[NRC] Onboard wrapped Solana wSOL as a collateral asset on Notional V3

[NRC] Notional Request for Comment
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Title: [NIP-42] Onboard wSOL as a Collateral Asset on Notional V3
Author(s): King Kelsier
Submission Date: 9 January 2023

Summary

The following is a proposal to onboard wSOL as a collateral currency option on Notional V3. At this point of time no big DeFI protocols like Aave or Compound provide a market for wSOL on ETH mainnet or any other L2 and adding it as a collateral asset would prove valuable for the Notional community as we would be tapping interest in a coin which is currently in the top five crypto in terms of market caapitalization

Resources

Minimum requirements for consideration checklist

Application

  1. Provide a brief overview of the proposed asset and its underlying project.

    • SOL is the native token of Solana , an L1 blockchain.
    • wSOL is a wrapped version of the token that exists on Arbitrum chain .
    • The asset can be bridged to and from multiple blockchain using Jump Trading’s Wormhole bridge

  2. How is the asset currently used (staking, collateral on other lending protocols, etc.)? Provide relevant activity KPIs.

    • The primary utility of SOL is for paying fees for executing transactions on Solana blockchain.
    • Solana being a PoS blockchain SOL is used for staking and as a collateral on other DeFI markets exclusively on Solana blockchain.
    • wSOLon Arbitrum is primarily used for trading on GMX , providing liquidity and earning fees on Dex

  3. Detail why you believe the project should be added to Notional either as a collateral asset or as a tradable asset and the potential benefits of doing so. Explain why you think the demand for this asset is sufficient to list it on Notional.

    Solana is the 4th biggest blockchain after BTC , ETH , XRP in terms of market cap. Currently no big DeFI protocol like Compound , Aave offer markets for wSOL on Ethereum or any other L2 chain. This is an untapped market which Notional protocol can capture

  4. Provide information regarding the organization behind the project.

    Solana labs is the organisation behind creating and maintaining Solana blockchain. The first block was mined on 16 March 2020.
    Solana Labs was founded in 2018 and has 175 employees at the moment…

  5. Provide information regarding past hacks or major bugs and how the team addressed them.

    Solana suffered a 7 hour long outage on May 1 , 2022 because of bots which was addressed by adding a botting penalty. Read More Here

  6. Provide an overview of the token’s market data.

    1. Market Cap: $42,957,815,410
    2. 24H Volume: $3,958,038,906
    3. DEX Liquidity (DEX Guru): $3M of liquidity on GMX

  7. wSOL Volatility

    SOL volatility is 4.2% in the past 24 hours.

  8. wSOL DEX Slippage

    Slippage for wSOL on Arbitrum for a $1M USDC swap is currently too high to be suitable as a collateral type. On Camelot DEX it is very high due to insufficient liquidity and on GMX it ranges between 3-5%. For this reason, a supply cap should be put in place to make sure liquidations are feasible. As the liquidity for SOL on Arbitrum increases, this cap can be increased / removed.

  9. Provide an overview of the token emission schedule and major holders.
    The SOL token has an initial inflation rate of 8% which decreases year on year. The estimated inflation rate is meant to be between 4-5% in the 4th(current year) since launch and will go down to 1.5% in the 11th year. Documentation

Conclusion

I would like to gauge sentiment and hear thoughts from the Notional community with regards to onboarding wSOL as a collateral type to Notional V3. Please share thoughts/questions in the comments of this forum post, and feel free to reach out to @kingkelsier on Discord with any questions.

About King Kelsier

Just a community member.

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Hey @kingkelsier very interesting proposal, and wSOL could be an interesting asset to consider onboarding as a collateral type at some point. On our side, we are concerned with two aspects of this asset at this time: 1) lack of liquidity for liquidations and 2) slippage (also as a result of lack of liquidity). It seems that a significant supply cap would need to be put in place, but we are somewhat concerned that that supply cap would need to be too strict and would significantly reduce potential benefits of adding wSOL as a collateral asset. Interested to hear your thoughts here as well as those of the greater Notional community.

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Regarding the liquidity I have confirmed with the team and they mentioned that either of the DEXs or GMX will work. GMX has decent liquidity so slippage shouldn’t be a concern. $1M swaps leads to a price impact of 3-5% and $100k has <0.8% price impact.

If we compare it with LDO which was also listed as a collateral on V3, the slippage is much better on Arbitrum. We can have similar cap as LDO for now which is $100k USD.

I am not sure of the factors that go into deciding the cap but if slippage has majority weightage and if 3-5% is an acceptable threshold then the cap can be increased to $1 mn. But the recommendation for now stays low 6 figures unless there is enough demand.

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