TEMP CHECK: Onboarding Yield Bearing Stables to thUSD

General
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Proposal Summary

This proposal is a temperature check for exploring the addition of a/ multiple yield-bearing stablecoins as collateral assets for thUSD.

Background

From the thUSD steering committee’s research, the usecase for CDPs (mostly based on LUSD) are as follows:

  • 65% - DeFi

Liquidity, Lending, Stablepool (15-20% utilisation here)

  • 5% - Fiat Purchases

Cheaper to borrow than traditional finance, especially in volatile countries.

However, it’s a long process and users have to be DeFi savvy.

LUSD was integrated with card payments but there wasn’t much demand.

  • 30% - Leverage

Users were mainly looping and buying ETH with LUSD (on average 2.2x leverage)

Current yield opportunities

Users can only get a yield on their thUSD by providing liquidity right now.

The constraint to allow users to provide liquidity in single-sided yield opportunities lies in having an oracle, to acquire an oracle (chainlink, pyth, redstone), the token needs to be doing approx 2M in daily volume.

For context, tBTC hit the 100m TVL mark before it met this requirement. In addition to this, bluechip lending platforms tend to only accept assets that have 5M in liquidity.

How do we reach these volume requirements?

As per our research in the thUSD growth strategy (thUSD Growth Strat - Google Docs).

Our initial plan is to push on the leverage narrative to reach these volumes, this is a slow process as the tBTC/thUSD pool has low liquidity right now which limits the amount of tBTC that can be levered.

How can we accelerate this process?

We are in the process of pairing thUSD with a yield-bearing stable to help with thUSD peg.

If we added a (or multiple) yield-bearing stable(s) as collateral assets to thUSD, users could loop their yields. For example:

  1. Hold sUSDS (approx 6% apy)
  2. Mint thUSD
  3. Swap for sUSDS
  4. Back to 1.

From speaking to the MakerDAO team, users are on average getting a 22% yield on their sUSDS from looping strategies.

Benefits

  • The utilisation of the pool will increase, more fees will result in increased liquidity.
  • Since utilisation also increases, so does thUSD volume…
  • Gives an opportunity for users to get yield on their thUSD.
  • Secondary benefit of more fees being generated from the one-off minting fee.

This increased volume and liquidity should bootstrap thUSD volume, meaning it will reach the requirements of both oracles (volume) and lending markets (liquidity for liquidations), resulting in a single-sided yield opportunity for thUSD.

Risks

  • Additional collateral means more risk vectors for thUSD (bad debt).
  • Some yield-bearing stablecoins are not as decentralised as thUSD’s current collateral
  • Should one of these yield-bearing stables depeg, then the unravelling of looping positions is more complex than simple minting.

Mitigating Risks

Should there be support for this temp check, the thUSD steering committee would launch an investigation into the most aligned stablecoins, run a thorough risk report on the chosen stablecoin and the risks of looping.

Voting

This is not a proposal to be voted on, it is to be used as medium to align the steering committee with the wishes of Threshold Network’s DAO participants.

2 Likes
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I like the idea of that being an asset, but I don’t like the idea of that being the asset thUSD. thUSD, when explained, gets its appeal due to the very specific underlying assets it currently uses (in my experience). Diluting that would close off opportunities for adoption.

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Hello Ethan
Thanks for the Temp Check. Great to see the Streering Committee is looking for more incentives to increase thUSD volume and usage.

The idea looks interesting and and loop flow is straight forward. But in the other hand, for the current moment I see more DeFi savvy doing it rather than general public would do with tBTC or ETH as collateral to mint and use thUSD.

A note to say about Sky Money’s newer USDS stablecoin is that currently it is only available on Ethereum mainnet and Base. thUSD is only on Ethereum mainnet (not considering BOB) which is very uninviting for lower and medium amounts (which helps to bring awareness) due to always high transaction fees there.
Therefore I feel that it would have much better results when thUSD is also available on Base at least for the sUSDS example.

Despite the limitation you mentioned to get thUSD listed on bluechip lending platforms when it gets there it can certainly be a boost, perhaps smaller ones that may not have that requirement can be explored as well.

1 Like