.
reply
We already communicated that the minimum collateralization ratio will decrease over time as low as 110%.
We value your feedback, ideally we can have an alternative contractor version with compound interest and decrease the amount of confiscated collateral
The tradeoff is zero interest. I wouldn't be surprised to see some decent traction.
Sorry, naive. And I say this as somebody who has been liquidated. In a volatile market, you can go from completely safe to liquidated in just a few minutes.
reply