Thank you, han, for putting forth this proposal, and to all those who have commented on it and registered their support via the poll. These proposals and the accompanying discussion are important for bringing a broad range of thought to the governance of eUSD.
I’ve been giving this a lot of thought and think that the timing is not right for adding fUSDT and fUSDC to the basket. I share enthusiasm and respect for what Ondo Finance is doing with OUSG and Flux. It’s just not a good fit for eUSD, yet.
- Including fUSDT and fUSDC will increase risk and instability due to the newness of the protocol and its governance, not only because of lack of history from which to view how it and its community will react to black swan events and drastic shifts in market conditions, but also we are already seeing this at its current TVL and with early-growth behaviors being exhibited. The relative size of fUSDT and fUSDC TVL compared to how much additional TVL this proposal would generate are also counterproductive. The higher yields sought, compared to Compound versions of tokens would immediately evaporate due to the shift in utilization rates. In fact, we should predict lower yields for fUSDT and fUSDC compared to cUSDT and cUSDC immediately after the proposed basket rebalance.
- if eUSD staking is rational, then increased yield on the basket will not translate to increased yield to individual stakers as return on $ staked as discussed in the proposal, but rather it will result in increased staking as presumably the return per $ staked is the metric that stakers use when deciding to put in, or take out money. More staking is good for eUSD as well as the stakers as it provides more emergency collateral to the basket and dilutes risk for the stakers. However, a marginal increase in staked $ is not what eUSD needs right now, and as its TVL grows it already provides positive pressure on increased staking as a higher TVL increases the returns to the staking pool.
- Of great importance to the next phase of eUSD is getting eUSD supported by more market participants — exchanges, market makers, chains, defi protocols — and these conversations involve gatekeepers who often include legal, risk, and compliance reviews in their evaluations. They have enough questions about the Reserve Protocol itself. Having the reference assets be USDC and USDT, and the yield generation engines be Aave and Compound have real Lindy benefits to passing these reviews. Since the token is supposed to be stable, how much yield is generated is less important than track record. Being able to show the level of emergency collateral available is substantial matters to telling the Reserve Protocol story, and we have that. Adding Flux and OUSG is more to explain and more thesis rather than performance to evaluate. In exchange we get what will probably turn out to be a marginal increase in the eusdRSR pool, if any at all.
- Also important for eUSD is continuing to grow the TVL. Adding fUSDC and fUSDT would at best be neutral towards that. It does, however, increase the gas fees around minting and withdrawing, shutting out lower volume market participants, so I perceive it as a negative w.r.t. the manufacture of more eUSD as it increases expenses without providing substantial benefit to the eUSD holders. The diversity offered in exchange for increased costs is fully correlated with the current basket contents, in terms of risk, and so offers no independent path to mitigate those risks. The reference tokens are still USDT and USDC, and the yield generation protocols are still Aave and Compound. Instead, adding these tokens brings increased risk due to bringing in something relatively unknown, and it puts 2/3rds of the basket at risk of the Compound v2 contracts having an exploit.
I look forward to reading reaction to these thoughts and continuing the discussion.