Understand the stablecoin issuance protocol Vesta in 3 minutes: Will it become the next potential Alpha of Arbitrum?

Vesta is Arbitrum’s native protocol and is ranked 4th in the native protocol TVL ranking. Vesta’s TVL has been growing since June ($25M), but more importantly, its market cap is less than $3M! Could it be a hidden gem in the Arbitrum ecosystem? Let’s analyze the data together with Dune Analytics and find out!
Vesta is a CDP protocol where users can deposit assets as collateral to mint $VST stablecoins based on their Collateralization Ratio (CR). Assets deposited in Vesta will enter the active pool. The TVL of the active pool is $15,902,792.
These are the total active debts by asset. Total active borrowings currently = $11,694,559. Approximately 51% of the debt is collateralized by $GLP and 43% by $gOHM.
Liquidation occurs when CR: <110% and is offset by the stable pool. Users can deposit $VST into the stable pool and receive collateral tokens from liquidation, usually making a profit when liquidation occurs when CR is slightly <110%. The total $VST in the stable pool = $860,170.
If there is not enough $VST in the Stability Pool to offset the debt owed, Vesta will reallocate undercollateralized vaults to other borrowers. Vesta compensates liquidators with 0.5% of the collateral to ensure prompt liquidation.
Vesta defines collateral surplus from liquidation as collateral minus debt (when CR>100%), which is distributed to stabilization pool LPs based on their shares in their respective stabilization pools.
Vesta will mobilize collateral through their collateral opportunities framework. Currently, collateral is only used for the GMX-GLP strategy.
Vesta takes 20% of $GLP rewards as protocol revenue. The rest of the proceeds are credited directly to users. Based on the average of $GLP rewards accumulated over the past month, the annualized protocol revenue is $264,990.
Vesta has moved from a burn and redemption fee model to a VRR model (Vesta Reference Rate). When $VST<1USD, the borrowing fee for $VST will increase to encourage more $VST buyers to deposit $VST to earn a higher VRR.
When $VST>1USD, VRR is lower to encourage more borrowing and selling of $VST, bringing it down to the peg. Below are the fees for VRR. $VST credited to VRR goes into the emergency reserve to prevent shortage events.
The total $VST in the emergency reserve is $40,400.
This is the distribution of $VST minted by collateral asset. We can observe a shift from $GLP being used in the past to more $ETH being used recently. Since Vesta is part of the Olympus incubator program, $gOHM also constitutes a large amount of collateral used to mint $VST.
Looking at the Mint vs. $VST peg chart, we observe that $VST is mostly below $1, suggesting an opportunity to charge more borrowing fees to stablecoin pool providers.
Interestingly, nearly $280,000 in $VST was destroyed, while $67,000 in $VST was liquidated on November 9th.
Looking at the $VST destroyed by collateralized assets chart, we see that most of the $VST destroyed comes from the $GLP collateral vault. Most of the other liquidations are done through $gOHM, likely due to its volatility.
TVL is calculated as total assets in active pools + mobilized collateral ($GMX - $GLP strategy) which currently totals $25,387,009. I think this is quite high for a token with a market cap of less than 3 million.
$VSTA tokens can only be used for governance or liquidity mining at the moment. Honestly, it would make sense if they allowed staking of $VSTA and accrued 20% of the rewards from the $GMX - $GLP strategy to $VSTA holders. This would definitely increase demand for VSTA.
Potential risks:
1) Weak peg. $VST’s weak peg may make borrowers reluctant to mint $VST. Currently, $VST can be purchased from the $VST-$FRAX liquidity pool on Curve or the $VST-$USDC pool on SwapFishFi. This risk can be eliminated with more liquidity.
2) Over-reliance on $gOHM and $GLP. The team does intend to introduce new assets that can be used as collateral to address this issue.
Overall, as one of the native Arbitrum protocols with the highest TVL, I believe $VSTA is a promising protocol, but its drawback is that its governance token lacks practicality. If the project can solve this problem well, the adoption of $VSTA will reach a higher proportion.