DefiDollar

Integration with the yVault / yUSD peak

This proposal explores the integration of yVault as a peak in the DefiDollar ecosystem.

Introduction

yVault has mastered the game of yield farming. Among other things, the vaults stand out because of the brilliant incentive structure that rewards the strategists - effectively crowdsourcing intelligence to deploy huge capital. It is easy to see that the yearn vaults are and will continue to be one of the best yield products in the DeFi space.

Relevance to $DUSD

True to its name, DeFiDollar aims to be a dollar denominated coin that leverages other DeFi protocols to optimize for diversification, peg safety, and yield. A yVault peak will give a major boost to the yield of the the system.

Yield management

Unlike yyCrv, the returns from the vault can not be availed directly by holding DUSD - since DUSD is not an interest-bearing asset. The yield from this peak will be allocated to liquidity providers (LPs) to various DUSD pools on Uniswap and Balancer to start with. We aim to get DUSD whitelisted to become eligible for weekly BAL rewards. This provides the LPs with BAL in token rewards in addition to yVault yield.

Here the key benefits emerge from the incentives that foster liquidity on AMM’s, which is of paramount importance for adoption of any asset, including DUSD.

Limitations

yVault has a withdrawl fee of 0.5%, meaning when a ‘degen’ redeems their DUSD, they’ll incur a 0.5% drawdown. This has the following effects:

  1. Redeeming DUSD will incur a loss a to the user
    More often than not, most users will be able to exit their DUSD position by swapping it on various DEXs. Retail users will not need to redeem from the protocol - unless of-course the protocol gives a best exchange rate for DUSD in-spite of the withdrawal fee - in which case the withdrawal fee stops being a deterrent.

Whales would be making a profit from earning sizeable rewards from providing DUSD liquidity, see Yield Management section above; so 0.5% fee would be acceptable to them in the long run.

  1. This will dampen DUSD’s arbitrage mechanism i.e. arbitraging with the protocol is only profitable when DUSD is trading at > $1.005. In the short to medium term this seems like a reasonable tradeoff for introducing a peak that provides substantial yield and incentivizes DEX liquidity.

Please note that we will also provide an option to redeem DUSD for yyCrv tokens and that will not incur a withdrawal fee.

Risks

If one of the underlying coins from among, DAI, USDC, USDT, TUSD becomes significantly cheaper than the others, yVault’s share of DUSD’s pie will effectively consist of only the cheapest coin.

Zap Interface

/**
* @dev Mint DUSD
* @param inAmounts Exact inAmounts in the same order as required by the curve pool
* @param minDusdAmount Minimum DUSD to mint, used for capping slippage
*/
function mint(uint[N_COINS] calldata inAmounts, uint minDusdAmount) external;

/**
* @notice Mint DUSD with Curve LP tokens (yCrv or is it yUSD?)
* @param inAmount Exact amount of yCrv
* @param minDusdAmount Minimum DUSD to mint, used for capping slippage
*/
function mintWithYcrv(uint inAmount, uint minDusdAmount) external;

/**
* @notice Mint DUSD with yyCrv
* @param inAmount Exact amount of yyCrv
* @param minDusdAmount Minimum DUSD to mint, used for capping slippage
*/
function mintWithYycrv(uint inAmount, uint minDusdAmount) external;

// Each of the above has a corresponding redeem function