USD++ Revamp v2

USD++ Revamp v2

Author(s): @BlockEnthusiast, @Guzman_MassAdoption, @DanTop

Label: #Rebalance, #PieDAO, #Pies

Reference: USD++ Rebalance Proposal

Format based on: Pie Working Groups

Abstract: USD++ has gone a bit stale and needs a revamp to adapt to modern culture of stablecoin farming. We would like to propose a series of milestones to potentially be established which could lead towards USD++ being a competitive productive stable product.

A target setup would be farming across several stable pools on convex boosted by a Pie Owned Liquidity of CVX skimmed from rewards which captures additional earnings in the form of protocol fees and bribes.

Background: Stablecoin farming has evolved to encompass the following income streams:

  • Like Pegged Swaps

  • Like Pegged Swaps + Lending

  • Like Pegged Swaps + Farming

  • Like Pegged Swaps + Lending + Farming

  • Like Pegged Swaps + Staking + Farming

  • Like Pegged Swaps + LP Management + Farming

  • Like Pegged Swaps + Staking + LP Management + Farming

  • Everything above + boost

  • Lending

  • Selling Put Options

  • Automated Sales of Put Options

  • Protocol Coordinated Liquidity + Farming

  • Cross Chain Liquidity Channels

  • Cross Chain Liquidity Channels + Farming

  • Bonds

  • Bonds + Farming

  • Leverage + Everything above

We’ve come to find the current favored battlefield of stable yield is in Convex, a boost as service provider for Curve. Boost enables you to earn up to 2.5x more yield per liquidity provided up to a certain amount, based on your staked CRV supply. Convex provides boost often with even greater benefits than max boost despite rarely achieving the full boost in a pool due to the addition of its own token it offers.

Like peg swaps are the preferred venue for yield as protocols are most incentivized to stabilize their pegs through market incentives. Convex acts to the supply yield earning opportunity from Curve, partner protocols, and its own token. In addition, the staked Convex governance token can vote on Curve reward distribution, as well as its own. It can also handle accepting bribes quite well, with very strong returns.

While Uniswap recently unleashed its own 0.001% fee tier to better compete with Curve, it remains to be seen if this reduction in fees will overcome Curve’s superior efficiency.

In addition, current market narratives have shown us that Protocol Owned Liquidity can be quite powerful. This is something PieDAO has always experimented with, and I believe incorporating aspects of this philosophy in new ways could be quite fruitful.

While there are certainly opportunities beyond Curve/Convex, this should be the least effort for the most reward, and we can expand opportunities from there.

Proposal: This is a multi phase proposal which will slowly shift gears into a competitive position.

Phase 0: Set up basic yield with currently available opportunities (1 Month)

Get into a position where USD++ is earning so that liquidity can start assembling and signal to the market moves are being made. Ideally, we would like to utilize battle-tested interest-generating markets to offer & uphold a steady stream of revenue (interest). At launch we anticipate using: Aave, Compound, and Yearn to being and will deliberate & propose other scrutinized alternatives that will improve the overall quality and performance of USD++.

Phase 1: Assemble governance committee (1 Month)

This committee should meet in cadence aligned with weekly Curve voting to advise on rebalances. Prior to entering Curve, they should create a report detailing the selection of Curve pools.

I believe 4-6 pools should be enough distribution to minimize Mint and Redemption costs while still spreading opportunities and rotating as needed. This report should include considerations around slippage, available liquidity/reward, issuer risk, and further consideration they deem necessary.

Phase 2: Launch Convex Farming (1-3 Months)

Advised by the committee’s assessment, rotate assets into Convex pools and begin farming.

This also evolves the pool from a typical Pie to contain some new flavors. We should add an additional fee to the streaming fee. This should be a performance fee which captures a percent of yield earned. Its purpose will be to accumulate Pie owned CVX.

This CVX can be used to

  • Boost pools we are farming
    • Increase yield earned by liquidity deposited
  • Selectively accept bribes particularly when aligned with our farming targets.
    • This yield will be passed back to stakers as additional income
  • Earn Convex protocol fees
    • This yield will be passed back to stakers as additional income

We believe the benefits of this performance fee in the return to vault holders will be well worth the cost, though we should develop a marketing strategy to communicate those benefits by launch.

Phase 3: Launch Options Based Incentives (~6 Months)

Typically pies are liquid assets, which are provided a Farm, which rewards users for providing liquidity. However, stablecoins are quite competitive on market, and as we can see from reward opportunities, costly to incentivize.

For this reason, we think the Pie is best served by being a vault token without incentivized market liquidity much akin to Yearn Vault tokens at launch, until later phases where the liquidity can provide more direct benefits.

To do this there may be three distinct opportunities to maximize returns.

  1. Potentially sliding performance fee, akin to a Liquidity Bootstrapping pool which starts high and reduces over time to a target rate. This will allow us to more directly trade options based rewards for CVX captured by the Pie.
  2. KPI Options for target liquidity. This will set the principal we have to work with where the more principal the more CVX we can capture.
  3. Success Tokens for the Governance Committee. This allows the governance committee to get rewarded based on the extent they outperform a target rate of CVX earned incentivize maximizing yield generation
  4. (Optional) Pay Success Token in veDOUGH. This could provide the committee with some form of base reward after things get going, and could grant a committee itself voting power

Together with these three approaches, perhaps spread over 6 months, I believe we will achieve a significant amount of Pie Owned Liquidity in CVX, which will provide a floor of yield to our product, improve returns of our sought opportunities, and propel more liquidity into the Pie over time.

This yield bonus floor should always provide some benefit vs other markets for at least so much liquidity, and that liquidity will provide performance fees to grow the CVX stash. This will create a flywheel causing the vault to continuously grow over time.

Phase 4a: Ok, now time for liquidity

Liquidity is still competitive. I think there is really something to be said about providing access to opportunities where they are otherwise unavailable.

To this end, I think to launch liquidity, it may be best to incentivize it on on L2. This way we can bridge L1 opportunities onto L2 and enter a less intense competition for like peg products where these base opportunities are not otherwise present. I suspect the base yield will be in high demand on L2, and we can get the most bang for our incentives there.

This may be improved by rebasing the vault allowing easier UI for users to see $1 of stables equal to $1 of USD++. This may involve additional development work which may be an additional reason to put off incentivizing liquidity until a point after Convex Farming aspects are well established.

Phase 4b: Leverage Vaults (1-3 Months)

Leveraged vaults do not care much for unit to peg alignment. Stake your assets borrow and go. During the early three phases it may be decided the the right next move for phase

4 is to pursue leverage before liquidity. With sufficient redemption, no liquidity is needed for liquidations, as seen by the trend of LPs as collateral.

We could seek to partner with products like Alchemix or Rari to achieve more capital efficient earnings through leveraging our vaults.

Adding the ability to access debt against this asset will do well to allowing users to have tax free income so long as they stay in the vault by accessing more debt as the value grows at a faster rate. This will encourage more liquidity to stay in, and continue to grow our shared Pie.

Additional Considerations: Is this a USD product or a stable product?

With additional opportunities for Euro, and other national currencies popping up on Convex, do we want to be limited to just USD denominated tokens.

Does providing liquidity for partially collateralized tokens with rebase like Frax which is pegged to $1 break this ethos of USD? Perhaps a rebrand that highlights its stability but leaves the door open for additional stable assets may be in order.

It should be noted that the committee would have to be responsible for assessing directional movement between national currencies as an additional responsibility if opened up to these assets.

Assembling the Team

The USD++ Subcommittee should be composed of 2-4 paid members who will be responsible for representing, facilitating, and executing the duties associated with USD++ management. All activities/actions will be mentioned & discussed publicly for community analysis and deliberation to further enable community participation & contribution.

Subcommittee members will report and do the following:

  • Manage the Multi-Sig
  • Deliver monthly/quarterly performance reports
    • Yield Accrual during respective timeframes
    • Rebalancing
    • Asset addition/removal
  • Social Media Marketing and Community Call updates
  • Improvement proposals and Phase transitions (as they approach and as we meet certain predetermined milestones)