Hubble Protocol - the one-stop shop for interest rate products in the Solana ecosystem.
Decentral Park Capital is incredibly excited to have participated in the pre-seed round of Hubble Protocol along with the Solana Foundation as well as the recent subsequent seed round along with Three Arrows Capital, Delphi Digital, DeFi Alliance, and others.
Decentralized Finance (DeFi) has now amassed over $250B in total-value-locked with the sector market cap climbing to $140B.
Lending has become one of the first primitives in DeFi to achieve product-market-fit on Ethereum with Aave’s credit market size reaching $25B in liquidity. In the last 12 months, lending has continued to evolve including the advent of self-paying loans.
A more recent iteration has been zero-interest borrowing. DeFi protocols today require users to pay variable interest rates while being severely over-collateralized up to 175%. Liquity was one of the first to tackle this head on, allowing users to pay a one-time borrowing or redemption fee when they open or close their positions. Today, Liquity has over 490k ETH locked in its protocol (~$2B) across 1.3k collateralized-debt-positions (Troves).
We believe higher capital efficiency and cost-effective ways to access leverage against user assets has been a key driver in Liquity’s success to date. However, the use of yield-bearing assets as collateral in this model has also been largely untapped.
Ethereum’s scalability and speed continue to be troublesome for dApps. Solana’s high throughput processing makes it an attractive foundation for high-use DeFi applications.
Introducing Hubble Protocol.
Hubble is building a suite of interest rate products on Solana. In phase 1, Hubble will offer a zero-interest loan product where users can open collateralized debt positions (CDPs) and withdraw Hubble’s stablecoin, USDH, against that collateral. Hubble will also allow users to maintain a collateral ratio of 110% and above.
One major difference to existing zero-interest lending protocols in alternative ecosystems is that Hubble allows for any asset represented as an SPL (Solana Program Library) token standard to be used as collateral once approved by the Hubble DAO. Widening the collateral asset universe provides flexibility for users in how they choose to mint USDH and naturally expands the potential market cap of USDH all else equal.
There already exist a wide range of product partners that Hubble can integrate with. Marinade Finance, a Solana-native liquid staking derivative protocol, can be the source of SOL yield while Hubble can receive yield on the newly received mSOL within the Solana DeFi ecosystem.
A second difference is the embedded stability layer. Aside from liquidators who can earn revenue for maintaining a healthy system, a stability pool of USDH maintained by depositors can act as a backstop when a collateral ratio falls below 110%. This is a necessary mechanism that uses focal point game theory to maintain USDH’s peg.
For phase 2, Hubble will explore structure products, lending markets, and eventually undercollateralized loans in phase 3. Therefore, we believe Hubble is more than just a lending protocol – it is providing a complete, interconnected suite of DeFi products for the Solana ecosystem.
Aligning The Incentives: The HBB token
HBB is the native token of the Hubble Protocol which grants holders participation in governance while being used as a fee-sharing mechanism generated by the system.
A one-time fee of 0.5% is applied to every collateralized-debt position for when USDH is borrowed and when USDH is redeemed. We believe that interest-free loans represent a fruitful path for market participants as it removes any potential cognitive friction, streamlines the fee calculation, and operational overhead in managing a loan.
Fees collected from debt positions will be distributed among HBB holders on a pro rata basis when those positions are opened. In other words, the HBB token earns 100% of the fees generated by the protocol. The HBB token is backed by the underlying usage of Hubble and captures further fundamental value with increased adoption of its product suite.
Finally, HBB will be the critical bootstrapping tool for bringing in users and liquidity to the protocol. For example, rewards will be in place for liquidity providers directly supporting their network contribution to Hubble inducing the stability pool and USDH liquidity on external pools.
We also believe the design space for incentivising borrowing is enormous. Like the design mechanics of Olympus DAO, USDH holders that provide liquidity to various Solana exchange pools can receive discounted HBB tokens for supplying their LP tokens to the Hubble protocol. LP fees that are earnt by the protocol can be distributed to USDH borrowers as an additional incentive to open positions (‘Hubble Pro’).
This can create a positive fly wheel effect whereby users seeking discounted HBB tokens will buy USDH and drive the stablecoin above its peg. This should incentivise further borrowing to drive USDH back down to its peg by increasing supply. USDH then become more liquid in the process while the USDH borrowers receive higher LP fees and HBB stakers earn higher protocol fees.
As conviction in Hubble increases along with revenue, the demand for receiving discounted HBB tokens through USDH LP commitment also increases.
USDH – Becoming A Core Solana Stablecoin
We believe Hubble is more than just a DeFi Hub. Hubble is building a primary stablecoin for the Solana ecosystem.
The use of yield-bearing collateral to back USDH allows users to maintain exposure to any future upside with their principal. In other words, users are economically incentivized to use USDH as collateral over alternative stablecoins like minting UXD or selling for USDT.
For example, a liquidity provider can achieve two yield streams by committing USDH in a USDH-USDC Saber pool – one from staked SOL and the other from LP trading fees collected in the pool. Hubble and the use of USDH could form a key role in yield aggregator strategies like Tulip over time.
We believe USDH can also form the build block for other DeFi protocols that encompass stable assets at the core of their design. One example is derivatives where Optimism-based options protocol, Lyra, is now using Synthetix’s sUSD for delta hedging. However, not relying on the global market cap of a single asset makes USDH an attractive, scalable stablecoin for these emerging primitives.
Hubble will also have use cases for USDH inside its own ecosystem. Besides being the rewards token for HBB stakers, USDH can also be used as the core stablecoin for its future bond and lending products.
To further maintain the USDH peg to realize this vision, Hubble can look to build permissioned pools that use undercollateralized loans to arb peg deviations. One potential model here could be ‘Keepers’ using a central USDH deposit pool where on-chain profits are re-distributed back to USDH LPs as well as the Keepers themselves. This can drive demand further for USDH by being a crypto capital asset along with HBB.
The Hubble team is led by Marius Ciubotariu who was previously a Senior Software Engineer at Bloomberg for 8 years. Marius built the company’s first production apps in Rust. Since our first engagement, Marius has been relentlessly executing on building Hubble’s core components and we are incredibly excited to see his expertise in cross-asset derivatives translate to the new financial ecosystem.
Hubble’s vision of establishing USDH as the de facto stablecoin on Solana is bold but inspired. Decentral Park looks forward to working with Marius, the Hubble team, and our Solana ecosystem partners in realizing that vision.
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.