Cat in a box is a novel borrowing / lending protocol on Ethereum developped by some of the founders of Alchemix. In short, it allows users to deposit stETH and borrow boxETH (a synthetic ETH) with no liquidation penalties and no interest rates while enjoying a portion of their LIDO staking yields.
At NEMO, we got quickly hooked up by the very DeFi mechanics of the protocol and wanted to share the headache with our fellow degens. You’re welcome!
Hopefully, you’ll grasp the mechanics and join us on the fun. Currently, our little kitty offers very juicy and organic yields but as always please do your due diligence before aping in.
At the time of this article: 14.6% yield on stETH deposits and 6.1% APR on staked boxFEE.
Users can borrow boxETH (a synthetic ETH) against their stETH. For each borrowed boxETH, one stETH is locked.
Instead of paying interest rates on their borrowed assets, borrowers give up the yield on their stETH which are locked by debt. Example: if a user deposits 10 stETH and borrows 2 boxETH, the user will only receive LIDO staking yields on 10 - 2 = 8 unlocked stETH.
The yield from locked stETH is redistributed proportionally among all unlocked stETH. Example: if Alice borrows 2 boxETH against 10 stETH and Bob deposits 5 stETH, Alice will receive a staking yield on the 8 stETH which are unlocked and the redistributed yield of 8 x 2 / (8 + 5) = 1.23 stETH. While Bob will earn the yield of his 5 stETH plus the redistributed yield of 5 x 2 / (8 + 5) = 0.77 stETH. To put it another way, the yield of 0.77 stETH is redirected from Alice to Bob as an implicit borrowing cost for Alice and a boosted yield for Bob.
In order for borrowers to unlock the utility of their boxETH, a boxETH / ETH market is created.
Resolvers (or liquidators) can repay a portion of the debt of any vault and retrieve an equal amount of their collateral. But they also have to pay a fee proportional to the LTV (loan to value) of the vault. The higher the LTV the lower the fee.
In case boxETH trades at a discount, a potential arbitrage opens up to resolvers. They buy cheap boxETH against ETH. They spot the vault with the highest LTV and repay part of the debt in exchange of the corresponding collateral. If the LTV is high enough and the price of boxETH vs ETH is low enough, the fee to resolve the vault might be lower than the amount of ETH they get back.
Resolvers therefore make sure that the leverage of the system is healthy and maintain the peg of ETH vs boxETH.
Also “liquidations“ or “resolving” events are not incurring extra costs on the borrowers compared to a traditional borrowing / lending platform.
Finally, users can buy boxFEE or mint one boxFEE by burning one boxETH.
boxFEE holders can stake their boxFEE to benefit from the following fees:
1% of all the stETH yields (unlocked and locked)
25% of the locked stETH yields
100% of the fees paid by resolvers
Before the genesis of the system, early users could buy 1 boxFEE for 0.1 ETH in order to bootstrap liquidities for the ETH vs boxETH pair. 90% of those liquidities have now been withdrawn in the form of boxETH in order to back the supply of boxFEE. It means that boxFEE are 9% backed by boxETH at the time of the article.
Users can burn their boxFEE against a proportion of the boxETH backing. At the moment, for each boxFEE withdrawn, the user can get back 0.09 boxETH.
As users will mint new boxFEE with boxETH, the backing percentage will increase slowly toward 100%.