[RFC] eUSD Rev Share with Fintech Apps

[mattimost]

[RFC] - eUSD Rev Share for Fintech Apps

Distribution is critical and at the same time very difficult for stablecoins. At the same time, eUSD has an overabundance of overcollateralization. This creates an interesting opportunity for eUSD governors to potentially grow the usage and market cap of eUSD.

Proposal: eUSD should share underlying revenue with distribution partners, starting with fintech apps, who use and promote eUSD for their customers.

TLDR Reasoning: This could lead to the revenue for governance being overall higher in the long term even though it means giving up some yield right now.

What is eUSD?

eUSD, the Electronic Dollar, is censorship resistant and safety-first stablecoin that brings together diversified, highly liquid backing with anti-bank run overcollateralization.

It is 1:1 backed with USDC and USDT deployed in Aave V3, Compound V2, and Compound V3.

Read Llamarisk report on eUSD here: Asset Risk Assessment: Reserve Protocol (eUSD)
Read about how eUSD successfully handled the USDC depeg here: Asset Risk Assessment: Reserve Protocol (eUSD)

Why does eUSD need distribution?

Distribution for stablecoins is hard. Circle, Paxos and other stablecoin issuers spend large amounts of capital partnering with companies and platforms to increase usage of their respective stablecoins. This oftentimes comes in the form of sharing the underlying yield with partners and platforms to promote usage of their respective stablecoins. These partners then use this revenue to either fund their business model or share it with users in the form of “rewards” to incentivize users to deposit more funds into the stablecoin balances.

A prime example of this is USDC and Coinbase. Coinbase has been a close partner of Circle since the consortium was originally launched almost 6 years ago. Today the partnership generally functions like this:

Coinbase and Circle will continue to generate revenue from USDC reserves interest income. Under the parties’ new arrangement, this revenue will continue to be shared based on the amount of USDC held on each of our platforms, and additionally we will now equally share in interest income generated from the broader distribution and usage of USDC.

This enables Coinbase to have a Rewards program, currently offering over 5% yield to customers who hold USDC balances on Coinbase and generally, USDC underlying revenue share has become a huge piece of Coinbase’s overall revenue as a public company. And Coinbase is probably the primary way that people around the world access and use USDC. It is a valuable partnership for both parties!

The USDC pie has grown larger over time, as have others before like Visa.

How can eUSD governors test out a program like this?

eUSD governors should create a public program for fintech apps who promote eUSD usage on their platforms and give those platforms flexibility on how they would like to use their portion of underlying yield generated by the eUSD balances on their respective platforms.

Since this is 1) a test and 2) a growth promotion, I propose that eUSD governors share 100% of the underlying yield generated by fintech platforms’ balances as a test period, and over time scale this back once the program has been proven to work.

Fintech apps can use this revenue however they deem most effective. They can share it with users in the form of “Rewards”, similar to Coinbase. They can also just use it to fund operations. Or something else that we can’t think of right now. The beauty of a program like this is that it harnesses the creativity of other active small teams to grow the usage of eUSD with a simple aligned incentive model.

Proposed Program and How It Works

This will be a test. It won’t be perfect and it will likely require some small operational overhead.

• Fintech apps can submit their customer wallet addresses and a yield destination address in the forum.
• eUSD governance can add these destination addresses to the eUSD revenue distribution table.
• Every month (or every two weeks), governance can check fintech wallet balances, and if changed by ±2%, then propose and execute a proposal to shift the revenue share of eUSD.
• The eUSD yield distribution % for each fintech app will be the % of eUSD supply held in the fintech app wallets.

If this program takes off and certain fintech apps get to much larger scale, governance can shift the revenue share back from 100% of underlying revenue. But for now, to promote growth it can start at 100% to give apps the best chance at success.

Can eUSD afford this?

Short answer is, I believe, yes. The overcollateralization for eUSD has been around 100% for many months now. No platform or stablecoin in the basket has more than 50% exposure. eUSD governance is currently funding something that is overfunded!

A potential long term policy might be to set a target overcollateralization level and only decrease the revenue share for fintech apps if/when needed to maintain that percentage.

• For instance, eusdRSR could target 50% overcollateralization. If the eusdRSR overcollateralization dips below that number, the revenue share with fintech apps could be reduced until that number is maintained.
• 50% might not be the right number here, it might be anywhere in the range of 25% - 50%, probably depending on the assets and protocol exposure in the basket and the expected loss scenarios of those assets/protocols. The largest single exposures in today’s basket is Aave v3 at 50%, USDC at 50%, and USDT at 50%.

FAQs

Will fintech apps be willing to trust eUSD governance to continue to pay this revenue share?

• For now, this will require some trust by fintech apps in eUSD governance to continue this program. Ideally these partnerships can be encoded in smart contracts in the future to enable various fintech apps to rely on eUSD yield as a part of their business model.

Why should fintech apps use eUSD instead of launching another RToken with a more reliable yield share model?

• Bigger stablecoins are most useful to consumers. By using eUSD, fintech apps can rely on the existing market cap, lindy-ness, and existing defi liquidity of eUSD. If multiple fintech apps take advantage of this program, it can also make eUSD more useful to the users in their apps because there will be more ways they can use the balances.

How can this be more decentralized, trusted, and automated in the future?

• An onchain processor can check balances of wallets and automatically adjust yield share periodically. There are a few potential technical ways to implement this but all of them will require engineering work. Before eUSD governance decides to invest in making this more robust, we should test out the “handshake” version with monthly governance proposals and yield share adjustments.

Won’t this lower the yield on eusdRSR?

• Not very much in the short term. The eUSD marketcap that comes from these fintech app balances will mostly be net-new marketcap of eUSD. What it will do is lower overcollateralization of eUSD, but as mentioned above, eUSD can likely afford quite a bit less overcollateralization. The hypothesis here is that increasing the distribution of eUSD with more consumers worldwide will increase the overall eusdRSR revenue in the long term.
• Current Sentz Bridge Balance is $510,002 eUSD → ~$35k annually at today’s rates.
• Current Ugly Cash Balance is $783,950 eUSD across two wallets (one and two) → ~$55k annually at today’s rates.

• eUSD should move forward with this revshare test with fintech apps that use eUSD
• Don’t implement

[zkOps]

@mattimost

Gov Proposal - eUSD Rev Share for Fintech Apps

Distribution is critical and at the same time very difficult for stablecoins. At the same time, eUSD has an overabundance of overcollateralization. This creates an interesting opportunity for eUSD governors to potentially grow the usage and market cap of eUSD.

Proposal: eUSD should share underlying revenue with distribution partners, starting with fintech apps, who use and promote eUSD for their customers.

TLDR Reasoning: This could lead to the revenue for governance being overall higher in the long term even though it means giving up some yield right now.

Why does eUSD need distribution?

Distribution for stablecoins is hard. Circle, Paxos and other stablecoin issuers spend large amounts of capital partnering with companies and platforms to increase usage of their respective stablecoins. This oftentimes comes in the form of sharing the underlying yield with partners and platforms to promote usage of their respective stablecoins. These partners then use this revenue to either fund their business model or share it with users in the form of “rewards” to incentivize users to deposit more funds into the stablecoin balances.

A prime example of this is USDC and Coinbase. Coinbase has been a close partner of Circle since the consortium was originally launched almost 6 years ago. Today the partnership generally functions like this:

Coinbase and Circle will continue to generate revenue from USDC reserves interest income. Under the parties’ new arrangement, this revenue will continue to be shared based on the amount of USDC held on each of our platforms, and additionally we will now equally share in interest income generated from the broader distribution and usage of USDC.

This enables Coinbase to have a Rewards program, currently offering over 5% yield to customers who hold USDC balances on Coinbase and generally, USDC underlying revenue share has become a huge piece of Coinbase’s overall revenue as a public company. And Coinbase is probably the primary way that people around the world access and use USDC. It is a valuable partnership for both parties!

The USDC pie has grown larger over time, as have others before like Visa.

How can eUSD governors test out a program like this?

eUSD governors should create a public program for fintech apps who promote eUSD usage on their platforms and give those platforms flexibility on how they would like to use their portion of underlying yield generated by the eUSD balances on their respective platforms.

Since this is 1) a test and 2) a growth promotion, I propose that eUSD governors share 100% of the underlying yield generated by fintech platforms’ balances as a test period, and over time scale this back once the program has been proven to work.

Fintech apps can use this revenue however they deem most effective. They can share it with users in the form of “Rewards”, similar to Coinbase. They can also just use it to fund operations. Or something else that we can’t think of right now. The beauty of a program like this is that it harnesses the creativity of other active small teams to grow the usage of eUSD with a simple aligned incentive model.

Proposed Program and How It Works

This will be a test. It won’t be perfect and it will likely require some small operational overhead.

• Fintech apps can submit their customer wallet addresses and a yield destination address in the forum.
• eUSD governance can add these destination addresses to the eUSD revenue distribution table.
• Every month (or every two weeks), governance can check fintech wallet balances, and if changed by ±2%, then propose and execute a proposal to shift the revenue share of eUSD.
• The eUSD yield distribution % for each fintech app will be the % of eUSD supply held in the fintech app wallets.

If this program takes off and certain fintech apps get to much larger scale, governance can shift the revenue share back from 100% of underlying revenue. But for now, to promote growth it can start at 100% to give apps the best chance at success.

Can eUSD afford this?

Short answer is, I believe, yes. The overcollateralization for eUSD has been around 100% for many months now. No platform or stablecoin in the basket has more than 50% exposure. eUSD governance is currently funding something that is overfunded!

A potential long term policy might be to set a target overcollateralization level and only decrease the revenue share for fintech apps if/when needed to maintain that percentage.

• For instance, eusdRSR could target 50% overcollateralization. If the eusdRSR overcollateralization dips below that number, the revenue share with fintech apps could be reduced until that number is maintained.
• 50% might not be the right number here, it might be anywhere in the range of 25% - 50%, probably depending on the assets and protocol exposure in the basket and the expected loss scenarios of those assets/protocols. The largest single exposures in today’s basket is Aave v3 at 50%, USDC at 50%, and USDT at 50%.

FAQs

Will fintech apps be willing to trust eUSD governance to continue to pay this revenue share?

• For now, this will require some trust by fintech apps in eUSD governance to continue this program. Ideally these partnerships can be encoded in smart contracts in the future to enable various fintech apps to rely on eUSD yield as a part of their business model.

Why should fintech apps use eUSD instead of launching another RToken with a more reliable yield share model?

• Bigger stablecoins are most useful to consumers. By using eUSD, fintech apps can rely on the existing market cap, lindy-ness, and existing defi liquidity of eUSD. If multiple fintech apps take advantage of this program, it can also make eUSD more useful to the users in their apps because there will be more ways they can use the balances.

How can this be more decentralized, trusted, and automated in the future?

• An onchain processor can check balances of wallets and automatically adjust yield share periodically. There are a few potential technical ways to implement this but all of them will require engineering work. Before eUSD governance decides to invest in making this more robust, we should test out the “handshake” version with monthly governance proposals and yield share adjustments.

Won’t this lower the yield on eusdRSR?

• Not very much in the short term. The eUSD marketcap that comes from these fintech app balances will mostly be net-new marketcap of eUSD. What it will do is lower overcollateralization of eUSD, but as mentioned above, eUSD can likely afford quite a bit less overcollateralization. The hypothesis here is that increasing the distribution of eUSD with more consumers worldwide will increase the overall eusdRSR revenue in the long term.
• Current Sentz Bridge Balance is $510,002 eUSD → ~$35k annually at today’s rates.
• Current Ugly Cash Balance is $783,950 eUSD across two wallets (one and two) → ~$55k annually at today’s rates.

This is a good idea. I am personally interested in this for an early stage Dapp. A few things to think about below, keep in mind I’m new here and only discovered this protocol a few weeks ago.

Risk Management:

• What measures are in place to manage the risk of overcollateralization dipping below safe levels?

• How will governance ensure fintech apps do not excessively deplete eUSD reserves?

• Implementation Details:

• How will the yield distribution to fintech apps be monitored and adjusted? Dune??

• What criteria will fintech apps need to meet to qualify for this program?

[ReserveFlamingo]

@mattimost

distribution partners, starting with fintech apps,

Are there any interest distribution partners/fintech apps already? Besides Sentz/UG already.
I like the idea.

[mattimost]

@zkOps

• What measures are in place to manage the risk of overcollateralization dipping below safe levels?

In the beginning, would have to rely on governance participants monitoring. IMO there is a large enough buffer that this would be fine in the beginning. If this takes off, a more robust and scalable solution can be explored.

@zkOps

• How will governance ensure fintech apps do not excessively deplete eUSD reserves?

Think what you are asking is related to the first question. But otherwise, supply and demand of eUSD can be scalably responded to by the market. If price dips below $1, then arbitragers are incentivized to buy eUSD and redeem for underlying. If price goes above $1, then arbitragers are incentivized to mint eUSD and swap for USDC on market. Both of these actions can actually be done atomically for 0 risk arbs.

@zkOps

• How will the yield distribution to fintech apps be monitored and adjusted? Dune??

Could start just using etherscan but a Dune dashboard could definitely be created for this.

@zkOps

• What criteria will fintech apps need to meet to qualify for this program?

Great question, I’m not sure on best qualification to start. But maybe “app that uses eUSD as a first-class currency” could be a light first definition to get this moving that could be more codified over time.

[mattimost]

@ReserveFlamingo

Are there any interest distribution partners/fintech apps already? Besides Sentz/UG already.
I like the idea.

Big questions is if particular defi integrations could/should qualify. You could imagine a Morpho Blue lending market that enables “free” borrowing that is subsidized by Aave/Compound lending markets.

Alternatively, could stick to “apps that use eUSD as a first class currency” (as mentioned in comment above) as a first definition and do governance polls to determine if new ones qualify.

[gabo]

Hey everyone,

I believe eUSD is perfectly positioned to launch a program that allows fintechs to generate a revenue stream from it. This revenue can be a valuable source for creating marketing incentives that promote the usage of the stablecoin within their platforms.

Many fintech applications offer similar incentives, but often by lending customer assets (the traditional banking way), providing incentives for holding specific assets (like USDC on Coinbase), or by holding direct exposure to one DeFi collateral.

With eUSD, fintechs can hold the stablecoin and receive incentives without lending the asset. This allows us to compete effectively and offer attractive incentives to our customers.

This week, we are launching a pilot program called Ugly Cash Earn. This program will start with a lower APY than what we could offer with the incentives program, but it demonstrates our readiness to participate and leverage this protocol’s capability.

Ugly Cash Earn will reward customers for holding their eUSD balance on Ugly Cash. Initially, this will be available only in Latin America. We’ll start by using BFF’s existing funding to incentivize holding eUSD within the app. If this governance proposal is approved and we start earning income from our customers’ eUSD balances, that would allow us to scale this program up since we would not longer be taking a loss on it, and potentially give us the leverage to extend it to other regions.

[kennyrowe]

Interesting idea. Distribution is key to the success of eUSD.

@mattimost

Fintech apps can submit their customer wallet addresses and a yield destination address in the forum.

This is probably a hard no for a lot of reasons. We shouldn’t be soliciting customer information of any kind. Instead a better approach would be to request a single wallet address of a partner company/protocol and allow them to distribute rewards to their customers.

I think for something like this to work a dedicated business development lead (BD) might be necessary. Furthermore a pilot program of just one partner might be easier to measure success.

https://summer.fi/ could be a great partner here.

[Mallo]

As an experiment I think this is a good idea, but I think we need a framework for allowing rewards to go to a certain address in the first place - not ‘trust me bro’ big app coming.

I think some form of projection of volumes and reward structure would be useful to show how things might look at $100M and $500M / $1Bn for example.

As an aside how would this affect the LP situation with eUSD as there are a lot of DeFi integrations with Aerodrome and Beefy.

[mattimost]

good idea on summer.fi!

to clarify on the customer wallet addresses: I meant it as the “wallet address that the fintech holds customer funds in”. This method only works for omnibus wallet set ups where the fintech app is managing the balances for customers within a single onchain wallet. End user privacy would not be compromised.

[mattimost]

@Mallo

As an experiment I think this is a good idea, but I think we need a framework for allowing rewards to go to a certain address in the first place - not ‘trust me bro’ big app coming.

Agree. Good to test in the beginning with this manual process.

In future, it could be possible to do wallet ownership attestations with zk coprocessers.

But at least since the amount of rewards being shared is dependent on the wallet balances submitted by fintech apps, the “trust me bro” aspect isn’t too risky.

[mattimost]

Hi all - I updated the post and added a poll to make this a proper RFC. Please share your thoughts!

Tagging with people who have interacted:

• @Smeddy @zkOps @gabo @VASTO @rspa_StableLab @ReserveFlamingo @starl3xx
• @kennyrowe @Mallo

[mattimost]

Given the positive feedback so far. Planning to move this vote onchain on Monday.

@gabo and @henry - if Ugly Cash and Sentz would like to be included in initial allocations, please post here with:

1. wallet addresses to track balances
2. destination address to send revenue

[Crypto_Goku]

this post i made yesterday in the slower Wallet discussion has to do a lot with here too so i copy the link here …

Discussion: RSR emissions approach for the second half of the token supply

I would like to contribute a potential way to effectively use the RSR from the Slower Wallet. One possibility is to directly incentivize the staking rewards on eUSD, for example, with 10-20% APY (or even higher?). In the long term, 1-2 billion RSR could be allocated for this purpose. This would lead to a significant increase in staking, resulting in eUSD being overcollateralized by 200-300% or even more. Why do this? By doing so, we could take 100% of the interest generated by the eUSD collate…

[henry]

Thanks for putting together this proposal and shepherding it through the off-chain review and on-chain voting process.

For Sentz, please use the following wallet addresses:

1. wallet addresses to track balances: 0x30DA4EB397215cF407C46854CA7188f4e60F3402
2. destination address to send revenue: 0x2e3F334f9035aAB204347508415dEc785cd5075E

[gabo]

Thanks, @mattimost, for moving the discussion forward.

All eUSD related to BFF’s activities will be distributed among these wallets, both on the Ethereum main chain and on Base:

• 0x45BEd44e035d1c3220830a4DD1c9dF61F207Bd81 (Base)
• 0x4fddece89a1bdeab8114d4c1399bc9acefdeda5a (Base)
• 0xf1ba7e83bf67620dc3c4a9d69ab30dd78acc963c (Base)
• 0x5918ebb3CC7945255347B700Ffe9F5Ebf467f673 (Ethereum)
• 0x8b34FFf1FCb661ac08fBB6a256Bab3230c8456F8 (Ethereum)
• 0x12ec148a193BA7b3a141ce6d02AdE326883d28D9 (Ethereum)

The eUSD revenue share from the protocol should be directed to the following wallet that is also mentioned above:

• 0x12ec148a193BA7b3a141ce6d02AdE326883d28D9 (Ethereum)

[mattimost]

Added context on “what is eUSD” at top to remind readers

[mattimost]

@claude mind sharing more on why eUSD shouldn’t do this?

[Braden]

I am in support of this proposal. Happy to see it move on chain quickly. Thank you Thomas for putting in the work to develop it.

@Ben I understand you are with Bismarck Analysis. “Visa Collects the Consumerism Tax”, a piece put out by Bismarck, is relevant to this discussion, and I think it would be beneficial to share that article without a paywall to those in this forum that would be willing to read it. Can you help in this regard? Thank you.

[Crypto_Goku]

I also agree with the proposal, as it only involves a very small redirection of eUSD profits, which will be hardly noticeable for all stakers. I find it more efficient to forward 100% of the interest to Fintech companies. To achieve this, I would recommend and support incentivizing staking from the RSR out of the Slower/Slow Wallet as I mentioned in my post under the section: “RSR Emissions approach.” This would not lead to a reduction in the number of stakers.

[Ranger]

This is a good idea. Instead of rewarding us with the buybacks, we can reward fintechs with the generated yield and reward stakers from the Slow Wallet. Make it a fixed schedule so we have emission halvings simmilar to Bitcoin’s mining halvings as it would create positive psyschological benefits on the market and help alleviate the elephant in the room (50% of supply in the teams hands).