Summary
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Adopt the eUSD collateral methodology and eligible collateral universe as the basis for ongoing USD3 basket management.
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Avoid duplicating methodology development given declining interest and backing in USD3 and uncertainty around its longer-term role.
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Review the existing basket, prioritising replacement of the Morpho Steakhouse V1 position now that Morpho V2 plugins are available.
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Revisit the longer-term approach following the 15 October community call, which may provide more information on the curation of forthcoming USD Index DTFs.
Problem Statement
USD3’s collateral basket was last changed on 13 July 2025 and continues to hold 25%, approximately $425k, in Morpho Steakhouse USDC through a V1 plugin despite Steakhouse encouraging migration away from V1 vaults. While this allocation requires attention, there is also a wider question around how we continue to govern USD3 as interest and backing decline.
Given the expected introduction of USD Index DTFs, developing a separate methodology for USD3 is a proportionate use of time. Its longer-term role is unclear and, depending on how these new products develop, we may be considering winding down USD3 in the short to medium term. This has not been decided, but it should inform how much work we commit to a separate framework.
In the meantime, USD3 still has holders and backing that require active management. We need a clear basis for reviewing and updating the basket while we establish what its future should look like.
Rationale
I propose adopting the methodology developed for eUSD as the basis for managing USD3’s collateral basket. Given the significant overlap between their mandates, the collateral selection criteria, allocation limits and monitoring framework provide a suitable starting point without repeating work already completed.
This would allow governors to assess USD3 allocations using the same framework and eligible collateral universe as eUSD. USD3 would retain its own governance approval process, with allocations assessed against its mandate and backing size.
Basket Change Proposal
This RFC proposes adopting eUSD’s upcoming collateral basket for USD3: 25% Aave USDT, 25% Compound USDC V3, 30% Gauntlet USDC Prime V2, 10% Gauntlet USDC Frontier and 10% Sentora PYUSD V2. This would replace the existing Morpho V1 position and increase estimated blended yield from 4.10% to 4.56%, an improvement of approximately 46bps or 11.2% in collateral revenue. Morpho exposure would increase from 25% to 50% and the diversification ratio would fall from 5.33 to 4.26, both remaining within the methodology’s limits. This is a reasonable trade-off given the increased yield and diversification remaining comfortably above the minimum of 3.0.
Adopting this basket alongside the eUSD methodology would address USD3’s immediate collateral needs and establish a shared basis for ongoing management. The community call on 15 October may provide more information on the curation of USD Index DTFs and help inform USD3’s longer-term direction. In the meantime, this proposal provides a concrete update for existing holders without committing resources to developing a separate methodology.
Risks
USD3 already uses Morpho, Compound and Aave, so replicating the eUSD basket would not introduce a new lending protocol. The main change would be Morpho exposure increasing from 25% to 50%, meaning a protocol-wide incident could affect a larger proportion of backing.
The replacement vaults and V2 plugins introduce different contract, curator and underlying lending exposures. Replicating the basket would also introduce USDT and PYUSD while removing USDS. These changes should be assessed against USD3’s mandate using the review already completed for eUSD.
The diversification ratio would fall from 5.33 to 4.26, remaining above the methodology minimum of 3.0. This should be weighed against the estimated 46bps yield improvement, with withdrawal liquidity and execution slippage checked before progressing a basket change to IP.
Risk Management
These risks would be managed through the allocation limits and ongoing review process established in the eUSD methodology. Particular attention should be given to Morpho concentration, changes in curator allocations and available withdrawal liquidity, including combined exposure where eUSD and USD3 hold the same vaults.
Before progressing a basket change to IP, the final allocation should be checked against USD3’s mandate. Subsequent reviews can draw on the monitoring completed for eUSD, with any material changes assessed for both baskets.
Conclusion
Adopting the eUSD methodology is a proportionate way to maintain active governance of USD3 while its longer-term future remains unclear. It provides a basis for addressing the existing V1 exposure, increasing yield in the near-term and managing future basket changes without developing a separate framework that may only be needed for a limited period.