Abstract
This proposal outlines a strategic partnership between Folks Finance and stake.link to integrate a suite of stake.link Liquid Staking Tokens, starting with wstLINK and future LSTs like wstPOL, into the Folks Finance cross-chain lending protocol. The fundamental first step of this collaboration is enabling the Avalanche CCIP lane, a technical prerequisite for onboarding these assets. The proposal details the strategic benefits, initial risk parameters, and a concrete co-incentive structure to stimulate liquidity and adoption.
Motivation & Rationale
Introduction to Folks Finance
Folks Finance is a cross-chain Decentralized Finance (DeFi) protocol addressing liquidity fragmentation by enabling cross-chain lending markets. Utilizing Folks xChain technology, users can seamlessly deposit assets on one blockchain and borrow on another without manual bridging or asset wrapping. Currently operational across 8 chains (Algorand, Avalanche, Base, Ethereum, BNB Chain, Arbitrum, Polygon and Monad), Folks Finance provides comprehensive DeFi services including lending, trading, and liquid staking.
All cross-chain operations and liquidity routes are coordinated through Avalanche, allowing users to interact across multiple blockchains seamlessly.
Importance of Enabling Avalanche CCIP Lane
Avalanche is the core hub of Folks Finance’s architecture, so setting up a dedicated CCIP lane for each LST is key to integrating them into our protocol. Without a lane for each token, it’s not technically possible to onboard LSTs like wstLINK or wstPOL and connect them to the broader Folks Finance cross-chain ecosystem.
The CCIP lane enables the transfer of stake.link assets across different chains, expanding their utility, supporting new DeFi use cases, and improving capital efficiency for both ecosystems.
Definition - CCIP: Chainlink’s Cross-Chain Interoperability Protocol (CCIP) enables secure communication and asset transfers across different blockchain networks. It employs robust, defense-in-depth security measures, significantly reducing risks commonly associated with traditional blockchain bridges.
Specification / Proposal Details
Cross-Chain Integration:
- Implementation: Establish the initial Avalanche CCIP lane specifically for wstLINK. This process will serve as the template for enabling future lanes for other stake.link LSTs.
- Supported Tokens: Initially supporting wstLINK, subsequently expanded to other stake.link LSTs, including but not limited to wstPOL, each requiring its own CCIP lane.
Proposed Risk Parameters
Definitions:
- Optimal Utilization Rate (Uopt): Target utilization rate at which the pool’s capital efficiency and returns are optimized.
- Interest Rate Parameters (RV0, RV1, RV2, RS0, RS1, RS2): Define how interest rates adjust according to utilization rates to incentivize optimal asset use.
- Collateral Factor: Maximum borrowing limit relative to collateral deposited.
- Borrow Factor: Factor that is applied to the amount borrowed to increase (or decrease) its effective weight in the calculation of liquidation margin.(i.e., BF=110%, then $1 of borrowed value counts as $1.10 in the liquidation margin calculation)
- Liquidation Bonus: Additional incentive paid to liquidators to ensure timely liquidation.
- Liquidation Fee: Fee applied to the liquidation bonus.
- Collateral Cap: Maximum amount of collateral permitted.
- Borrow Cap: Maximum borrowing limit per asset.
The initial risk parameters for wstLINK listing, subject to ongoing review and adjustments:
Pool Parameters:
| RR | (Uopt) | (RV0) | (RV1) | (RV2) | (RS0) | (RS1) | (RS2) |
|---|---|---|---|---|---|---|---|
| 10% | 50% | 0.00% | 6.00% | 200% | 1% | 1% | 200% |
General Mode
| Collateral Factor | Borrow Factor | Liquidation Bonus | Liquidation Fee | Collateral Cap ($) | Borrow Cap ($) |
|---|---|---|---|---|---|
| 65% | 100% | 10% | 10% | 1,500,000 | 1,500,000 |
LINK Efficiency Mode
| Collateral Factor | Borrow Factor | Liquidation Bonus | Liquidation Fee | Collateral Cap ($) | Borrow Cap ($) | |
|---|---|---|---|---|---|---|
| Link | 85% | 100% | 4.0% | 10% | 0 | 1,500,000 |
| wstLINK | 85% | 100% | 4.0% | 10% | 1,500,000 | 0 |
Incentivization Structure
To catalyze initial liquidity and promote usage, we propose a co-incentive program in line with stake.link’s approved budget (SLURP-42). We suggest launching a pilot program with the following parameters:
Pilot Phase Overview
- Initial Liquidity Target: $300,000 in Total Value Locked (TVL)
- Duration: 1–2 months
- Incentives from stake.link: Estimated 3–5% APY in SDL tokens
- Matched Incentives from Folks Finance: 3–5% APY in AVAX tokens and via the Folks Points system
Points Distribution:
Folks Points are distributed to users for on-chain actions, including:
- Deposits (both simple and collateral)
- Borrowing
- Repaying interests
Milestone-Based Expansion Plan
Upon reaching key milestones, the program will be reviewed and updated. At each milestone, we propose to:
- Assess protocol performance and usage metrics
- Adjust or extend incentive structures as needed
- Define new targets to maintain positive growth momentum
Strategic Benefits
- Enhanced Token Utility: Increased use cases for LSTs (wstLINK, wstPOL), improving capital efficiency.
- Yield Opportunities: Additional passive yield streams from Folks Finance lending and staking opportunities.
- Capital Efficiency (Looping): A leveraged strategy involving repeated cycles of depositing collateral (such as wstLINK), borrowing against it, minting additional liquid staking tokens, and redepositing them to maximize yields from both staking and lending. This strategy increases the total amount of tokens staked, thereby enhancing the security and participation within the staking network. Leveraged strategies enabling users to amplify yields and simultaneously secure greater LINK network participation.
Next Steps / Call to Action
We invite the stake.link community to:
- Discuss and provide detailed feedback on this proposal.
If the response is positive, we will collaborate with the stake.link and Chainlink teams for the technical implementation of the CCIP lane on Avalanche.
We are convinced that this integration represents a fundamental strategic step for both protocols, creating significant value and strengthening interoperability and composability.