Enable aUST cauldron on Avalanche

TL;DR: Enable an aUST cauldron on Avalanche to unlock liquidity out of the most popular yield bearing token at the moment.

Context
Anchor protocol recently launched on Avalanche as its first non-Terra implementation. This lets users on Avalanche deposit UST (wormhole) in Anchor to earn the same APY as on Terra (19.5%). The big advantage to users is avoiding the bridge and the chicken-egg problem all new users face of not having the native token of the blockchain to pay for gas. In any case, launching UST on Avalanche also required enabling a wrapped version of aUST (yield bearing UST) on Avalanche. aUST can now be bridged across Terra and Avalanche without losing its utility as a “certificate of deposit”.

The opportunity
At the moment there is not a single battle tested protocol in which aUST can be used as collateral and unlock liquidity. The proposal is to enable an aUST cauldron on Avalanche, where users can keep the upside of a high yield instrument but unlock liquidity through MIM if needed.

Abracadabra would become the go-to protocol to unlock aUST liquidity (currently $15b in deposits). Borrowing fees would be highly accretive to sSPELL/mSPELL stakers as Abracadabra would tap one of the largest protocol by TVL currently (as per Defillama). Potentially this could skyrocket MIM liquidity and TVL on Avalanche

Risks
Invariably some users will want to loop/leverage their MIM borrowings for more aUST. This could be capped through the existing “available MIM” mechanism or by explicitly not allowing leverage (up to discussion).

9 Likes

In my comment below, I express support for this proposal and suggest a few possible addons to improve it. I believe these addon points are applicable to the ethereum aUST cauldron as well, and serve to increase revenue, MIM peg stability and the total number of borrowers we can benefit who are currently unable to access the cauldron due to oversubcription.

  1. I support the idea of an aUST cauldron on Avalance. Good for fees, good for users, makes the most of MIM liquidity on Avalanche which, on most cauldrons, is not fully utilised.

  2. I support the idea of not explicitly allowing looping. If people want to do it manually they can’t be stopped. The only consideration I believe Abra should have is the usual one: ensuring that the anticipated MIM sell off from MIM being borrowed does not damage the peg.

  3. aUST is an extremely precious collateral type, people will go to great lengths to use it as such and as such we should leverage this to the advantage of abracadabra. Here are some ways we can do so beyond just having an aUST cauldron

3a. One notion is that we should only allow certain addresses to access the aUST collateral type, including but not exhaustively: MIM-3crv, MIM-UST curve/convex stakers, or CRV voters who direct liquidity to MIM. MIMs borrowable can be made dependent on how much liquidity or beneficial actions such a person has provided. If the person has staked $10000 worth of tokens, then perhaps they can borrow 100k worth of MIM from aUST collateral. This allows the stability of the peg to scale (partially) alongside MIMs borrowed in the aUST cauldron.

3b. A simpler way to execute the plan above would be to create a CRV staking mechanism where one can lock their CRV in a contract on our platform so we can use it for our voting needs without having to build a gigachad treasury, and the more CRV locked/for a longer duration leads to enabling a higher MIM borrowable from the aUST cauldron. The staking rewards that can earned from CRV (to the extent that there are any) can also go towards our treasury, or can alternative just go back to the borrower so the borrower does not feel that the CRV staking is as capital inefficient.

3c. In the alternative to the two ideas above, the protocol can simply opt to increase the interest rate and direct those funds to building up a treasury for the acquisition of CRV. In any case, there are tools at our disposal to make aUST cauldron capacity greater, not just on avalanche but on ethereum. We should make full use of our levers and pulleys to enhance the experience for users who cannot access our oversubscribed cauldrons, as well as to increase protocol revenues.

3 Likes

I really like the idea. but I don’t think looping/leverage should be capped, let people leverage to whatever risk level they want

1 Like

Not anymore!! haha fortunately the collapse of UST is showing the reliability and magic of MIM, excited to see the future of Abracadabra.Money :crystal_ball::man_mage::magic_wand::star2::sparkles::star2::sparkles::star2::frog::dog2:

1 Like