A deep dive into Ithil: protocols structure, partnerships, and future.
Join us for a closer look at Ithil’s reworked architecture, current partnerships, and plans for the near future. Missed part one? Find it here.
Ithil protocol’s structure
In August 2022, we conducted the Testnet for Ithil v1, as documented in our blog post. This Testnet helped us realize that Ithil had far more potential than we initially thought. As a result, we went back to the drawing board with a much grander vision. Our smart contract experts spent several months working hard to significantly expand and improve the core architecture. Below, we provide an overview of the inner workings of Ithil v2.
How it works
Very simply put: Ithil is a system that uses algorithms to distribute risk and capital based on what the market wants.
For example, if a lot of people want to borrow a certain token from Ithil’s Vaults, then the cost of borrowing that token will automatically increase.
Ithil uses the two parts of its core, plus components like services to accomplish this.
Core
1. Vaults
The Vaults are smart contracts (ERC4626) that hold tokens deposited by Liquidity Providers (LPs). Each Vault represents the total liquidity for one type of ERC20 token, such as DAI.
LPs can deposit to and withdraw from Vaults at any time. When LPs deposit, they receive share tokens that bear yield, for example iDAI (Ithil DAI). These tokens are called share tokens because they represent the deposited tokens and a share of the Vault’s future profits.
The Vault contracts collect fees generated by the Services (described below), which increases the value of a share and generates real yield for LPs. Each Vault keeps a complete on-chain record of all profits, losses, and outstanding loans. In this way, you can think of the Vaults as Ithil’s decentralized bank and ledgers.
All Vaults are owned and deployed by the Manager (described below). The Manager can borrow and repay a Vault’s capital, as long as it redistributes the shares by burning the iTKNs when it repays the loan.
2. Manager
The Manager is a smart contract responsible for coordinating the cash flow between the Vaults and Services, acting as the guardian of the Vaults, and ensuring that only whitelisted Services can access their liquidity.
In addition, the Manager deploys the Vaults and sets caps for each Service. Caps represent the maximum amount of liquidity that a Service can access from a given Vault.
Both the deployment of Vaults and caps are determined by Governance voting.
For example, the Ithil DAO may vote to deploy a USDC Vault and set the cap for the Aave USDC lending Service to 20% of the Vault’s total liquidity.
Services
While Ithil’s Services are not part of the core architecture, they are crucial to Ithil’s functioning. Users interact with Ithil through the Services, meaning that they never directly touch the operational core of Vaults + Manager. This separation may seem insignificant, but it’s actually very important because it enables extreme flexibility for Services while ensuring highly secure operations.
Furthermore, Services are modular and can be easily developed with minimal extra work. Ithil’s team has already built a suite of standard Services that can be seamlessly combined to create even more types of Services, such as Debit and Credit Services.
Any type of service can be developed internally or externally, as long as it’s approved by Ithil’s Governance. The possibilities are endless!
As requested by our community members, our first suite of services will be leveraged DeFi strategies.
Ithil’s current collaborators: Aave, Balancer and Aura
During the last year, Ithil has received grants from two of the cornerstones of DeFi: Balancer and Aave.
The goal is to build new strategies and integrations with a clear focus on ecosystem expansion.
Balancer & Aura:
Balancer’s unique approach to balancing liquidity pools has cemented its place in DeFi. However, Balancer LPing requires a significant amount of capital for yields from trading fees to outpace gas costs, limiting its attractiveness for smaller DeFi users.
Ithil overcomes this profitability threshold by boosting the capital of both smaller and larger users, enabling them to participate in Balancer’s ecosystem. This leads to an increase in Total Value Locked (TVL) and a decrease in trading fees, making Balancer more attractive to DeFi users. As a result, even higher trading volume and more fees are generated for liquidity providers (LPs), creating a virtuous cycle.
Additionally, Ithil plans to whitelist the $BAL token and offer a dedicated strategy to maximize its value and yield options.
Aave:
The goal is clear: Ithil aims to increase the Total Value Locked (TVL) on Aave by encouraging users to deposit more liquidity through our Internal Lending Engine. Furthermore, Ithil will whitelist the AAVE token, with a dedicated strategy to encourage users to lock their tokens on the platform.
Through this collaboration with Aave, Ithil aims to create growth and value. Additionally, Ithil could help grow the user base of Aave by enabling smaller players to deploy liquidity and generate profit through capital boosting, increasing fees and protocol usage.
Ithil’s improved smart contract technology provides additional security for Aave’s user funds, reducing risks of potential hacks or vulnerabilities. This feature can attract more users who value security and privacy.
Next Steps…
The Wizard team has been building Ithil for nearly 1.5 years, with most of that time spent in relative stealth. With the smart contracts for Ithil v2 now 99% complete, we are excited to share Ithil with the world. As of writing, this is our timeline for launching on #arbitrum:
Next week (April 17 — April 23): We will launch a secret side project that the smart contract wizards created while waiting for frontend development to complete. Although it’s quite awesome, it is not part of the main Ithil protocol. We will reveal more details over the coming days, so keep your eyes on our Twitter for hints and expect a dedicated blog article Soon™.
Next month (from May 1st): We will launch Ithil’s v2 Testnet on Arbitrum (Goerli).
During the Testnet phase, we will organize competitions dedicated to the community. The best testers will earn USDC, NFTs, and roles. They’ll also enjoy further benefits once the protocol is launched on Arbitrum.
Our OG Acolytes and Apprentices members will also receive special perks as well. To earn one of these precious roles, make sure to join our Discord Community and be active.
Do you want to be the first to know the latest news and do not miss any updates? Follow us on Twitter and GitHub!
