Summary
Remove 36.5% MIM+3Crv Pool on Convex and 13.5% Flux DAI from the collateral basket and replace it with 25% Morpho Aave V2 USDT pool and 25% sDAI - DAI Savings Rate respectively for the hyUSD Rtoken.
Current Basket:
13.5% fUSDC - Flux USDC.
36.5% Convex/Curve eUSD+FRAXBP pool.
13.5% fDAI - Flux DAI.
36.5% Convex/Curve MIM+3CRV pool.
New Basket:
13.5% fUSDC - Flux USDC.
36.5% Convex/Curve eUSD+FRAXBP pool.
25% Morpho Aave V2 USDT pool.
25% sDAI - DAI Savings Rate.
Abstract
Morpho:
Morpho is an on-chain peer-to-peer layer on top of lending pools. The Morpho Aave V2 USDT pool utilizes the Aave protocol, specifically the USDT pool. The proposed proposal, if enacted, would swap out the 36.5% of the collateral basket that is occupied with the MIM+3Crv pool on Convex and replace 25% with the Morpho Aave V2 USDT pool lending optimizer.
DAI Savings Rate:
The Dai Savings Rate (DSR) is a fundamental component of the Maker Protocol. Once locked into the DSR smart contract, Dai continuously accrues, based on a global system variable called the DSR. The proposed proposal, if enacted, would swap out the 13.5% of the collateral basket that is occupied withFlux DAI and the additional 11.5% from the MIM+3Crv pool and replace 25% with sDAI.
Problem Statement
The current basket for hyUSD contains 36.5% of the MIM+3Crv pool on Convex. The asset MIM has a history of depegging and is considered to be the most risky asset in the hyUSD collateral basket. This asset should be removed from the hyUSD basket.
The current basket also contains 13.5% of Flux DAI utilizing Flux Finance. While Flux Finance remains a very solid protocol in the basket(Flux USDC), there is a better alternative in the utilization of DAI. fDAI should also be removed from the basket.
The current basket makeup is utilizing only two protocols and should be further diversified. While Curve/Convex and Flux Finance have provided a good backing it would be wise to diversify across different avenues.
Rationale
Morpho:
Morpho adds a peer-to-peer layer on top of Aave allowing lenders and borrowers to be matched more efficiently with better interest rates. When no matching opportunity exists, funds flow directly through to the underlying protocol(in this case Aave).
Morpho has an excellent reputation for security. Lending positions are presumptively less risky than LP positions for their greater simplicity (just a single asset). Morpho has been live for over a year with audits completed by Pessimistic on July 25, 2022 as well as Spearbit on May 9, 2022 with several audits being completed in Beta.
The strategy utilizing the Morpho Aave V2 USDT pool currently provides 3.6% APR with [currently] unvalued MORPHO rewards on top which will accrue to hyUSD holders at some point in the future.
sDAI:
The DSR is a special module in the MakerDAO smart contract system that allows DAI holders to receive a share of the revenue earned by MakerDAO. The DSR revenue is generated through various mechanisms, such as stability fees.
This is one of the lowest-risk yield products in DeFi, has no IL(impermanent loss) risk, and its smart contracts have been battle tested. The system generates this revenue through various mechanisms, such as stability fees. The strategy utilizing the DAI Savings Rate provides 5% APY.
Consideration needs to be given to gas costs when minting hyUSD with the new collateral. This will likely increase and could potentially hinder new potential minters.
Risks
By adding Morpho and sDAI to the basket we will achieve an overall safer underlying basket for hyUSD by omitting the asset MIM and diversifying across different protocols. Consideration needs to be given to the APY for sDAI. Recently the APY of sDAI was raised to 8% and within 48 hours was changed again to 5%.
There was previous support for swapping the MIM+3CRV for Morpho Aave V2 USDT pool here:
- Yes, I am in favor of this proposal
- No, I am against this proposal