Current main way of speculation on-chain entails creating a liquidity pool, adding liquidity to it, and people trade on it. A liquidity pool that’s able to sustain trading needs people (or the project) to put in both the project’s token and another token that’s more utilized, such as ETH or USDC.
Other than swap, lending and borrowing could also contribute to price discovery. If a token is used as a collateral and the loan is liquidated, then the collateral token should decrease in value in the event of liquidation. And if that there’s interested buyers, then the token should not decrease in value as much.
A lender initiated collateral withdrawal should actually decrease the price of the borrower’s collateral since the borrower’s collateral in this case should be sold to cover for the asset withdrawal
on the opposite, more lending capital should actually increase the price of a collateral
Borrower paying back should not affect prices
A new form of speculation could entail people to provide lending liquidity instead of only providing liquidity to pool
User profile
Degen trader who want to farm of price discovery other than AMM
User story/use cases
There will be three types of users in the system
Borrower: borrower may put down a collateral token X, borrow debt token Y, selecting a LTV (collateralization ratio).
The LTV determines a “liquidation range”. The higher the LTV → the more risky is the loan → the less a user will
Put collateral at a price some distance to the left (less than) of the current price
LP
Provide liquidity and receive trading fees
First priority to liquidate borrowers approaching his price range
If the LP to the left of the current price is used to do liquidation, it has
Lender
Lenders may deposit any Deposit debt token at the current price (of collateral in debt token).
b. Take borrowers’ collateral if that amount of collateral cannot be liquidated
Liquidation
Liquidation will see a borrower’s collateral be transformed into the debt token over a particular price range. The price range is determined by the borrower’s LTV.