[RFC] Collateral Basket Discussion: hyUSD Mainnet

Summary

Remove an asset(eUSD+FRAXBP Convex Pool) that will no longer accrue yield and start a discussion for what asset could potentially be a good replacement.

Current Basket:

33% Convex/Curve eUSD+FRAXBP pool soon to be 0% APY
33% Compound V3 USDC
33% sDAI

New Basket:

33% TBD
33% Compound V3 USDC
33% sDAI

Abstract

This proposal is going to look at several collateral assets by yield(where it comes from), market size, and minting costs.

Minting costs are a specific metric to consider for all RTokens on Ethereum. The more smart contracts in the collateral asset, generally, the higher the cost to mint. For example if we look at a Convex pool and compare it to sDAI. The Convex pool will have a much higher minting cost compared to sDAI.

Convex has a higher minting cost because of more layers of smart contracts compared to sDAI. The complexity of stacking smart contracts creates a higher minting cost if it’s in the collateral basket of a RToken.

Below is a Visual representation of the smart contracts in eUSD+FRAXBP pool on Convex compared to sDAI:

Collateral Plugin Examples Cost of Minting:
sDAI Low
Morpho Vault Medium
Convex Pool High

Collateral Assets Available to be Considered:

MetaMorpho:
Morpho Gauntlet Prime USDC Vault
Yield - 7% APY + Additional Morpho incentives.
Market Size - $15m

Origins of Yield - The yield comes from supplying USDC to the vault and sharing the interests paid by borrowers.

Ethena:
Staked Ethena(sUSDe)
Yield - 9% APY
Market Size $1.4b

Origins of Yield - The yield comes from 1) Funding and basis spread earned from delta hedging derivatives positions and 2) Staking Ethereum

Frax:
Staked FRAX(sFRAX)
Yield - 14% APY
Market Size $54m

Origins of Yield - sFRAX APY attempts to roughly track the interest on reserve balances (IORB) rate of the United States Federal Reserve using the IORB oracle. This benchmark rate is generally accepted as the “risk free rate” of the US Dollar. The FRAX staking vault attempts, but does not guarantee in any way, to target this rate.

Convex Pools:
USDC/crvUSD
Yield - 11% APY
Market Size $7.9m

USDT/crvUSD
Yield - 10% APY
Market Size $7m

Origins of Yield - Curve operates such that veCRV holders can decide where future CRV emissions are directed to. Typically, these emissions are allocated to a liquidity gauge. However, before gauges are eligible to receive CRV emissions, they must be added to the GaugeController.vy contract. This addition requires a successfully passed DAO vote. Once added, the gauge becomes eligible for gauge weight voting. When a gauge receives gauge weight through user votes, it starts to receive CRV emissions. On Convex the projected APR comes from the yield percentage that is currently being generated by the pool, based on the current TVL, current Curve Gauge boost that is active on that pool and rewards priced in USD.

Problem Statement

The yield on the eUSD+FRAXBP part of the basket will go to 0 as there will be no more incentives directed towards that pool.

Rationale

Swaping eUSD+FRAXBP pool on Convex for any of the above options would result in an increase in yield for hyUSD holders.

Risks

The risks lie in keeping an asset in the collateral basket with 0 yield.

The following additional risks for each collateral asset should also be considered:

Liquidity risks, can the collateral be swapped without exceeding 10% of the liquidity of the asset or position being considered. Given hyUSD’s current market cap, it indeed can swap out for any of the above collateral.

Smart contract risks. These risks can be mitigated through a series of audits and bug bounties.

Sustainable yield risks. Will the current selection of assets being considered be able to maintain their yield once in the hyUSD collateral basket?

  • Morpho Gauntlet Prime USDC Vault
  • Staked Ethena(sUSDe)
  • Staked FRAX(sFRAX)
  • USDC/crvUSD Convex
  • USDT/crvUSD Convex
  • I would like to discuss other options
0 voters
1 Like

Among those, I think Convex USDC/crvUSD is the simplest position, and it’s likely to keep getting Curve incentives as that protocol is interested in keeping their stablecoin liquid and productive.

I’m fine with any of the proposed options instead of the current one, they are all much better.

Any of the options is better than the current one. Would be best to pick the one with the highest yield.