Author(s): Sperax Core Team

Reference: Mentioned in recent AMAs

Created: Jul 12, 2022

Labels: #NewAsset #NewYieldStrategy

Simple Summary

Sperax Core team proposes to introduce a low risk, low yield investment strategy to the collateral pool: Aave. The initial allocation will be 5% of the USDC in the fund (~$450k).

Abstract

SPA stakers want the flexibility to deploy a wide range of assets in the fund as they see fit. The fund will eventually have a wide range of collateral deployment opportunities and collateral types. This proposal is focused on two low risk improvements to the fund:

• Whitelist DAI as a collateral type for minting sperax USD
• Allow team multisig to manually control deposit and withdrawal of collateral from Aave
• Deploy 5% of USDC reserves into Aave
• Deploy DAI deposits collected in the protocol into Aave

Motivation

Adding Aave and DAI provides an extremely risk-off strategy for part of the fund. Assuming at least some of the diversified funds will be generating yield in low risk plays, Aave has proven to be the most risk-off as it shored the highest TVL/Time score compared to other borrow and lend protocols. More risk-on borrow/lend protocols can be added in the future, but Aave should be present as a risk-off alternative for capital allocation.

Overview

To kickstart the influx of new yield strategies, Sperax team proposes adding Aave as an investment strategy and DAI as a collateral type. All DAI deposited into the fund to mint USDs will be sent to Aave until otherwise specified in an SIP. This proposal also asks that 5% of current USDC in the fund goes to Aave to generate yield.

Yield is currently low as there is minimal demand for leverage. Interest rates offered to those lending stablecoin on Aave can be expected to increase when demand for leverage increases. This happens most during upward trending markets. Yield is also low because this is an extremely safe protocol with low risk. Reduction of risk implies a reduced fee paid to those taking it, and lower interest rates. Even though rates are low, such strategies are needed to hedge off risk. DAI and Aave are #1 and #3 most secure according to the TVL/Time metric. This metric considers the amount of money the protocol manages but considers time as a variable. If a protocol gets to $1B TVL then gets rugged, it’s not as safe as a protocol that’s held $1B for a year without exploit. Maker and Aave score 6852.9B and 5704.9B respectively. Sperax would propose to add #2 most secure, but Curve is already integrated.

Technical Specification

When sent to AaveDoes the collateral get withdrawn from Aave when users redeem and in what conditions does that get redeemed? For example does it only withdraw collateral from Aave when the vault has run out of that collateral?

Scenario 1: USDs redemption

The contract will first try to use the collateral sitting in Vault. If Vault does not have enough, then the contract will try to withdraw the remaining amount from AAVE (and use all in Vault). If Vault + AAVE do not have enough, the txn will fail.

Scenario 2: Collection of interest

Collecting interest happens at rebase, and it is accomplished via withdraw/redeem from AAVE. Over time our collateral balance in AAVE increases, and at rebase we collect those new collaterals as interest.

Scenario 3: Admin action

Sperax multisig has a function to manually withdraw collateral from AAVE and send it to the Vault, but only to the vault. This function won’t be triggered unless there is an exploit of AAVE.