SIP-15: Apply Max Cap to VST Collateral

Title: Apply Max Cap to VST Collateral Author(s): Sperax Team Reference: n/a Created: Oct 10, 2022 Labels: #YieldStrategy

Simple Summary:

Implement a short term collateral breakdown system that encourages diversification of USDs collateral type and yield strategy. If a collateral type is over the maximum composition weight, the front end won’t list this asset when minting USDs.

Until a proper target collateral rebalancing swaps/fee adjustment logic is completed, a max cap of 10% will be applied to VST strategies due to thin liquidity.

Abstract:

To ensure appropriate diversification of yield generation strategy and collateral type, the Sperax team proposes a short term risk framework. This framework is designed to be replaced with a proper collateral rebalancing strategy (swaps + responsive fees) according to a community approved risk framework.

Motivation:

Currently 73% of the USDs collateral pool consists of the VST-FRAX Curve strategy. This is a lucrative investment strategy but puts significant reliance on the peg stability of VST and FRAX. VST being a young stabelcoin project doesn’t have many venues with deep liquidity. To ensure the capability to generate yield and liquidity for USDs redeemers, we suggest capping VST until liquidity improves.

By capping VST at 10%, the total breakdown should max out at roughly 10% VST and 10% FRAX in the Curve strategy. The rest of collateral will be more liquid stablecoins like USDC, FRAX and DAI.

Overview:

While a proper risk framework is being designed, one which includes logic to diversify asset and yield strategy, the Max Cap logic should reduce the risk to any specific investment strategy and consequently, asset type. Such a max cap can ensure USDs doesn’t become a wrapper for any one strategy rather remains a diversified, liquid-staked stablecoin protocol.

Technical Specification:

A 10% cap on VST implies ~20% of the collateral strategy will be deployed to the VST-FRAX curve pool (10% VST 10% FRAX).

Once a specific asset is above its max cap (specific asset value/total collateral value) the ability to mint USDs with the overweight asset(s) on app.sperax.io front end will be turned off. Redemptions will continue for the asset(s).

Minting will resume once the strategy comprises less than the max cap.

This does not apply to USDC, FRAX OR DAI at this time due to adequate liquidity on Arbitrum.

start

October 16, 2022

2:15 PM

end

October 19, 2022

2:15 PM

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