Arbitrum stable currency agreement Vesta proposal discusses ARB as collateral

On March 21st, the core team of Vesta, the stable currency agreement on Arbitrum, proposed to add ARB as collateral, with a liquidation ratio of 150%, an initial debt ceiling of 500000 pieces, and a liquidation penalty ratio of 15%.

Interpretation of this information:

The Vesta team has recently recommended inclusion of ARB as collateral in its stable currency agreement on Arbitrum. ARB is the native token of Arbitrum, a highly-scalable and secure second-layer scaling solution that is being widely adopted by decentralized applications. This proposal by Vesta is a significant step towards promoting the liquidity of ARB tokens, especially for those investing in decentralized finance (DeFi) and stablecoins.

The Vesta team has specified that the ARB collateral will have a liquidation ratio of 150%, implying that for every $1 worth of ARB a user deposits as collateral, they may generate $0.67 worth of stablecoin. This scenario ensures that the vaults maintain sufficient collateralization even in volatile markets, and reduces the likelihood of liquidation risks for users.

The initial debt ceiling for this proposal is 500,000 pieces, with a liquidation penalty ratio of 15%. This means that once the debt ceiling is reached, no further ARB can be added as collateral until some users repay their outstanding stablecoin debt to reduce the used collateral or the governance approves an increase in the ceiling. Further, users who do not maintain sufficient collateralization may face liquidation, wherein their deposited ARB is sold at a 15% penalty to ensure the safety of the stablecoin minted against it.

This proposal by the Vesta team has implications for the entire DeFi ecosystem, as it strengthens the security of the stablecoin agreement while promoting adoption of the native token of a widely used scaling solution. Further, this also creates opportunities for users to earn rewards by utilizing their ARB holdings in DeFi protocols. Notably, the inclusion of ARB as collateral is expected to increase its liquidity, as more users are likely to deposit their tokens in Vesta vaults for generating stablecoins, which can be used elsewhere in the ecosystem.

In summary, the Vesta team’s proposal to include ARB as collateral on Arbitrum is expected to increase the token’s liquidity, promote adoption of the highly-scalable second-layer solution, and enable users to utilize their ARB holdings for earning rewards in DeFi protocols.