Author: Sperax Core Team Reference: SIP-1, SIP-2, Sperax docs. Created: June 7, 2023 Labels: # USDs-Parameters, # Yield-Strategies,

Simple Summary

The team proposes to reintroduce USDT as a part of the USDs collateral basket and deposit it to Camelot USDT-USDC strategy that would generate USDs protocol yield for USDs holders and SPA stakers.

Motivation

Currently, USDs is overdependent on USDC and Frax. Despite two other collaterals (DAI, VST) being whitelisted - none of them is present in the collateral basket. This limits the selection of strategies that can be used to generate the protocol yield.

Overview

Since the last summer, USDT was not used as collateral in yield strategies in order to mitigate potential risks, as defined by SIP-1. USDT collateral has been replaced with VST and Frax which at that moment offered better yield opportunities. Also, DAI collateral/strategy was added with SIP-2.

We saw that USDC collateral was exposed to depeg risks while USDT held its peg well. USDT stays the most used stablecoin with various yield opportunities.

Now the Team offers to reintroduce USDT as collateral and employ it in delta-neutral strategies - starting with Camelot USDT-USDC.

The reintroduction of USDT will bring the following benefits:

• USDT is the most popular stablecoin. The reintroduction of USDT as collateral would attract USDT users who will be able to mint/swap USDT for USDs directly;

• A part of the collateral will be swapped into USDT with the aim of diversifying collateral distribution;

• USDT will be deposited in the pair with USDC to Camelot's USDT-USDC strategy. This would generate APR in the 4.8% to 8% (depending on the selected xGrail redemption time).

• Potentially, USDT can also be used in other yield strategies on Arbitrum.

This proposal would mitigate the following concerns:

a) The revealed USDC risks

In March 2023 it became obvious that USDC - the primary collateral of USDs (~67%) - is not protected against depeg and centralization risks. According to Circle, $3.3 bln (~8% of USDC reserves) were exposed to the failed Silicon Valley Bank (SVB). USDC depegged to $0.87. Despite the peg to $1 has been recovered, USDC continues to lose its market cap while USDT regains its ATH market cap figures (Glassnode chart).

The market cap of USDC has fallen to $28.9B (the level of Sep 2021) which is ~35% of the USDT market cap that just has reached ATH - $83.4B

b) Limited portfolio of strategies, no yield from VST and DAI strategies

Currently, only two strategies generate yield - Stargate-USDC and Saddle Frax-USDC.

VST and DAI collateral played their parts mainly in Q3-Q4 2022 being employed in Curve-LP FRAX/VST and Aave: DAI strategies.

Though, from today's perspective, these strategies can’t be used anymore: the shares of VST and DAI in the USDs collateral basket are close to zero.

Technical Specification

• Swap a portion of collateral with USDT with minimum slippage

• Create and deposit Camelot spNFT position to Camelot USDT-USDC pool, use Grail and xGrail earned for SPA buyback and USDs Auto-yield in accordance to the Sperax docs.

Voting

For:

Reintroduce USDT collateral and employ it in Camelot USDT-USDC strategy

Against

Don’t reintroduce USDT or diversify the current basket of strategies