Summary
This proposal suggests diversifying the collateral basket in order to improve the yield profile of High Yield USD on Base.
Current Basket:
50% Compound USDC - 6% APY
50% Aave USDC - 6% APY
New Basket:
25% Compound USDC - 6% APY
25% Aave USDC - 6% APY
50% sAMM-USDC/eUSD LP - 12% APY on Aerodrome Finance
Abstract
The proposed proposal, if enacted, would add the sAMM-USDC/eUSD LP position on Aerodrome Finance at 50% allocation and decrease the remaining Aave USDC and Compound USDC asset allocation from 50% to 25%.
Problem Statement
Currently the High Yield USD basket on base has only one asset in the collateral basket: USDC. The yield from both Compound and Aave USDC positions are lower than the asset in contention(sAMM-USDC/eUSD). The proposed proposal aims to further diversify and improve the yield profile of hyUSD.
Rationale
Aerodrome:
Aerodrome Finance launched on 28th of August, 2023 and is an AMM designed to serve as Base’s central liquidity hub. Aerodrome Finance inherits the contract architecture and full security maintenance from Velodrome V2, which includes several Spearbit audits and a bug bounty program with Immunefi.
The sAMM-USDC/eUSD LP pool contains two assets at approximately equal weight: USDC and eUSD, the rewards from this pool are incentivized by ABC Labs through Aerodrome’s “ve” system. The rewards are realized in the AERO token, which has significant market liquidity. The proposed proposal will increase diversification by introducing eUSD, but it will also increase the complexity of the basket. Gas cost will not be a factor due to L2’s cheap transaction cost, but the risk will be increasing by adding the additional smart contract complexity to the basket.
Electronic USD:
eUSD is a fully asset-backed currency (“RToken”) deployed on the Reserve protocol. RTokens feature onchain asset-backing, revenue sharing, overcollateralization and mint/redemptions, governed by RSR stakers.
eUSD is NOT natively deployed on Base, this proposal includes eUSD that has been bridged from Ethereum to Base and paired with USDC on Aerodrome.
Risks
The asset eUSD has never been seen in the High Yield USD basket on base. Eusd has been a part of the hyUSD basket on mainnet. To date Reserve has undergone 9 audits to mitigate smart contract risks.
This proposal Increases the smart contract complexity of hyUSD. Currently there are only two silos of smart contracts in the collateral basket(USDC on Compound and Aave). This proposal would add a third silo of smart contracts(Aerodrome Pool).
- Yes, I am for this proposal
- No, I am against this proposal