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Title: SIP-1: Diversify out of USDT into FRAX and VST
Author(s): Sperax Core Team
Reference: Mentioned in all recent AMAs
Created: Jul 11, 2022
Labels: #New-Assets, #Yield-Strategies, #Other
Simple Summary
Sperax Core team proposes to execute on-chain swaps, diversifying away from USDT into FRAX and VST. This new collateral can be deployed to the VST+FRAX Arbitrum Curve pool to farm FXS and VESTA at over 20% APR.
Abstract
Diversifying away from USDT will protect USDs from the USDT depeg while offering new yield opportunities. The yield that funds USDs Auto-yield and the revenue split for SPA stakers.
Motivation
Today, USDs’ collateral composition is 56.61% USDC and 43.38% USDT. Currently all yield is generated on the Curve 2Pool. This pool has a low yield and exposes the protocol to a USDT depeg.
A USDT depeg would likely result in users doing one of two things, depending on where the collateral is:
- If collateral is farming in Curve, rational LPs withdraw all USDC from the 2Pool, leaving SperaxUSD protocol holding an LP token of a pool that is 100% USDT.
- If collateral is in VaultCore, rational users redeem USDs for USDC, leaving the protocol holding only USDT as collateral.
Ignoring depeg risk, Curve 2pool is only returning 2% due to the decrease in CRV price. This cannot sustain the Auto-yield rate of 11% nor provide any revenue to the protocol.
Overview
To mitigate the USDT depeg exposure, while unlocking new yield strategies, Sperax Core team proposes a USDT swap over 7 days (sooner if liquidity permits). The 7 day window is to ensure we don’t experience slippage. Auto-yield would stop during this time as the collateral won’t be generating yield and CRV reserves are exhausted. Collateral is currently in the VaultCore, waiting to be swapped or deployed.
The VST/FRAX pool is currently generating 28% APR paid in VESTA and FXS. The pool’s TVL is 7.433M, this implies that the liquidity is sufficient to support our intended deposit of $3.43M.
Technical Specification
Add a function allowing the multisig to swap only USDT from VaultCore. Currently there is no ability for the multisig to move VaultCore funds except to deploy for yield via the strategy contract. If SIP-1 passes, this function will grant access for the multisig to execute swaps of only USDT.
The Sperax team can then diversify away from USDT without giving the multisig the ability to touch other collateral types. During the swapping process, the protocol will not generate yield, consequently no Auto-yield distributions would occur.
- Yes, get rid of USDT
- No, keep USDT
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