[IP] eUSD Collateral Basket Change Proposal 4

Electronic Dollar (eUSD) eUSD RFC
1

Summary

Remove DAI in the DAI Savings Rate from the collateral basket. Increase the number of assets in the collateral basket for scalability and growth purposes.

Current Basket:
33% sDAI - Supply APY: 11.5%
33% Aave v3 USDC - Supply APY: 11.6%
33% Comp v3 USDT - Supply APY: 11.5%

Proposed Basket:
25% Comp V3 USDT - Supply APY: 11.5%
25% Aave V3 USDT - Supply APY: 9.6%
25% Comp V3 USDC - Supply APY: 11.5%
25% Aave V3 USDC - Supply APY: 11.6%

Abstract

The proposed proposal, if enacted, would remove the DAI Savings Rate and create an underlying asset composition of 50% USDC and 50% USDT.

Problem Statement

MakerDAO has rebranded to the Sky Ecosystem. They have launched a new stablecoin called USDS and are prioritizing the new SSR(Sky Savings Rate). USDS is an upgraded version of DAI, and the DeFi industry as a whole is moving away from DAI and the DSR(DAI Savings Rate).

DAI is now considered to be a legacy asset. While there are no concrete plans to completely deprecate DAI, there is speculation that it could eventually be phased out or significantly modified.

Rationale

Due to current market conditions in DeFi, the risk-free rate is over 10% APY. This allows governors to shift away from prioritizing yield and to move towards prioritizing scalability.

By increasing the number of assets in the collateral basket from 3 to 4, the scalability factor also increases. The proposed 4 assets would handle an increase in Market Cap growth better than the current basket composition of 3 assets.

The proposed basket is a very similar composition to what eUSD originally launched with back in Feb of 2023. The only difference is that in the proposed basket, there exist the newest markets for each protocol.

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Aave:
Aave is a decentralised non-custodial liquidity protocol where users can participate as suppliers or borrowers. Suppliers provide liquidity to the market while earning interest.

  • Aave V3 USDT will be the supply position in this market.
  • Aave V3 USDC will be the supply position in this market.

Compound:
Compound Finance is a decentralized platform that allows users to supply and borrow crypto assets.

  • Compound V3 USDT will be the supply position in this market.
  • Compound V3 USDC will be the supply position in this market.

Risks

The USDC exposure of the basket will increase from 33% to 50%. The USDT exposure of the basket will increase from 33% to 50%.

It would not be wise for governors to leave a legacy asset(DAI) in the basket. The risk profile of eUSD will improve by removing a legacy asset that could potentially face deprecation in the future.

There are smart contract risks. The Reserve Protocol has undergone 9 audits, this is not a guarantee that there will never be an exploit, but it greatly reduces the risk.

There are underlying protocol risks with Compound and Aave, however DeFiSafety.com has rated Compound V3 at a score of 80% and Aave V3 at a score of 93%.

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  • Yes, I am for this proposal
  • No, I am against this proposal
0 voters
2

A few questions

  1. What does this “legacy asset” label matter for Dai? Who gave it that label and why do we care what they have to say? Is there evidence that Dai liquidity is drying up?

  2. If the primary motivation is to avoid DAI why not switch to USDS? Is that the plan once it’s more established? If so why not wait until then?

  3. “ Due to current market conditions in DeFi, the risk-free rate is over 10% APY.” First of all where is this “risk free” 10%? lol. And just because yields are nice right now doesn’t mean action is demanded right now. What’s the connection?

  4. More of a statement, but logically there’s no reason having 4 tokens in the basket will scale better than 3, or less. It depends on the individual liquidity behind each.

2 Likes
3

Excellent questions above from tisl. My only other question would be the following:

  1. Could we get a break down of the average APRs from each proposed asset over the last 30 days?

It might also be good to get Ugly Cash’s/Gabo’s opinion on this since they are having to deal with El Salvador’s hesitantcy on re-adding EUSD back into their financial app.

4

Thanks @tisl for the feedback, I have answered your questions below. Hopefully this can maybe sway your opinion of this proposal and change your vote to a yes:

  1. What does this “legacy asset” label matter for Dai? Who gave it that label and why do we care what they have to say? Is there evidence that Dai liquidity is drying up?

The legacy label for DAI is to let governors know there is a newer version of the software running called USDS.

Below is the DAI market cap chart on Coingecko. Over the last 3 months the market cap of DAI went from well over ~5b$ to now currently ~3.4b$. In that same time period USDS has grown to a market cap of ~5.3b$

Screenshot 2024-12-24 at 4.55.43 PM
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I would say that there is a clear trend in which direction the liquidity is going. For USDS, the trend has been going up and for DAI, the trend has been going down.

There is further evidence of this in both Aave and Compound. In Aave the USDS market is being incentivized with SKP rewards and additional USDS rewards. The DAI market in Aave is not being incentivized. In Compound there is a USDS market but there is not a market for DAI.

DAI is still very present in Curve. I do not know what’s in store for that liquidity.

The DAI Savings Rate(sDAI) is at 11.5% APY and the Sky Savings Rate for USDS(sUSDS) is at 12.5% APY. This is further evidence that shows The Sky Ecosystem is prioritizing their newer stablecoin USDS over DAI.

  1. If the primary motivation is to avoid DAI why not switch to USDS? Is that the plan once it’s more established? If so why not wait until then?

The ABC Labs core team will need to develop a plugin for sUSDS in order for this asset to be considered in the collateral basket. However, with the announcement of the new Index protocol and the focus on DTF’s the team does not have the bandwidth to create a new plugin at this time. But I believe creating an sUSDS plugin is in the pipeline and will eventually make its way to the register app. There is no timeline for this and I think it’s best to not wait for this plugin to be developed in order to improve the eUSD collateral basket.

  1. “ Due to current market conditions in DeFi, the risk-free rate is over 10% APY.” First of all where is this “risk free” 10%? lol. And just because yields are nice right now doesn’t mean action is demanded right now. What’s the connection?

Generally speaking, in the past a good place to understand the “risk-free” rate was to look at what the DAI Savings Rate was offering. Currently the DSR(sDAI) is at 11.5% APY. The new Sky Savings Rate for USDS(sUSDS) is at 12.5% APY. Both of these numbers are probably worth looking at to determine what the “risk-free” rate is in DeFi.

Additionally it might be worth looking at Aave and Compound to see what users are paying/earning to borrow and lend both USDC and USDT.

Aave V3 USDC Supply APY - 11.6%
Aave V3 USDT Supply APY - 9.6%
Comp V3 USDT Supply APY - 11.5%
Comp V3 USDC Supply APY - 11.5%

  1. More of a statement, but logically there’s no reason having 4 tokens in the basket will scale better than 3, or less. It depends on the individual liquidity behind each.

The reason it would make sense to have 4 assets in the collateral basket instead of 3 is the following:

If we imagine a scenario where eUSD grows to 100m$ Market cap. In the current composition that would mean that approximately 33m$ would be deposited into Aave USDC, 33m$ would be deposited into sDAI and 33m$ would be deposited into the Compound USDT.

According to DeFiLLama the TVL in Aave USDC is 229m$. This means with our 33m$ that we deposited into the Aave(USDC) position, we are exceeding 10% of the liquidity. While this is not a major problem, it starts to push the risk profile(slighlty) of eUSD if this were to occur.

Now if we imagine the scenario where there are 4 assets in the collateral basket each at a 25% weight and again we make it to 100m$ Market Cap for eUSD. The above problem is solved because now we are depositing about 25m$ into that Aave position and we are more aligned with not exceeding 10% of the liquidity.

1 Like
5

Proposed assets:

Aave V3 USDC Supply APY - 11.6%
Aave V3 USDT Supply APY - 9.6%
Comp V3 USDT Supply APY - 11.5%
Comp V3 USDC Supply APY - 11.5%

1 Like
6

In favor of this for two reasons:

  1. USDC and USDT are still probably safer that DAI. I’m a big fan of DAI, but USDC and USDT are more conservative and easier to understand.
  2. DAI is “defi backed” and is scary to some regulators. Even if risks were entirely equal, any conversations with regulators will be easier if DAI is not in the basket.
7

This feels like solving a problem that does not exist, “scalability due to TVL growth.” The real priority imo should be actually growing the TVL, and when that “is trending” we can reassess concerns about scalability.

Personally I’d rather see DAI in the basket over greater concentration of centralized stablecoins. Re: safety.

Also I am concerned about governance activity vs business results, and its potential burden on the few governance participants. Proposals like this with a problem that’s not a real problem create the illusion of activity, eat bandwidth, but don’t really move the ball. EUSD has proven its safety and has a strong yield profile. It’s working. IMO we should invest more resources in unblocking adoption. It’s no easy order that’s for sure. But every cycle, every proposal that is not addressing growth, is taking our eye off the ball and burdening the few resources that are allocated or volunteering.

I could be totally wrong on this but my hunch is it could be healthier for the community to do fewer and more impactful governance cycles until the RToken is at sufficient scale and attention to have a more active governance cadence. This is a somewhat unique to the reserve ecosystem because there are several RTokens with governors criss crossing all or many of them. Collectively this is a high governance load on several small things. I am being super sensitive here to governance energy conservation over exhaustion.

8

I’m in favor of this change.

The current understanding of some of the officials at the Salvadorean regulator is that DAI is sort of an algorithmic stablecoin that is something that. It would make it easier for regulators to familiarize themselves with eUSD, which already has complexities that need to be understood by regulators.

USDC and USDT are more familiar to those stakeholders, making it easier to understand eUSD.

Our priority is to grow eUSD, which goes along the lines of making stakeholders like regulators, banks, and other financial partners have their support this early, as, without it, the world of centralized financial entities would be more challenging to adopt.

1 Like
9

Thanks for this helpful additional context and specific framing @gabo.

Regulator support and comfort does indeed sound like it could be a growth problem/opportunity. I am in favor of the change. Onward and upward.

10

Hi.

I am also in favor of this change and agree with the comments from @mattimost and @gabo.

As well as USDC and USDT being simpler to explain to regulators, we find the same with end users, which helps them to accept eUSD as an alternative to holding those stablecoins directly.

Thank you for putting together the proposal, @0xTomSawyer

11

Thanks for the response.

I remain skeptical of the liquidity and Dai ‘legacy’ arguments but like 0xJMG I agree that removing crypto-backed stables to spur tradfi integration/adoption is a strong enough motivation on its own. Vote changed.

12

There is an overwhelming amount of support for this proposal. However, the Aave V3 USDT plugin does not exist.

So this proposal will be done in two steps onchain.

Step 1 will be swapping out sDAI for Comp V3 USDC.

Step 1:

Current Basket:
33% sDAI
33% Aave v3 USDC
33% Comp v3 USDT

Interim Step 1 Basket:
33% Comp v3 USDC
33% Aave v3 USDC
33% Comp v3 USDT

Once the Aave V3 USDT plugin exists, step 2 of this proposal will proceed with the proposed basket.

Step 2:

Interim Step 1 Basket:
33% Comp v3 USDC
33% Aave v3 USDC
33% Comp v3 USDT

Proposed Basket
25% Comp V3 USDT
25% Aave V3 USDT
25% Comp V3 USDC
25% Aave V3 USDC

2 Likes