Project Research Report | Helio Protocol: A decentralized overcollateralized loan and liquidity mortgage platform on the BNB chain using a dual token model

Data update date of this article: 2023/02/11
01 Project Overview
Helio Protocol is a decentralized overcollateralized and liquidity collateralized platform on the BNB chain. Using a dual-token model, HAY is the protocol's native decentralized stablecoin, issued with BNB overcollateralization guarantees. HELIO is the protocol's governance token, which is not yet live.
HAY's use cases include staking income, lending, liquidity mining on DEX, and as a medium of payment and exchange. After the launch of the governance token HELIO, the Helio Protocol will operate as a DAO. Users holding HELIO can propose and vote on proposals put forward by the DAO, and the community will manage the finances, revenue pools, and future direction of the protocol. The ultimate goal of the protocol is full decentralization.
02 Product Architecture HAY Stablecoin
The product currently maintained by the Helio Protocol is the decentralized stablecoin HAY system. The stablecoin HAY is a BEP-20 token issued by pledging on-chain assets (currently only supporting BNB and BUSD) at a collateral ratio of approximately 152% (approximately 66% LTV), with a target price of $1. The HAY stablecoin system is essentially an over-collateralized lending protocol. For users, the four operations involved are deposit, withdrawal, lending, and repayment. These four operations are actually the issuance and redemption process of HAY. Before the borrowed assets are repaid, there will be two variable operations involved, interest rate adjustment and liquidation, which are actually means to stabilize the price of HAY.
Helio Mechanism
A key component of Helio’s functionality is a set of smart contracts that interact across blockchains and between existing contracts. Helio forked the MakerDAO smart contract set to create its custom smart contracts.
HAY Price Stabilization Mechanism
The Helio Protocol is able to maintain HAY’s value of $1 relative to the U.S. dollar under the following conditions:
When HAY>$1, the supply of HAY needs to increase:
Since HAY is at a premium, borrowers are incentivized to borrow more HAY in exchange for other assets to gain arbitrage opportunities.
To reduce the demand for HAY mining, the Helio Protocol will reduce the staking mining rewards for HAY lenders by reducing the interest on borrowing HAY.
When HAY<1USD, the supply of HAY needs to decrease:
Since HAY is at a discount, borrowers are incentivized to purchase HAY from the market to repay their debts.
In order to reduce the demand for HAY lending, the Helio Protocol will increase the lending interest of HAY, thereby increasing the staking mining rewards for HAY lenders.
Modules
Helio consists of 2 main modules:
Core module (interaction contract between MakerDAO fork and Helio): provide collateral, borrow HAY, repay HAY, withdraw collateral, and liquidate collateral assets.
Rewards Module: Claim your rewards in HELIO.
 cost
Borrowing Interest: The interest paid to Helio for borrowing HAY. This rate is a fixed number set by the Helio governance platform.
Liquidation Penalty: During the liquidation process, when the user's collateral is sold in the form of a Dutch auction, 13% of the total debt is paid as a liquidation penalty.
 award
Borrowing Rewards: Users who borrow HAY are rewarded with HELIO tokens. The rewards are calculated dynamically and are the product of the fixed reward rate and the user’s total debt in HAY.
Rewards for starting an auction: Anyone who triggers a liquidation event, i.e. starts a Dutch auction, receives a fixed fee (the tip) and a percentage of the fees (the chips) for starting the process. The tips and chips are paid out of the HELIO token reserve.
Auction Restart Rewards: Anyone who restarts a Dutch Auction will receive a fixed fee (tip) and a percentage of the fees (chips). Tips and chips are paid from the HELIO token reserve.
03 Liquidation Model
Helio’s liquidation mechanism is forked from the MakerDAO smart contract. The chart below will give an example to help everyone understand this liquidation model.
04 Impact of the Ankr vulnerability incident
On December 2, 2022, the developer private key of Ankr, the Web3 infrastructure on the Binance Chain, was leaked, and a hacker exploited a vulnerability in the Ankr protocol code to mint 10 trillion aBNBc tokens (Ankr Reward Bearing Stake BNB, which is a voucher token obtained by users after staking BNB to ankr).
An attacker took advantage of this hack and purchased 183,884.92 aBNBc from 1inch at a cost of 10BNB (resulting from trillions of additional issuance). He then exchanged the 183,884.92 aBNBc for 191,130.04 HBNB through the Helio protocol, pledged it and lent out 16.444,740.14 HAY, and finally exchanged the borrowed HAY for 15,504,986.94 BUSD through 1inch. This process caused HAY to be seriously depegged.
There were several other smaller arbitrageurs who took advantage of this opportunity, so the Helio protocol incurred a total of 19,046,819 bad debts in HAY (about $17 million). As a result, the price of HAY initially plummeted to $0.20.
Upon becoming aware of this, the team immediately suspended all protocol functionality and announced that it would take full responsibility for the entire ~19 million HAY bad debt. As of now, there are 15,000,000 HAY tokens in the official Helio Protocol bad debt repayment wallet, and all collected HAY will be destroyed and removed from the circulating supply of HAY after full repayment. Based on previously reported bad debt numbers, there are currently around 4 million HAY outstanding.
05 Business Data
Currently, the Helio protocol has been restarted. From the data, we can see that as of February 11, 2023, the total collateral value of HAY in the entire network is about 63 million US dollars, and the total amount of HAY borrowed is about 22 million US dollars equivalent to HAY, with an over-collateralization ratio of 2.87, which is in a safe range.
The Earning situation of HAY tokens on various platforms is as follows:
The number of borrowers on the Helio Protocol platform is 1,761, and the number of HAY in the HELIO stable pool (the amount of HAY reserved to maintain the redeemable value of HAY at $1) is 85,585.
06 Economic Model Token Distribution
The Helio protocol is a dual-token model (HAY and HELIO), where the HAY token is the protocol's native decentralized stablecoin, which has been described in the previous article. Here we introduce the HELIO economic model. HELIO is the governance token of the Helio protocol, which has not yet been launched. The maximum supply is set at 1 billion in the white paper. The token distribution is as follows:
Token Application
Participate in protocol governance
Motivating participants
Vote on upgrades (adding new vaults, changing protocol parameters and fees, etc.)
Summary: The total amount of HELIO tokens is 1 billion, which is relatively large. Compared with the total amount of Maker's 100,000 tokens, HELIO lacks some scarcity, and the token economic model design is slightly unreasonable. Maybe it will be modified later.
07 Track Analysis
Stablecoins are mainly divided into centralized stablecoins and decentralized stablecoins. Centralized stablecoins are represented by USDT/USDC, which are issued by centralized institutions and are crypto assets issued on the chain with off-chain assets as collateral. Decentralized stablecoins are crypto assets generated by algorithms with over-collateralization or no collateralization of on-chain crypto assets. The DAI we often use is a decentralized stablecoin generated by over-collateralization. Among the stablecoins generated by algorithms, the most typical one is UST.
The collapse of UST in 2022 also made crypto practitioners start to seriously think about the future of decentralized stablecoins. At present, over-collateralized stablecoins are more trustworthy. Among various stablecoin models, over-collateralized stablecoins have been proven to be more sustainable. The architecture of the Helio protocol is a fork based on MakerDAO.
As shown in the above figure, in terms of issuance volume, DAI's current issuance volume has reached 5.08 billion US dollars, ranking behind centralized collateral stablecoins such as USDT, USDC, and BUSD, but it is the first among decentralized stablecoins. The chain shows that HAY's current issuance volume is 41.6 million, minus the 15 million locked in the bad debt destruction address, and the current total circulation volume is 26.6 million. There are few HAYs circulating in the market, and the liquidity is insufficient, which may lead to a higher risk of depegging, which is not conducive to its large-scale adoption.
08 Project Summary
Advantages: Helio Protocol uses HAY as a medium to help users improve the efficiency of BNB usage and release its locked value to obtain higher passive income. By building a native decentralized stablecoin on the Binance Chain, it can provide Binance Chain with a rich DeFi gameplay and scenarios, and promote the development of the Binance Chain ecosystem.
Disadvantages: At its peak, the Helio protocol had a TVL of $100 million. Due to the Ankr vulnerability, the current TVL has dropped to $63 million, resulting in slightly poor liquidity for HAY. The governance token HELIO has not been launched, and the part about HelioDAO (the decentralized autonomous organization of the Helio protocol) is not very clear and needs to be tracked and followed.