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Sonne Finance lists LUSD as collateral

Sonne Finance lists LUSD as collateral


February 8, 2023

LUSD’s adoption on Optimism keeps on growing. Thanks to the dense liquidity available on Velodrome, the volume requirements for a ChainLink price feed were met, enabling new use cases for LUSD on the network.

Sonne Finance, a lending market native to the Optimism network is the first protocol to harness LUSD’s Optimism ChainLink price feed to offer one of such integrations: using LUSD as a collateral on the protocol.

It means that LUSD holders are now able to borrow any asset supported on Sonne Finance, using their LUSD as collateral:

Before we dive into the parameters of LUSD as collateral on Sonne, here’s a quick primer on the money market for those who don’t know it yet.

Sonne Finance

Sonne is similar to (and based from) existing lending platforms like Compound Finance and AAVE. It enables users to lend any supported assets on their platform, and use said capital to allow users to borrow supported assets.

What quickly placed Sonne Finance on TokenBrice’s radar (our in-house DeFi strategist) is their innovative launch and liquidity management model. Sonne harnessed the Velodrome exchange in a clever way to sustain liquidity on the SONNE token, with a Liquidity Genesis Event focused on building liquidity for the SONNE/USDC pair.

It enabled Sonne to quickly build liquidity on their native token, but it doesn’t stop there! The LUSD/SONNE LP tokens obtained by the Sonne treasury are staked on Velodrome, and 80% of the VELO tokens they produce are redistributed to SONNE stakers, on top of protocol fees. To further grease the flywheel, Sonne Finance is making an efficient use of voting incentives to maximize the VELO output of the SONNE/USDC position.

LUSD on Sonne Finance

To begin with, LUSD is onboarded as a collateral on Sonne with parameters similar to Synthetix’s sUSD:

  • Collateral Factor = 60%

Up to 60% of the USD–value of the LUSD deposited as collateral can be borrowed.

  • Reserve Factor = 20%

A small portion of borrower interest accrues into the Sonne protocol, determined by the reserve factor.

  • No supply/borrow cap
  • Interest Rate Model = stablecoin interest rate curve

A flurry of integrations for LUSD to follow

The release of the ChainLink price feed for LUSD on Optimism is a decisive step, expanding the scope of possibilities for LUSD on the network.

In the wake of Sonne’s addition of LUSD as collateral, many further integrations are being worked on, such as the addition of LUSD to Aave v3 on Optimism as a borrowable asset. This integration itself will unlock another one: the addition of a LUSD vault on PoolTogether, the crypto-powered savings protocol based on Premium Bonds.