SIP-4: Deploy USDC to Stargate

Governance proposals (discussed) Approved SIPs
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SIP-4: Deploy USDC to Stargate

Author(s): Sperax Core Team

Reference: Mentioned in recent AMAs

Created: Jul 25, 2022

Labels: #NewYieldStrategy

Simple Summary

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.

Abstract

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.

Motivation

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.

Overview

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%.

Technical Specification

  1. 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.

  1. 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.

  1. 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).

  1. 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).

  • Yes
  • No

0 voters

2

I fully support this sers

1 Like
3

Great proposal. I support this. Its a great start to what will be many strategies earning yield and building out protocol free cash flow.

1 Like
4

Awesome! This Stargate USDC strategy would ensure USDs maintaining two-digits APY

5

Fully agree this strategy

6

It is very strange to read ‘extremely secure’ in connection with bridge considering all the bridge exploits that happened. Can you tell us more about risks involved and evidence of Stargate bridge security?

1 Like
8

I will give my two cents here:

Stargate is secure in that it is liquidity pool-based bridge. This means that USDs collateral is provided to a liquidity pool instead of being locked in some bridge contract. The latter is always exposed to both centralization risk from the bridge team or security risk of being exploited/hacked. I think this new type of bridge will render a whole new level of security compared to the old, synthetic asset-based bridges. Also, I agree that the phrase “extremely secure” could be a better one like “more secure than the traditional synthetic asset-based bridges”.

Happy to hear your thoughts and discuss further

2 Likes