[RFC] - Add a USD0++ Cauldron
Summary/Scope:
We propose a cauldron creation using USD0++ as collateral, a claim-bearing, wrapped version of the USD0 stablecoin with a 4-year maturity. USD0++ is backed by USD0, providing a secure and transparent collateral. While USD0++ has a 4 year maturity, it also have one of the deepest liquidity pools on Curve. Incase of a liquidity crunch or other reasons, the Usual DAO has the ability to do same-day redemptions for USD0++ , reducing risks and guaranteeing liquidity.
Usual Protocol is a suite of smart contracts designed to aggregate MMF tokens and issue a 1:1 stablecoin, USD0, pegged to the current net asset value of the money market fund share. This stablecoin is permissionless, composable, and non-productive
USD0 is fully collateralized by short-term Treasury bills (T-bills) and overnight repo agreements, avoiding exposure to the fractional reserve banking system. Currently, USD0 is solely collateralized by USYC tokens issued by Hashnote. Despite the stability of this collateral, the protocol is further secured by an insurance fund, fueled by protocol revenues, providing a 50-basis-point safety margin in the event of extreme market conditions. This mechanism ensures the absolute redemption of USD0 against its dollar equivalent through MMF issuers.
Cauldron Parameters
Interest Rate: 8.5%
Borrow Fee: 0.5%
Minimum Collateralization Ratio (MCR): 86%
Liquidation Fee: 7.5%
Initial Top-Up:
1 million $MIM initially, with potential scaling up to 2 million depending on volume and liquidity.
Background
Abracadabra’s product line is a highly valuable offering to enable people to create more financial products around the USD0 stable coin. We see big synergies for both protocols increasing TVL and broadening each respective user base. With USD0 backing being only the highest quality of RWAs, liquidity and depeg risks are drastically reduced.
Risk Assessment
Actual Collateral Hashnote USYC | Hashnote
What is USYC?
USYC is the on-chain representation of the Hashnote International Short Duration Yield Fund Ltd. (“SDYF”). SDYF invests primarily in reverse repo and U.S. Government backed securities.
Why USYC
Being invested in overnight repo means minimized market risk, duration risk, and credit risk – as good as being in a U.S. Treasury Money Market fund, but with the transaction speed, transparency, and composability of being an ERC-20.
USYC lets you earn short-term risk free returns. Assets are deployed in reverse repo, with some allocated to T-Bills, to ensure maximum liquidity and minimum duration risk.
Liquidity
- Mint / redeem time T+0 to T+1 into USDC or PYUSD.
- Atomic on-chain instant mint / redeem available.
- On-chain mint available only during “market hours”.
- On-chain redemption available at any time but for limited size.
Safety
- No credit intermediaries.
- No loans to anyone.
- Fully regulated by CIMA.
- Direct access to segregated custodial account.
- Custodied at Bank of New York Mellon
Profitability
Based on the given parameters and an initial top-up of 1 million MIM, this cauldron is projected to generate approximately 90,000 $MIM annually for the protocol and $SPELL holders. This figure is scalable with the increase in MIM deposits, presenting a lucrative opportunity for the protocol.
Technology
The USD0++ cauldron will utilize V4 cauldron contracts and be deployed on Degenbox. This includes variable interest rates, upgradable oracles, and built-in strategy rebalance functions to ensure optimal performance and yield capture. The oracle will peg the collateral at $1, ensuring a transparent and stable valuation. Usual adopted a similar approach by hardcoding the oracle to $1 in Morpho vaults due to the nature of the collateral provided by Hashnote, which consists of overnight repos that facilitate unlimited same-day on-chain redemptions. Additionally, the Usual DAO possesses an unlock right on USD0++, enabling it to immediately terminate the bond and recover the principal before the 4-year expiration date. This mechanism allows for efficient borrowing and ensures the stability of leverage markets.
Conclusion
A Usual x Abracadabra integration will be a net benefit for both parties, generating revenues for $SPELL holder, increasing TVL and user base for Abracadabra overall, while providing Usual users a venue to lever-up via a core financial primitive.
Next Steps
This proposal will remain as a SAIP to allow the engineering team to assess the feasibility of integrating stdeUSD as a collateral type. In the meantime, a 72 hours period will commence to signal the DAOs position on the proposal.
Voting
While the engineering team is assessing the feasibility of integrating USD0++ as a collateral type, it is important to get DAO approval for the potential MIM top up. In the meantime, a 72 hours period will commence to signal the DAOs position on the proposal.
Voting is already posted, will start in 24 hours and can be found here.
Vote passed.