DefiDollar

Decentralized Stablecoin Index (DAI/sUSD) peak

This proposal outlines the reasoning and architecture for a DAI/sUSD Balancer smart pool to be integrated as a peak into the DefiDollar protocol.

Terminology

  • Peak: 3rd party protocol integrations where the DefiDollar reserve assets are deployed.

  • Balancer Smart Pool: A Balancer pool who’s controller is a smart contract with pre-defined logic.

Introduction

The latest peak integration in $DUSD was yUSD (yVault peak). Since both yUSD (Curve y pool) and the earlier integration with Curve sUSD pool provide exposure to the same underlying stablecoins except (sUSD/TUSD), the latter was decommissioned. This means that the DUSD protocol doesn’t currently have exposure to sUSD.

Therefore, this proposal aims to reintegrate sUSD back into the stablecoin index increasing user exposure to decentralized stablecoins whilst further decentralising DefiDollar’s reserve assets by the addition of another pool of liquidity.

Relevance to $DUSD

DeFiDollar aims to be a dollar denominated coin that leverages other DeFi protocols to optimize for diversification, peg safety, and yield. To maximize the yield aspect, while optimising for diversification, we propose to keep underlying assets for this pool in Aave interest-bearing aTokens i.e. aDai and asUSD.

Technical Details

A. Balancer Smart Pool

The peak will be composed of a DAI/sUSD Balancer smart pool. Balancer smart pools are different from regular Balancer pools as they can emulate a finalized pool but the pool parameters are still mutable based on pre-defined logic written in the smart contract that controls the Balancer pool.

Balancer pool deployment: https://docs.balancer.finance/protocol/concepts

  • The smart pool will be responsible for configuring the Balancer pool parameters based on it’s privileges set on deployment - This means that once in a while, the team will deliberate with the DUSD community to alter the weights for the coins in the pool.

B. Peak

  • The Peak contract will be responsible for the minting of $DUSD upon the users deposits of DAI/sUSD and managing the liquidity migration in and out of the Balancer smart pool.

  • The conversion from aTokens back to stablecoins will be handled by a zap contract.

  • The peak will use a chainlink oracle to determine the exchange rate while minting/redeeming DUSD in a combination of DAI/sUSD. Since the balancer pool is not a public one (publicSwap set to false), this potentially means that the DUSD <> DAI/sUSD exchange will experience no slippage.

Note that the DUSD system will then become an average of yUSD and the proposed decentralized index.

Initial Pool weights

Using the methodology as described here we arrived at the following initial weights for the pool:

Token Weight
DAI 63.29%
sUSD 36.61%

We will be reassessing this periodically every 3 months. Feel free to share any feedback on the same.

Risks

  • Aave smart contracts risk, however once the aave safety module comes into force, the deposits will be much better insured.

  • Volatility risk: In case of the peak, DAI has a larger volatility risk than sUSD but the pool weights will factor in the volatility risk of each stablecoin asset in order to mitigate it.

  • Aave tokens might not always be redeemable for underlying stablecoins, if a significant portion of the reserves has been loaned out.

1 Like

Why use Aave? I do like them, but they might not always have the best rates. Have you thought about using sUSD and DAI in https://yearn.finance/earn instead?

According to https://stats.finance/yearn, the coins are currently in Aave, but they are sometimes in Compound instead. And there might be new protocols in the future, too.

1 Like

Originally, the idea was to diversify from using just y tokens since we already use them in our other curve integration, however, this is actually an exciting proposition. Let me discuss this with some folks internally.