Illuvium Report

Overview

Atlantis is a decentralised money market protocol built on the Binance Smart Chain blockchain. It provides an automated environment where parameters are controlled by governance proposal and the yield curves, with no centralised control from the team. It is newly launched in October 2021, founded by MikeM (creator of Venus Finance).

3 Key Highlights

  1. Users can supply collateral to earn as supplier or borrow other digital assets in the protocol
  2. Simple and clean concept, focusing on a few products
  3. Anyone with a wallet can be a liquidator and earn incentives to help stabilise the protocol

Value-add

Why is ecosystem valuable?

    • Removes obstacles experienced in other lending platforms and blockchain (Congestion, high transaction fee). E.g. Binance transaction fee is only a fraction of Ethereum, while being 4.3x faster.
    • Simple and clean concept with integrated multi-chain support. Providing a seamless and clean experience to users while utilising different chains. Potentially attracting more people to BSC ecosystem and community.
    • Atlantis has a built-in support for ethereum based side-chains, which can be integrated into other blockchains. One side chain Atlantis will be integrating onto will be Polygon, independent from the Atlantis main-chain and have its own governance token (ATLX), having the same supply and usage as ATL.
    • Allowing users to perform as liquidators also helps further stabilise the economy, as users could potentially create bots to earn from being a liquidator. Bots can be used to consistently track potential accounts close to liquidation and automatically liquidate accounts when there is an insufficient collateral ratio.

Objectives

Objective 1: Atlantis aims to deliver a “simple and professional DeFi experience across all popular blockchains”

Objective 2: Resolve the pain points commonly encountered in some blockchains, such as Ethereum, in terms of its congestion and high transaction fee

 

Systematic Risks & Constraints

  • Binance Smart Chain is heavily centralised opposed to other blockchains, causing it to be vulnerable to manipulation and hacks (BSC has 21 active validators)
  • There is a large amount of unoptimised capital in Atlantic (Supplied amount is twice of borrowed amount)

Potential Solution

  • Building Atlantis on different protocols will reduce the reliance on BSC alone
  • Offer more incentives for more users to borrow

Token High-Level Summary

Token Summary

$ATL is a native token of the Atlantis ecosystem.

Ecosystem

  • Supply & Borrow market – Binance, Bitcoin, Ethereum, ADA, CAKE, DOT etc.
  • Axie Infinity – AXS as collateral in Atlantis Loans Market (For staking or game play)
  • Movr Network – Improve multi-chain UI through integratign API
  • ACryptoS – Yield optimiser partnership through vaults on ACryptoS platform

Atlantis in DeFi (Products)

  • 2 Vaults – Liquidity Provider vault & ATL Vault
    • creates more utility for ATL, giving users more options to stake and earn ATL

  • Borrow and Supply Markets

Market Design

Design of the environment in which the tokens and users exist in

1. Thickness of Market

  • Market Size
    • Gained over $500M in deposits in 1 week after launch
    • As of 14 Dec 2021, there are 1221 suppliers and 508 borrowers in Atlantic. Amounting to $71,292,061 in Total Value Locked (inclusive of $1.87 mil in staking).
      • Circulating supply report based on Atlantis website is 229,441 ATL, with a value of $11.47 each. Amounting to $2,631,688.27 in Market Capital.
    • With the recent partnership with Movr and given that Atlantis already utilises a multi-chain support, it bridges the funds across different blockchains within the app. Offering a more seamless experience for users, therefore attracting a larger market of users.

      Source: defillama , coinmarketcap

2. Reduce Congestion

  • Building on Binance Smart Chain reduces the pain-point of congestion found in other blockchains. Improving efficiency and speed of transaction which reduces congestion.
  • Users can trade assets on the exchange as long as there are sufficient liquidity. Currently, there is almost 2 times in surplus for Supply amount over Borrowed amount, providing sufficient liquidity to users to borrow.
  • Telegram Bot: Free bot bringing real-time notifications to users. Features include; borrow limit exceed or at any time, current oracle prices.
  • Although Atlantis user interface is generally easy to use. However, there is not much documentation to educate users on the Atlantic’s platform and how to perform each tasks. Apart from several Medium posts and sponsored tutorial videos on Youtube.

3. Safety

Atlantis Smart Contract is audited by a blockchain security company called PeckShield. Several vulnerabilities (majority low-severity) has been identified during the audit and Atlantis has been prompt in resolving the issues.

4. Ease of Use

Atlantis has a simple and clean dashboard which is easy to use for beginners. The website has only 5 tabs (Lending, Dashboard, Bridge, Vote, Liquidator).

First page consists of key information (e.g. Available balance and Credit for loan):

Lending page: Staking, Supply and Borrowing options are also found on the Lending page, where users can easily supply or withdraw assets.

Dashboard page: Summarises the economy of Atlantis as well as the user’s account summary.

Liquidator: Liquidators can easily view a list of accounts with respective health in terms of collateral ratio and liquidate this accounts by simply picking on them.

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Mechanism Design

Rules of the game that people have to follow

Governance

1. Decision Making

ATL Token holders can vote and create proposals to improve the Atlantis protocol through the governance module established with a Timelock mechanism.

Delegates or users with 65,000 ATL (approx. $750,000) to create a proposal

Types of proposals include protocol improvement, adjusting variable or fixed interest rate, adding new cryptocurrencies or stablecoins to the protocol

2. Implementation

When proposal is passed in governance, implementation of proposals will be done by the Atlantis team.

3. Resolution mechanisms

  • Atlantis utilises the interest rate model to sustain liquidity. When there is extreme demand of an asset, liquidity of protocol will decline causing interest rates to decline. This encourages users to supply and disincentivize users to borrow.
  • Reserves are maintained to ensure sufficient liquidity. In the event of insufficient supply or disequilibrium, reserves can be used to buyback tokens and redistribute the tokens to the ecosystem to sustain equilibrium.
  • Timelock – to developers and project owners are not able to make quick changes to token and contracts. This protects users who do not agree with certain proposals, to have sufficient time to withdraw their liquidity

Market Structure

1. Bargaining Protocol/Pricing Model

    • Illuvials of higher rarity require rarer and stronger shards in order to capture them
    • supply of each Illuvial available decreases as more are caught, but new series of Illuvials will gradually be released
    • Players can pay for certain in game activities like fast traveling or quickly healing Illuvials with ETH or sILV

2. Community information

  • the game is community driven, with any member able to make a proposal for the community-elected council to vote on

3. Idiosyncratic Risks

  • Getting good staking rewards requires locking up ILV for an extended period of time, which prevents the user from selling if the game out look or market conditions changed drastically

Incentives

1. Voting Protocol

    • ILV holders vote in members every 90 days to be a part of the 5 person Illuvinati Council
    • Voting is weighted quadratically to reduce the voting power of large ILV holders
    • When council members vote, decisions need a supermajority to pass, which is ((N+1)/2) where N=the number of council members
    • Meta-governance changes to the council will need to be decided by unanimous council vote

2. Allocation mechanism

    • 100% of in-game revenue is used to buy back ILV and distribute to ILV stakers
    • Stakers can choose a flexible withdrawal time with no multiplier rewards, or up to a 12 month lockup with a linear reward multiplier with a maximum of 2x
    • Stakers can claim rewards at any time, either ILV with a 12 month lockup starting when they claim or sILV which can be claimed immediately, but only used in-game (not stakable)
    • Most of the rewards go to ILV/ETH liquidity providers, some goes to ILV single token stakers, and a small amount goes to flash pool participants that give ILV to partner protocol participants

Token Design

Rules of the game that tokens have to follow

Token Policy

1. Monetary Policy

2. Token Valuation 

    • the value of the ILV token comes from the volume of fees that will be used to buyback and distribute to ILV stakers
    • Axie Infinity is the closest comparable project that is already live, but I expect volume for Illuvium to be much higher given the greater complexity of the game, so using that as a very rough estimate
    • Axie had $785 million in volume over the last 30 days, which extrapolated over a year is $9.42 billion in yearly volume
    • There is no documentation yet on the cost of in-game transactions or size of fees, but a theoretical fee of 1% would imply almost $100 million in ILV buybacks
    • With $610 million of ILV staked, this implies a rough estimate of 15% APY from buybacks
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Financial Incentives

1. Platform Activities 

  • Platform Activities
    • ILV is used to vote in council members to control the future of the game
    • It can be staked to earn a share of fees in the form of market-bought ILV
    • sILV can be used instead of ETH for in-game purchases
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2. Financial Returns

  • Yield farming returns are distributed over 3 years with most distributed during the first two
  • APY will vary depending on how much ILV is staked and at what multiplier depending on lockup
  • Also note that the long 12 month lockup for reward distribution affects returns. This can be mitigated by instantly redeeming for sILV, which will trade for less than ILV given the lower utility

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Token Architecture

Useful for non ERC-20 tokens. And how financial products are structured.

1. Token structure

  • Both ILV and sILV are ERC-20 tokens

2. Token distribution

Conclusion

Illuvium is set for mainstream adoption and can show the benefits of the Play to Earn model to a much wider audience. It will act as a great test of the viability of decentralizing game management and evolution and bring in a wave of development on future P2E games.

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