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Author(s): Sperax Core Team
Reference: Mentioned in recent AMAs
Created: Jul 25, 2022
Sperax Core team proposes to introduce a new investment strategy for the fund: Stargate. This strategy will become the primary yield generation source for current USDC and new USDC deposits into the collateral fund which fully backs $USDs.
SPA stakers want the flexibility to deploy assets in the fund as they see fit. The fund will eventually have a wide range of strategies and collateral types to pick from. This proposal introduces a new strategy that sends collateral to a cross-chain liquidity protocol, Stargate.
Stargate is offering significant rewards to users who deposit stablecoins into their cross-chain liquidity protocol. This new flavor of bridge is extremely secure and has deep enough liquidity to deliver an APR of around 6% during the bear market.
USDC deposited into the fund to mint USDs will be sent to Stargate until otherwise specified in an SIP. After USDC is deposited to Aave based on SIP-2, the remaining USDC shall be deployed to Stargate. This process will be currently managed by the foundation multisig wallet. The foundation multisig will initially deposit 10% of the USDC from the vault and gradually increase it to 50%. The team will constantly monitor the liquidity in the bridge and make sure that the deposited collateral value is sufficient to mitigate any illiquidity risks arising out of the collateral composition in the Stargate bridge.
This strategy is currently returning 6.17% APR. This shall be sufficient to fund the 11% Auto-Yield target. Currently the ratio of USDs in wallets vs contract is nearly 2:1. USDs in smart contracts don’t receive auto yield. This allows 6% to fund up to 12% yield when the wallet to contract ratio is 2:1.
This pool has massive rewards which has attracted massive liquidity. Currently over 44M USDC resides in the pool. This offers us the opportunity to deploy capital from the fund into this pool without significantly diminishing APR. We are adding less than 10% to the pool, so the APR will drop less than 10%.
- How does depositing collateral to the strategy work?
The contract sends collateral to stargate’s liquidity pool, which returns lp token for the liquidity provided (sTokens). Next, sTokens are automatically staked in the farm to generate STG yield.
- How does withdrawal work?
The withdrawal is also a two step process, triggered when a user specifies their desire to redeem USDs for USDC.
Step1 → withdraw() sTokens from the farm.
Step2 → redeemInstantLocal() removes the liquidity from the stargate pool.
- How do is the yield generated?
Technically: Transaction fees → Over time the value of sTokens will increase against the collateral. ex: Today we add 1000 USDC as liquidity, we get 1000 sUSDC back. After two months when we redeem 1000 sUSDC we get back (lets say) 1500 USDC.
governance Token rewards → When we deposit the sToken to the farm we start accruing STG rewards (follows a variable APR approach).
- How do we sell the tokens to generate yield?
i. Fees → Paid in USDC, swapped for USDs
ii. Governance token → We buyback USDs using 1inch from the STG earned using DEXs (STG > USDC > USDs).