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How to use the Liquity Fuse Pool on Rari Capital

How to use the Liquity Fuse Pool on Rari Capital

Derrick Nguyen

October 27, 2021

In this post, I’ll provide a step-by-step guide on how to use LUSD on Rari Capital.

Quick Disclaimer: This tutorial is not a recommendation and interacting with DeFi protocols can be risky. Please do your own research and use your best judgement.

What is Rari Capital? 

Rari Capital is a combination of decentralized finance products consisting of creating and delivering yield. These products are governed by the DAO through their native token, RGT. So far, four products have been introduced to the Rari ecosystem: Fuse, Yield Aggregator, Tranches, and Pool 2. In this tutorial, I’ll be covering Fuse. 

What is Fuse? 

Fuse is similar to Aave and Compound in that it centers around lending and borrowing pools where users can supply assets to earn interest as other users borrow those assets.

In Aave and Compound, all assets are combined into one money market and managed through governance — Fuse takes a different approach by introducing permissionless pools. This allows anyone to create their own isolated money markets. As a result of being isolated, the pool creator can select any assets, oracle, interest rate model, etc. 

Just recently, a Liquity Fuse Pool went live containing LUSD, FEI, FRAX, DAI, and USDC. At the time of writing, users can supply and borrow against these assets with a maximum loan-to-value (LTV) ratio of 75%. Since Fuse Pools are highly customizable, the Liquity community will be able to discuss and vote on future changes such as adding new assets and changing pool parameters through the Rari Capital DAO. 

Now that you’re familiar with Rari Capital and Fuse pools, let’s dive into the tutorial 👇

Obtaining LUSD

Unlike providing liquidity which in most cases requires users to supply multiple assets in pairs, you’ll only need one of the assets that the pool contains to participate. For this tutorial, we’ll focus on utilizing LUSD. 

To obtain LUSD, you can borrow LUSD against ETH as collateral (guide on this here) or you can buy LUSD on decentralized exchanges.

Note: If you wish to keep your current ETH exposure, using Liquity to open a Trove may be the optimal choice. 

Head to Rari Capital’s Website

Here, you’ll be able to find Rari’s documentation, governance forums, community resources, and more. Feel free to look around, but click “Get Started” and then “Rari Capital” to land on the main dashboard. 

The Fuse UI

Once you’re on the main dashboard, you’ll have access to all of Rari Capital’s products and some neat statistics. To access the Fuse UI, click “Fuse” in the top-tab.

This is where you can visualize the power of permissionless pools! As of now, there’s over 30 verified Fuse pools with their own unique assets and parameters. Although most of the stats displayed are self-explanatory, I do recommend reading their documentation on how Rari Capital comes up with the Risk Score

Note: The Risk Score on the Liquity Fuse Pool is currently graded at an F, this is mostly due to the supplied amount and utilization % being low.

Understanding Pool Info

Before you access the Liquity Fuse Pool and supply assets, I want to cover where you can find a more in-depth overview of each pool. To find this info, you’ll need to click on any pool and then navigate to “Pool #x Info” as displayed below. For this example, I’ll be using Olympus Pool Party since the Liquity Fuse Pool currently has no lenders and borrowers (hopefully this tutorial changes that!). 

Once you’re on the info tab, you can find various stats such as total supplied, total borrowed, and available liquidity. While those are straightforward, I’ll cover the ones that may be more ambiguous: 

  • Pool Utilization: This represents what percentage of the supplied assets have been borrowed.
  • Platform Fee: This represents the percentage of all fees accrued that is distributed to the Rari Capital Community Owned Treasury. As a standard, this will be 10%. 
  • Admin Fee: This represents the additional fee that the pool creator can earn. In most cases, this is 0
  • Liquidation Incentive: This represents the percentage of a position’s collateral given to liquidators as an incentive.
  • Whitelist: Fuse pool creators can choose for a pool to be permissioned for select Ethereum addresses if they choose. This does not apply to the Liquity Fuse Pool. 
  • Close Factor (Definition from Rari’s Documentation): The percent, ranging from 0% to 100%, of a liquidatable account's borrow that can be repaid in a single liquidate transaction. If a user has multiple borrowed assets, the closeFactor applies to any single borrowed asset, not the aggregated value of a user’s outstanding borrowing.
  • Collateral Factor: This represents the LTV ratio for each asset. For example, if you supply an asset with a 85% collateral factor, you’ll be able to borrow another asset up to 85% of the $ amount of your supplied assets.
  • Reserve Factor: This represents the percentage of interest paid by borrowers that is transferred into the pool’s reserve
  • Pool Admin: This represents the owner of the pool. This can be a singular Ethereum address, a multi-sig, DAO contract, etc. 

Lending & Borrowing using the Liquity Fuse Pool

Now that you can break down each pool and the underlying parameters, we’ll need to find the Liquity Fuse Pool and supply some assets. To do this, you can either scroll down or click here.

The next steps should be effortless: 

  1. Click the tab under “Collateral” for the asset you chose, input the desired amount of collateral, and confirm the transactions
  2. Now, you’ll be able to borrow assets on the right-side of the UI. The process is the same as above. 

A few things to keep in mind: 

  • Although the APYs are currently 0, both supply and borrow APYs will fluctuate as more people use the pool. 
  • Lenders will receive a fToken that represents your share in the pool. This will be used to redeem your supplied collateral after you pay back your debt (unless you are only lending).
  • Borrowing against collateral can be risky (i.e. your position can get liquidated). 
  • If you’re among the first to lend assets, you might not earn interest until the pool is bootstrapped with enough liquidity for others to borrow. On the other hand, it’s also likely that you’ll earn a higher share of the interest by being an early supplier and owning a larger percentage of the pool.

What's next? 

And that’s it! This tutorial should cover everything you need to know to get started with the Liquity Fuse Pool. To learn more, here’s some of Rari Capital’s resources: 

Liquity Resources:

Website | Twitter | Discord | Telegram | Github | Reddit | LiquityCN