Borrowing against Staked vAMM USDC/AERO? Possible with Arcadia Finance!
But how do we value such complex and composed assets? Spoiler alert, we purposely use Reentrance! Let’s dive in!
With Arcadia Finance, we have build infrastructure and tooling to manage and collateralise active on-chain assets (read: composed tokens). More on why there is a need for this technology in the following thread:
https://x.com/ThmsSmts/status/1772592250192552043
In order to use these active assets as collateral, we must know their value on-chain, 24/7.
Unfortunately, directly using e.g. chainlink oracles for these assets is not feasible. There are already 684243 Liquidity Positions for Uniswap V3 on mainnet alone, these cannot all have their own price feed.
Uniswap V3: Positions NFT | Address 0xc36442b4a4522e871399cd717abdd847ab11fe88 | Etherscan
Instead, Arcadia relies on the composability of DeFi and uses a recursive process to break down each composed asset in its underlying assets.
Before we go into detail how this is done, a brief 101 on what composability actually is (you can skip this part if you are a DeFi OG).
Composability in DeFi refers to the ability of different financial protocols to integrate seamlessly and interact atomically with one another.
Developers can create new financial products by combining existing protocols, without needing any permissions or modifications of the underlying protocols. It is for this reason that DeFi protocols are sometimes referred to as financial lego blocks.
Take as example a lending protocol (e.g. Aave) and a Decentralised exchange (e.g. Uniswap). For both, a WETH - USDC market exists (to borrow one against the other, or to swap one into the other).
We can combine both and create a new protocol, which is composed of both underlying protocols, where users can take leveraged positions (e.g. Defi Saver).