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Last updated: Aug 20, 2023
Teddy Cash is an Avalanche-based decentralized borrowing protocol allowing users to obtain interest-free loans upon providing collateral in AVAX. Loans are issued in Teddy dollars TSD (a USD pegged stablecoin) and they are secured both by the Stability Pool containing TSD and the community of borrowers acting as guarantors in extreme cases. The Teddy Dollar is the first stablecoin on the Avalanche network that uses AVAX as collateral.
Teddy Cash is looking toward decreasing the dominance of the fiat-backed stablecoins in the DeFi industry by facilitating the process of borrowing stablecoins by creating a more capital efficient and user-friendly ecosystem. To achieve these goals Teddy Cash incorporated a 0% interest rate, which omits the constantly accruing debt and sets the minimum collateral ratio of 110% making the usage of the deposited AVAX more efficient. Moreover, Teddy Cash is governance-free, where all operations are algorithmic and fully automated, and protocol parameters are set at the time of contract deployment.
The Teddy Cash protocol offers interest-free loans, where AVAX is the only acceptable collateral type. The Protocol enables users to lock their AVAX, borrow against the collateral to obtain TSD, and repay the loan later, instead of selling AVAX to have liquid funds.
In order to proceed with borrowing, the user must open a Trove and deposit a certain amount of collateral (AVAX) to it. A Trove is a vault where the user can take out and maintain their loans. Each Trove is connected to one Avalanche address. Troves handle two balances, where one is an asset in AVAX used as collateral, and the second one is a debt represented in TSD. If the user changes the amount of each balance by adding collateral or repaying debt, Trove’s collateral ratio changes respectively.
Whenever TSD is drawn from the Trove, a one-time borrowing fee is charged on that amount and added to the debt. The borrowing fee is determined algorithmically and has a minimum value of 0.5% of the drawn amount under normal operation. The borrowing fee is added to the debt of the Trove and is given by a base rate. The fee rate is limited to a 0.5% and 5% range and is multiplied by the liquidity amount drawn by the borrower.
Teddy Cash issues loans with no repayment schedule, as long the collateral ratio is maintained at a 110% minimum. As the price of AVAX changes, the Trove collateral ratio can fluctuate. Users can adjust the ratio by adding more AVAX collateral or paying off part of the debt.
Troves that fail to maintain the minimum collateral ratio of 110% will be liquidated. If this happens, the debt is canceled and taken up by the Stability Pool, while the collateral is distributed among Stability Providers. The Stability Pool is the source of liquidity to repay debt from the troves to be liquidated; its goal is to ensure the stable total supply of TSD. It is funded by Stability Providers (protocol users), who transfer TSD into the Stability Pool. Stability Providers benefit from liquidation gains and early adopter rewards in the form of TEDDY tokens.
Users can also redeem their TSD for AVAX at face value at any time without limitations. However, a redemption fee might be charged on the redeemed amount. Redemption fees are based on the base rate state variable in Teddy Cash, which is dynamically updated. The base rate increases with each redemption, and decays according to the time passed since the last fee event.
Teddy Cash encourages its users to become Frontend Operators and receive rewards in the form of TEDDY tokens. Frontend Operators are required to improve the web interface and add functionalities to facilitate end-user interaction with the Teddy Cash protocol.
TEDDY rewards are granted to Stability Pool depositors and then split between the users themselves and the Frontend Operators proportionally. The share of each party is defined by the Kickback Rate which is set by the Frontend Operator and can vary between 0% and 100%.
To borrow TSD, the user needs a wallet that supports AVAX like MetaMask, Coin98, MathWallet, Avalanche wallet, and others as well as sufficient AVAX to open a Trove and pay the gas fees. To borrow, users must open a Trove and add a certain amount of collateral (AVAX) to it. Then they can borrow TSD up to a collateral ratio of 110%. A minimum debt of 2,000 TSD is required.
To become a Stability Pool depositor or TEDDY staker, the user needs to have TSD and/or TEDDY tokens. TSD can be borrowed by opening a Trove, while TEDDY can be earned as a Stability Pool depositor. In order to start staking, users need to deposit their TEDDY tokens to the Teddy Cash staking contract.
To become a Frontend operator, the user can either install the platform’s front-end launch kit or integrate the Teddy Cash protocol using Frontend SDK in their environment.
Teddy cash fees are charged in the form of a one-off fee whenever TSD is borrowed, and when TSD is redeemed.
TEDDY has a max supply of 82,000,000. The total supply initially was intended to be 100,000,000. As it is claimed by the Teddy cash team, this has occurred due to a mistake made in the process of the contract deployment. As a result, the Stability Pool rewards contract is only able to reward 32M out of the 50M assigned tokens, meaning that the remaining 18M tokens are stuck in the contract and essentially burned.
As of now, TEDDY is not a governance token, it is a secondary token issued by the Teddy Cash protocol. It collects the fee revenue generated by the system and also incentivizes early adopters and Frontend Operators. TEDDY rewards can be accrued only by Stability providers, Frontend operators, and liquidity providers. TEDDY tokens can be earned by depositing TSD into the Stability Pool, improving the web interface by becoming a frontend operator, and providing liquidity to the TSD stablecoin. TEDDY tokens can also be earned by staking TSD to the stability pool or from staking Pangolin LP tokens (AVAX/TSD, AVAX/TEDDY). TEDDY holders can stake their tokens to earn a pro-rata share of the borrowing and redemption fees in TSD and AVAX. Staked TEDDY are not used to backstop the Teddy Cash system nor for governance purposes.
As it is stated on the platform’s website, Teddy Cash is a fork of Liquity protocol so it inherits all risks of that protocol. Since Teddy Cash claims they did minimal changes to Liquity's original set of smart contracts, it is additionally recommended to review the Liquity audits.
Teddy Cash urges its users to be aware of the following possible risks when using the platform.
Teddy Cash has employed Chainlink's Oracle solution to secure AVAX/USD reference price through a decentralized network of independent oracle nodes, which collect data from multiple independent data aggregators. However, the platform doesn’t have a backup oracle. Liquity uses the Chainlink oracle as the primary price feed and a Tellor oracle as a fallback. Since the Tellor oracle was not available on Avalanche during deployment, Teddy Cash has instead installed an empty contract as an oracle, meaning that they have simply disabled the backup oracle. Alternative solutions to retroactively add Tellor support once it becomes available would make the protocol no longer immutable and this introduces additional risks. The removal of the backup oracle has been proven to work in other Liquity forks (Fluity, PolyQuity, etc.).
Any protocol that is forked to a new EVM might contain critical bugs that are hard to detect, which may lead to asset loss.
Teddy Cash has partnered with Snowball to integrate auto compounding and yield optimization functionalities. Also, Teddy Cash has made strategic partnerships with Pangolin and Trader Joe DEXs, which added farms for AVAX-TEDDY and AVAX-TSD to support the liquidity and trading of these pairs. Teddy Cash is also listed on such DEXs and farms as Gondola, DeFi, Everest DAO, and many more. The protocol has also integrated such autocompounders as Yield Yak and Cycle.
Due to the reduced total supply of TEDDY tokens, which resulted in an allocation imbalance, the team plans to rectify this by setting aside a portion of the treasury to be managed by the Teddy community, as of now it is tentatively called TeddyDAO. In the short term, the team plans on establishing the TEDDY token throughout the ecosystem, making it ultimately deflationary; in the mid-term, it is intended to open new verticals under the Teddy framework and make TEDDY token an integral part of all Teddy services. In terms of governance, it is planned to have a DAO where TEDDY stakers could decide on possible ways of treasury funds usage, it may be used like a hedge fund.
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Last updated: Aug 20, 2023
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