USD-pegged Vaults: Setbacks and Next Steps

2yrs ago

6 Comments

Content

AI Summary

Dear fellow Kintsugi innovators,

As most of you know, KBTC is currently secured by KSM collateral.

In an effort to further de-risk vaults and improve liquidity, there have been proposals to add KINT and USDC collateral support (see previous proposal).

Problem

Unfortunately, there has been a slight setback for USDC Vaults

The initial plan was to use anyUSDC, bridged over as follows:

Ethereum --Mulitchain/anyswap--> Moonriver --XCM--> Kintsugi.

The first path ( Ethereum --*Mulitchain/anyswap*--> Moonriver) already works.
However, it is currently not possible to use Moonriver ERC20 tokens with XCM. The Moonriver team is actively working on adding this feature and coordinating with bridge projects. They are keeping us updated but at the time of writing, we cannot predict how long this might take.

Review of alternatives

Considering the demand for a USD-pegged stablecoin as an option for Vault collateral, we have the following alternatives on Kusama:

1. USDT via Statemine.

Pros:

This would be a native representation of USDT, meaning we avoid additional centralized bridging risk.
No technical blockers known so far

Cons:

Currently no liquidity
Tether is waiting for Ledger to release the Statemine app before they can mint more USDT. This process seems slow. Meaning: we will see liquidity earliest in July.
Would need trading pairs with liquidity on Kusama for risk management

2. aUSD via Karura

Pros:

Readily available, no technical blockers known
Decentralized, asset-backed stablecoin
Dotsama native asset, arguably good for ecosystem growth
Buying aUSD as a Vault (not minting, see below) and using it as collateral is good for diversifying risk.

Cons:

TVL is a bit low at the moment (~4.18 million aUSD minted)
Trading volume is low on exchanges (https://www.coingecko.com/en/coins/acala-dollar#markets)

Other stables via Wormhole via Karura

Pros:

We could get USDC
Integrating with Wormhole is probably useful in any case, e.g. to make kBTC/iBTC available Solana

Cons:

Currently no liquidity
There is some technical work necessary by Acala to make Wormhole assets compatible with XCM.
Would need trading pairs with liquidity on Kusama for risk management
Centralized bridge risk (we also have this with anyUSDC though)

====
Summarizing, this means we can:
(a) wait for USDC from Moonriver, USDT from Statemine, or USDx from Wormhole
(b) move forward with aUSD as a collateral asset

These are non-exclusive options - but we need to decide what to do first.
Would love to hear thoughts & input before this is put up for a vote.

Edited

Up 1

Comments

a3fc...Xzed

I think moving forward with aUSD as a vault collateral type is prudent. It is not perfectly stable, wandering by up to 20% but it is overcollateralized and therefore shouldn't collapse.

I waited for a year for a Ledger app update to handle NFTs, so I wouldn't hold my breath for a Ledger (USDT Statemine) solution.

My priority order of these four choices is:

aUSD
USDC via Moonriver (likely best long-term solution)
USDT via Statemine
USDC via Wormhole

Plus, the sooner we introduce the first stable coin vault, the sooner we can introduce LKSM vaults which seems even more valuable personally.

Up 3

a3aP...FtV4

Using uncollateralized wrapped stables like USDCx, anyUSDC, mmUSDC (nomad) may seem like juicier propositions due to higher liquidity- but they are chain idiosyncratic forms of stablecoin bridged but uninsured.

Thematically this seems counter to kBTC's raison d'etre - by accepting forms of collateral that our project suggests to reject (e.g. how wrapped is bringing BTC to polkadot on statemint very soon https://wrapped.com/).

Using a kusama native stablecoin is a better philosophical fit for our protocol and forms a better narrative.

My assessment of technical risk is as following (lowest to highest):

USDT via Statemine
aUSD via Karura
USDC via Wormhole on Karura
USDC via Nomad/anySwap on Moonriver

However despite this I would probably prefer aUSD over USDT, simply because the former has a higher issuance on Kusama: 4.18 Million vs tether's 500k. Ledger applications typically take 6 months+ to come out, so we may be waiting a long time for more USDT to become available.

aUSD's wobbly peg is certainly more of a risk when dealing balancing vaults, so the risk parameters chosen should reflect this.

Edited

Up 1

a3cF...AjJw

I wholeheartedly agree with Timbo here. Plus, since the inception of a 4Pool on Zenlink (Moonriver and Moonbeam), AUSD is a lot more liquid and less likely to depeg.
Matías

a3eJ...o5NA

Overall i like the idea of using aUSD as you mentioned it supports ecosystem growth. In terms of it helping Kintsugi grow i think it will be limiting.

To acquire aUSD on Kusama you have to get it from Karura either by collateralising assets and minting it or trading it on a Dex.

Minting it: You need to collateralise KSM/LKSM or KAR so this is kind of counter productive for a vault operator as you may as well just use the KSM and put it straight in the vault and use as collateral directly
Trading it: The liquidity as you mentioned is so low, even obtaining $50k of ausd on Karura causes a 17% slippage [Worse on zenlink] so this is pretty impractical to do at scale for vault operators and sadly the ausd on kucoin can only be used on Acala.

Overall i think it would be good to have purely for an ecosystem integration angle with the longer term aim to be the wormhole. Hopefully this should bode better on interlay with a more liquid aUSD (although not massively)

KBL

NatalieCheah

Dear Kintsugians,

Genshiro DeFi would like to propose adding its native decentralized stablecoin EQD as collateral for minting kBTC.

Just as a background, Genshiro DeFi is a one-stop DeFi platform to earn, borrow and trade at max efficiency. Genshiro is Equilibrium’s Kusama-based canary network, which won its parachain auction on Kusama late last year. One of Genshiro's killer feature being its fully on-chain orderbook DEX which allow users to margin trade in decentralized manner while enjoying features that CEXs offer.

As a fellow DeFi protocol on Kusama Network, we are keen to bring the decentralized version of wrapped BTC – kBTC to our ecosystem, and would like to see it flourish.

On this note, Equilibrium would also like to propose adding EQD as collateral for minting iBTC on Polkadot as soon as Equilibrium is ready to go live (estimated to be 2 – 3 weeks from now).

Proposal to add EQD as collateral for minting kBTC:
Pros:
· Readily available, can be transferred without hassle upon completion of XCM integration
· Decentralized, asset-back, overcollateralized stablecoin
· DotSama native asset, would encourage synergetic growth of both ecosystems

Cons:
· TVL is low at the moment (~300K EQD minted on Genshiro at the moment). However, Genshiro has put up a treasury proposal to request KSM liquidity as the initial liquidity injection to our money market pool and DEX (link: https://kusama.polkassembly.io/post/1630). If it passes through voting, we should see an increase in overall platform usage and EQD’s liquidity.
· EQD is only listed on Genshiro’s (and soon on Equilibrium’s) DEX, but not on any centralized exchanges.

We very much appreciate feedback from the community on this proposal. Thanks!

alexei

Update on USDT:

Tether needs Ledger support before minting
Ledger integration is still not 100% finished. We have been told that it is high priority at Parity (was planned to be done last week but something did not work out as expected).

"Should not take too long" is the current status, so still in line that it might be ready in July as we heard before.