Simple Summary / Abstract
Allow users to mint USDs with VST again. VST has recently proved that it can hold its peg. While allowing users to mint USDs with VST it is important to safeguard the Sperax protocol from concentration risks associated with one single collateral token. To prevent concentration risk from VST, minting with VST will accrue a small fee of 0.2% and minting with VST will be paused whenever the proportion of VST balance as a percentage of total USDs supply exceeds 30%. When VST balance as a percentage of total supply goes above 30%, there wouldn’t be any requirement for a governance proposal to restart minting with VST.
Motivation
During the USDC depeg event on the weekend of March 11th and March 12th, VST among all other stablecoins also depegged. But due it’s pure CDP nature the crypto community regained its trust and confidence in the product. This trend was seen across the industry with other pure CDP stablecons in the ecosystem such as LUSD and Synthetic USD. It is beyond the scope of this proposal to discuss the risks associated with various stablecoin types. But right now USDs is over reliant on fiat backed stablecoin USDC, which is not ideal. Given that the overall crypto community is looking to diversify into various kinds of stablecoins, Sperax protocol should also take steps to diversify the basket of stablecoins.
Source: Coingecko
Also with the launch of the Vesta Reference Rate, the VST has been able to better manage the demand and supply for VST thus ensuring that VST holds its peg.
There are certain concerns associated with VST. Although the peg holds, VST doesn’t have very deep liquidity, so it would not be very easy for the Sperax protocol to get out of the VST position if it deemed necessary. VST has no direct liquidity against USDC, this was one of the major reasons why Sperax protocol was used to exchange VST for USDC. Given that Sperax USD (USDs) has deep liquidity against USDC it is possible that history might repeat itself if we don’t adjust some of the parameters. .
Source: Sperax Analytics Page TVL chart
In the above chart we can see how users exchanged VST (light green color) for USDC (deep blue color) which started around September 19th. This started when VST allowed users to mint VST with GLP. On chain data suggests that users minted VST with GLP and then used the sperax protocol to convert VST to USDC and then loop into GLP again and again. Sperax protocol acted as one of the cheapest venues for users to exchange VST for USDC. This impacted the collateral concentration risk for the protocol as VST depegged. To prevent this Sperax protocol should take two measures.
- Introduce a small fee for minting with VST to make sure there’s a small disincentive for users looking to redeem USDC while minting with VST.
- Limit the percentage of VST balance in USDs as a proportion of total USDs supply to 30%.
Technical Specifications:
- Allow minting USDs with VST (0x64343594Ab9b56e99087BfA6F2335Db24c2d1F17) on the front end.
- Introduce a mint fee of 0.2% on minting USDs with VST.
- Allow the USDs admin multisig holders to pause minting with VST when the composition of VST as a percentage of USDs supply exceeds or becomes equal to 30%.
- Allow the USDs admin multisig holders to unpause minting with VST when the composition of VST as a percentage of USDs supply goes below 20%.