Overview of Lodestar with a sprinkle of alpha - by Loso

$LODESTAR

Thanks to the great community we have at Primapes DAO, this has been on our radar for a while. Today we do a deep dive into Lodestar and why it has immense potential at its current valuation.

First and foremost, we must address the hack. You may have heard of Lodestar before, and it may not have been in positive light. Lodestar was exploited by a hacker on December 12th, 2022. Around $7mm in funds were stolen and the team was able to recover 1/3 distributed back to those affected in $GLP. 750k $LODE tokens were also airdropped to all affected by the incident. Not an ideal scenario whatsoever, but I believe that users will be made whole in due time.

A case has been opened with Chainalysis, an exploited funds recovery service that has worked on some of the largest exploits such as Mt. Gox and the Axie attack. If those who were affected by the exploit manage to maintain their airdropped tokens, I truly believe that that alone could make the whole in due time ($7 LODE does it).

The exploit was rooted in the new plvGLP oracle. The hacker was able to artificially inflate the plvGLP price that the oracle was providing to the protocol allowing him to borrow more than the plvGLP posted was worth. This situation was contained and while still a net negative let’s dive into what the protocol is, what it’s value add is, and how the bounce back will make this protocol better than ever.

The Protocol

Lodestar is a Compound fork that was launched back in November. Utilizing a pure public raise, they sold 1,404,906 LODE tokens at $0.1426 per token with a max allocation of 2500 USDC per wallet. With 20,000,000 total tokens, that put initial valuation at $2,852,000 FDV. Just another lending protocol won’t cut it as a reason as to why the protocol should accrue value. Their value add is a similar approach to that of Camelot that also launched on Arbitrum around the same time. They look to have a Arbitrum native lending protocol that has lend/borrow pools for Arbitrum assets. They demonstrated this right at launch with having a borrow market for plvGLP.

For those that may not be aware, plvGLP is a GLP auto-compounding wrapper by Plutus DAO that provides yield slightly greater than normal GLP. This is a great way for users to leverage their GLP exposure and increase their yield. This was a great start that with that asset alone, amassed $7mm in funds. Unfortunately, it had a short life, but it was trending upwards with rapid growth. As Camelot demonstrated, the market clearly like Arbitrum native products that address the specific Arbitrum user’s needs.

The Tokenomics

Total Tokens: 20,000,000

• 60% to Emissions

• 18% to Team

• 9% to Investor

• 5% to Treasury

• 3% to Employees

• 2% to Community Fund

• 2% to protocol Owned Liquidity Seeding

• 1% to Special Arbitrum Odyssey Event

Tokens vest linearly with the exception of team beginning their vest a year post launch. Emissions will be used to incentivize protocol lending. The LODE token will be used as the governance token for voting on proposals. Besides that, the token has great value accrual mechanics. In lending markets, its possible for protocols to accrue bad debt. In efforts to have insurance against that, the protocol has established a reserve mechanism that keeps a percentage of all interest paid on loans. This is then split in half and paid to LODE stakers. The reserves kept off all interest is set as the following:

The less volatile the assets (ex, USDC 7% kept of interest paid) the less the reserve kept by the protocol and vice versa. Of all fees generated by the protocol, 10% is also paid to stakers. To summarize token utility:

• Half of reserves are paid to token stakers.

• 10% of all fees generated within the protocol paid to stakers.

• Governance power.

• Solid tokenomics that participates in an arbi-native lending protocol.

The Alpha

The above all describes a product with great potential, but with this being a microcap and coming back from an exploit, there has to be some juicy alpha to be willing to take the risk. For starters, we cannot fade a project looking to serve a large defi use case that is Arbitrum native. GRAIL showed us just that and big thanks to the Primapes community for making the call on the initial token sale. There isn’t an Arbitrum-native lending protocol that is currently live that creates markets for Arbitrum specific assets. plvGLP is a tremendous start and demonstrates the team’s understanding of this. Their main contracts are under audit currently. The devs have been grinding away and even will be coming to market with a brand-new UI. Expect them to launch to market within the next 3-4 weeks. See most recent update yesterday, below:

You can expect their liquidity to migrate to Camelot leading up to launch as well.

With all that being said, let’s look at how competitors native to other chains compare to see what their true total addressable market (TAM) can be.

Sonne Finance $SONNE

Sonne was launched around a month prior to Lodestar and has since then amassed a fairly sized TVL due to the lending markets for Optimism specific assets.

Their current market cap is at $3.66mm. At that size, LODE is an easy 3-4x from current prices.

Radiant $RDNT

Radiant is a an Arbitrum native lending protocol that has similar token incentives for lending/borrow as Lodestar would, however it only supports blue-chip assets, leaving a lot to be desired. Currently they only offer WBTC, WETH, USDC, USDT, and DAI. With incentivized liquidity, they have amassed the following TVL:

Their current market cap is at $56.82mm. At this valuation LODE would be 60x it’s current prices.

Conclusion

You can expect the protocol to perform better than that of Sonne as its very clear the Arbitrum community is filled with apes and DeFi savages. RDNT has ponzi-like tokenomics. LODE does emit tokens to users but with different mechanics. LODE has a lot of room to land somewhere between the two protocols, making todays valuation a steal.

Special shoutout to @Psyxology_ on Twitter. Man has been calling LODE for a while and I share the same vision. Hope you enjoyed the write up. More alpha to come!

-Loso, Primape #10