ARCH: The Power of DeFi’s Leverage Utility Token
TL;DR: ARCH is a utility token needed to take leverage on the Archimedes marketplace. It is also planned to be the governance token of the protocol.
G(r)eeks, are you ready to learn about Archimedes and the utility of the ARCH token?
There is a lot of technical language that our devs typically like to use when explaining Archimedes, and how it is able to leverage some of your favorite DeFi stablecoin assets. However, it can be a lot. Lucky for you, I’m multilingual and can speak in dev, DeFi native, and a little normie.
For those making their way down the Archimedes rabbit hole for the first time: Welcome! During this read, I’ll break things down in a format that should be understandable to anyone that’s been participating in DeFi these last few years.
So, what is Archimedes?
Spoken in plain DeFi, Archimedes is an innovative lending and borrowing marketplace offering up to 10x leverage on overcollateralized stablecoins. The goal of Archimedes is to promote capital efficiency and help DeFi scale by creating a baseline of high quality leverage opportunities.
But ser, I still don’t understand what Archimedes does.
Fear not, it’s darkest before dawn! For DeFi participants of this last bull market and that wonderful time we now refer to as DeFi summer, think of it this way: Archimedes is like AAVE, but without the need of doing manual looping strategies to maximize your potential APY. I mean, who does their own looping for leverage anyway? Instead, Archimedes’ leverage engine only accepts high quality yield-bearing stablecoins, and will do all the work of leveraging your assets for you.
Still hard to follow? Let’s try it in normie. Imagine if you could leverage AAA bonds in DeFi with Archimedes. If these bonds generate ~6%, with Archimedes leverage you would get up to 10x on the 6%, so up to 60% yield. Now, the difference is that the 6% is coming from our yield-bearing stablecoins partners and not from AAA Bonds from Traditional Finance.
So, now your assets are leveraged, but what happens next? Then, the leverage position is packaged as an NFT and sent to your wallet. That’s right, finally some utility for NFTs other than gaming and animal PFPs. The NFT you are sent represents your newly created position, and is needed to close that position and claim the collateral.
Now, focus. You’ve got down the basics, but let’s be honest, you’ve always wanted more from life. Do it. Visualize the whale you wish to be. That’s it! You’re doing it, anon! You’re doing your own research!
Ready to continue? Next, we’ll break down the core features of Archimedes, and how the ARCH token fits into the equation.
Archimedes is a two sided marketplace:
- LPs (lenders). These are users that choose to supply their own assets for a more passive, low risk APY.
- Leverage Takers (borrowers). These are typically more optimistic investors that are looking to maximize the APY of their assets.
In both cases, Archimedes provides users with a “set it and forget it” type of APY option.
At Archimedes, leverage takers are provided access to up to 10x leverage on yield-bearing stablecoins that our core team and community have rigorously vetted. This means that Archimedes only works with the best of the best. Meaning: battle-tested, stable, overcollateralized, censorship resistant, yield generating DeFi assets.
Here is where the ARCH token’s utility comes into play.
In order to gain access to Archimedes’ available leverage on yield-bearing assets, borrowers must purchase their leverage allocation using ARCH tokens. That’s right, ARCH is a must-have for leverage takers using Archimedes. There’s no way around it, if you want access to what leverage is available, you’ll be paying for that in ARCH tokens. This payment of ARCH tokens is of course, aside from simply depositing your collateral, which is not a payment, those are your assets. Think of it like this, your collateral can not be leveraged unless you also pay some amount of ARCH tokens.
Users can buy $ARCH from the Archimedes ARCH/ETH pool on Uniswap.
Other than buying ARCH from the market on Uniswap, users also have the option of “farming” ARCH by supplying liquidity to the Archimedes lvUSD/3CRV pool on Curve.
Here’s an example of how ARCH works and what gives it value. In a scenario where 1 ARCH is equivalent to $100 of leverage, a user might need less ARCH to meet the demand of their desired position. On the contrary, if 1 ARCH is currently only equivalent to $20 of leverage, the same user seeking the same position size might need more ARCH to meet the demand of their desired position.
The breakdown of how much leverage (shown as lvUSD) 1 ARCH is currently equal to will be displayed in the Archimedes “Open Position” dashboard at all times.
Behind the scenes a reduction in the cost of ARCH to lvUSD (or purchasing power of ARCH to leverage) is being conducted by a dutch auction system.
But ser what’s a dutch auction?
In short, it’s how we determine the price of leverage. Remember, leverage is paid for using ARCH and leverage is scarce.The auction starts at a higher price of ARCH to leverage, so less lvUSD leverage for more ARCH, and drops lower with each round of bidding. Due to the nature of such an auction, all available leverage could be bid for in the first price iteration, or participants could choose to wait it out, in an attempt to get a more favorable ratio of ARCH to lvUSD leverage. The goal is to set a fair market price for all participants, and the trick is to not miss out on the available leverage because you thought you might be able to get it at a more favorable ratio by waiting. Since leverage is scarce, if a user waits too long, others might bid up all of the leverage in earlier iterations.
Every time there is a new auction, we start with a pre-set purchasing power for leverage, measured as how many X lvUSD (or OUSD) 1 ARCH can buy. The initial ARCH Purchasing Power (A.P.P.) X will then periodically increase at a fixed rate r, until it reaches a top purchasing power or leverage is fully taken, whichever happens first. The formula can be summarized as:
A.P.P.(t) =X+r*t , with:
- X being the initial A.P.P., measured in lvUSD
- r being the rate in which purchasing power increases (or price of leverage decreases)
- t being the time interval after which A.P.P. increases, measured in hours
We will release specific information on each auction days prior to starting it, so users can prepare accordingly.
In this description you may have noticed that I’ve never mentioned the actual cost of the ARCH token itself (i.e. 1 ARCH cost $2.00 USD for example), but rather how much leverage 1 ARCH token will grant a user access to. The cost of 1 ARCH token in USD, similar to its cost in ETH, will vary depending on the market.
In the future Archimedes also plans to use ARCH as a governance token for voting on proposals regarding the protocol and transition into a DAO.
Ser, what about the token supply and emission rate?
ARCH is a 100,000,000 max supply token, and it utilizes a dynamic emission rate, which we’ll break down for you in our next Medium post. If you’re looking for more information on the ARCH token and Archimedes tokenomics be sure to follow us.
The ARCH token is not currently released, so do not fall for scams. We will release the token address in our docs once we launch, so stay tuned!
Archimedes is an experimental protocol and carries significant risks: Smart contract risk, economic model risk, risk that the assets Archimedes introduces and many other types of known and unknown risks. Archimedes’ team never provides investment advice. This article is NOT financial advice. DYOR. Participate at your own risk.