RFC - Add a jUSDC Cauldron

RFC - Add a jUSDC Cauldron

TL;DR: Add a new market using $jUSDC from JonesDAO as collateral. Cauldrons parameters:

Interest: 9%

Borrow Fee: 0.5%

MCR: 90%

Liquidation Fee: 3%

Initial top up of 1m $MIMs, with the possibility of scaling up to 3m depending on volumes and liquidity.

Introduction

As a valuable player in the Arbitrum ecosystem space, it is important for Abracadabra to offer cauldron support for ecosystem native assets, if they are liquid enough to be considered for a cauldron.

One of the main possible candidates is the jUSDC vault from JonesDAO.

jUSDC serves as a complementary token to the jGLP vault. At a high level, the two Vaults work together by doing the following:

  1. Users can deposit GLP or any GLP basket token into the jGLP Vault, and Arbitrum-bridged USDC.e into the jUSDC Vault.
  2. The jGLP Vault borrows USDC collateral from the jUSDC Vault to mint more GLP, thereby gaining leverage on its GLP position.
  3. The jGLP Vault delivers amplified and transparent real yield to depositors.
  4. The jUSDC Vault delivers USDC yield to depositors by receiving a portion of the yield from the GLP strategy built on its collateral.

jUSDC is currently heavily incentivised until March 29th, and delivering APYs above the 40% mark.

Risk Assessment

The jUSDC vault has been live for a long time, and its track record has been outstanding, additionally the JonesDAO team is an extremely respected team in the Arbitrum ecosystem, shipping numerous products that have captured many Arbitrum users.

Withdrawals can be executed with a 24hour cool down period, that would need to be implemented in our infrastructure to offer leverage and allow for liquidations.

Considering that the underlying asset is a stablecoin, the proposal is still to have conservative parameters i.e MCR (i.e 90%) and a large liquidation fee (3%), in order to create a buffer to safely liquidate positions.

Additionally, the initial top up of 1m MIM allows the DAO to closely monitor how efficient liquidators are and act accordingly.

Similar to other proposal’s posted, the current health $MIM-2pool on Arbitrum allows the protocol to expand the offering into new markets, like jUSDC and obtain a significant amount of fees.

The interest rate is in line with other isolated lending markets and competitive enough to capture significant market share of jUSDC holders and leveragers, as looping would still be extremely profitable considering the base APY

Interest Rate can be modified by a speedlane AIP, and voting lasting 24 hours.

Profitability

With the given parameters, and an initial top up of 1m MIM, this cauldron generates approximately 90k $MIM over a one year time frame for the protocol and $SPELL holders. The number would scale up accordingly to the amount of MIM deposited into it.

Additionally, this cauldron would expand Abracadabra’s offering on Arbitrum, consolidating its place as the go to place to borrow against Arbitrum native tokens and aligning further with JonesDAO, a key player in the Arbitrum ecosystem.

Technology

The following cauldron would use V4 cauldron contracts and would be deployed on Degenbox. Adding variable interest rate, upgradable oracles, and built-in strategy rebalance functions.

In order to capture the STIP yield produced by jUSDC, adequate measure will be taken (either a degenbox strategy or an auto compounding tool, depending on Engineering feedbacks)

jUSDC pricing model can be found here.

Next Steps

The current proposal will remain as an RFC to allow the engineering team to educate themselves on the feasibility of the jUSDC cauldron, and will then be moved to voting as AIP #42. Following this, a snapshot vote will soon be put up in order for this proposal to be voted on!

1 Like

Looping is going to be a very attractive option… Love seeing Abra working with JonesDAO as well! Fueling innovation big time with these cauldrons, need all the native assets!!! Dont see any downsides to this RFC at all :man_mage::magic_wand:

I love me some stablecoin yields but have a couple questions.

How are we accounting for the 1% withdrawal fee from jUSDC?

I’d also assume that as GMX v1 gets used less and less, the GLP token might become more volatile. jUSDC is used to leverage their jGLP vault so there’s some risk there that we’d have to monitor. FWIW they say they would prioritize the jUSDC vault not getting any bad debt but it could be a risk.