Warp Finance is a DeFi (Decentralized Finance) platform which creates a new use case for unused Liquidity Provider (LP) by allowing them to be used as collateral for borrowing.^[1][2]

History

Warp Finance is a new DeFi platform that was announced in early November 2020.

The platform launched Phase 1 on December 9, 2020 at 18:00 UTC. 24 hours after the launch, users deposited $5 million worth of stablecoin and LP tokens.

Phase 2 was launched December 16, 2020, and focused on the upgradeability of smart contracts which allowed for protocol integration scaling.

On December 17, 2020, the DeFi platform was exploited for $7.76 million worth of stablecoins due to a flash loan attack. On December 20, 2020, the platform successfully recovered $5.85 million, about 75%, in the form of ETH-DAI LP tokens of the funds lost. Warp distributed the recovered funds within 24 hours and issued portal IOU tokens to each affected user.^[3]

The Warp Protocol

Warp Finance allows users to deposit unused LP tokens from other protocols by allowing them to be used as collateral for borrowing. By lending LP tokens, users are able to continue earning trade fees from Uniswap, which reduces the effective interest rate paid.^[4][5]

Demand (Borrowers)

Users are able to deposit LP tokens generated from four Uniswap pairs including:

• WBTC-ETH
• ETH-USDC
• ETH-USDT
• ETH-DAI

The pairs are deposited at 150% over-collateralization. In other words, users deposit at least 1.5 times the value of money they will borrow. These borrowers then receive a loan of DAI, USDC, or USDT at a specific interest rate that can fluctuate based on the availability of the stablecoin within the liquidity pool. While this is happening, users still earn 0.3% from Uniswap per trade made in the liquidity pool.

Supply (Lenders)

Lenders are able to supply DAI, USDC, and USDT on the platform. In return, the suppliers receive either wDAI, wUSDC, wUSDT, which are interest-earning tokens that indicate a deposit into Warp. When withdrawing, suppliers will receive back the stablecoin they initially deposited plus the interest earned.^[6]

Platform Reserves and Development

Warp collects 5% of interest and stores the funds in a treasury wallet. The funds are used as a reserve and for the development of the platform.

Technical Process

Component 1

A user interested in receiving a loan can do so by depositing LP tokens into the platform. Users can deposit the four Uniswap pairs and can receive DAI, USDC, and USDT with a collateralization ratio of 150% against their LP tokens. The interest rate is calculated dynamically using a similar algorithm to other crypto lending platforms.

Component 2

Non-compliant loans will be liquidated. If the collateral value dips below the 150% collateralization threshold, the liquidation process begins. The liquidation price is equal to: (generated stablecoin *liquidation ratio) / (amount of collateral).

The platform invites users to liquidate these positions. For this, Warp Finance takes a fee equal to 15% of the value of the collateral, with the remaining liquidation value going to the liquidator. The Uniswap Price Oracle is used as a source of price data for determining the value of LP tokens.

The Governance Token

The Warp token ($WARP) is the governance token of the Warp ecosystem and is further used for incentive mechanisms.

Creating Proposals

Users must have a threshold amount of WARP to submit a proposal. For instance, providing further utility to the Warp token, token holders can vote to allow for transaction fees to be distributed to themselves.

Voting Process

A user's wallet address is questioned for the number of WARP it contains. One token is equivalent to one vote in the process of approving proposals.

Token Distribution

The total supply of the Warp token is 150,000 WARP with the starting price being $50. The fully diluted market value (FDV) is $7,500,000. The initial supply is lower than 1% of the total supply, with a market capitalization of $75,000 on Day 1. The distribution of WARP is allocated as follows:

• 3% = Social & Team Launch Campaigns
• 19.15% = Rewards to Lenders and Borrowers
• 38.85% = Personal Curve Rewards
• 10% = Rewards on Liquidity Provisioning
• 20% = Team
• 9% = Warp Community Fund

Personal Rewards Curve

To keep up with a sufficient amount of stablecoins, Warp Finance integrated a longer-term stablecoin liquidity provision incentive mechanism called, the Personal Rewards Curve. This curve is individual to each user and takes the number of stablecoins provided and the length of the non-harvesting of rewarded WARP into consideration. As users harvest their rewards when they withdraw their provided stablecoins, the system also considers the length of liquidity provision. If a user harvests their WARP rewards, the curve will reset and restart from the beginning. The maximum rewards will be achieved once a user does not harvest for 90 days.^[7][8][9]