Proposal:deploy leveraged ETH to reduce USDC risk

hi everyone , we have 3B USDC in PSM now , it do not have revenue and system risk , and the crypto community worried about it . so we need a solution scalable and simple to solve the problem.

My answer is deploy new leveraged ETH product , it is a new synthetic asset product just like DAI . just call it ETH2D and ETH3D for 2x leverage and 3x leverage eth.

objective:

  1. reduce USDC risk , scalable above 10B

  2. eat more ETH in Maker

  3. more profit in ETH

  4. market analysis
    leveraged ETF is big market , it is about 50B in US. (link:Leveraged ETF List ) most product are for bull . the biggest 2 fund are [ProShares UltraPro QQQ] and [ProShares Ultra QQQ] . 15B and 5B total assets , 5B and 0.2B daily volume .
    if we thought crypto VS stock , ETH vs Nasdaq , we can assuming the demand for leveraged ETH like 1/10 leveraged ETF size , it will be more than 5B in assets , 0.5B daily volume.
    and crypto market is more speculative , I think the TAM will be bigger , and it will grow when ETH grow.
    In crypto world perpetual contract have more volume than spot trade ,ETH perpetual contract daily volume is above 10B.

  5. product workflow
    user deposit 100 ETH to PSM for mint ETH2D (or ETH3D),
    PSM swap 350,000 usdc for 100 eth (eth price 3500)
    and then user get the token 100 ETH2D and PSM have 200 eth

the ETH2D can redeem and resell on market

there is a similar product on-chain: eth2x-fli
it will down the leverage when market down , it works well without liquidation

  1. tokenomics
    Maker’s killer app is print money , so the capital cost and market depth have big competitive to other leveraged product. so leveraged ETH have better take rate to Dai. we can design both mint and exchange take rate. for example, 0.1% mint fee and 0.1 % exchange fee and 0.2% redeem fee. if daily volume to 0.5B , exchange fee for one year is 0.18B.
    and the ETH in PSM can also staking , the staking revenue will more than 5% apy . if TVL of ETH is 5B , we can get 0.25B/year
    and all the revenue is ETH , maker will benefit from the long term ETH growth.
    we can incentive user to lower mint fee and revenue share for aggressive growth

and, if maker have more ETH in balance sheet , it will have more room to innovation .

it is just draft , I will appreciate get your feedback .
Maker will be great paradigm shift from user’s ETH backed to protocol’s ETH backed loan.

I’m not sure I understand how Maker’s exposure is different here than just buying 100 ETH on its own?

Also, the only thing we have larger exposure to than USDC is ETH. I’m not sure we want to be even more exposed, and in a way that likely generates less fees than a standard vault (unless we stake which has its own risks + liquidity risk on the redemption side).

Perhaps I overlooked something?

Great to be thinking about new products, though! I wish we saw more ideas bandied about.

1 Like

I just make a simulation , user’s leveraged ETH risk the Volatility , maker only have liquidation risk like Dai.

Hi dalin,

Thanks for posting your idea. Like @PaperImperium said, it’s good to see new ideas being floated.

I’m not entirely sure I follow the numbers in your simulation. Some of the values seem to be out by factors of 10, and I’m not sure that all of the multiplication is correct. For example, the value of the 100 ETH2D after the price increase should be 100 x $6500 = $650000. Would you mind correcting me if I’m wrong?

Similarly, this wouldn’t work if there was a severe drop in the price of ETH. In your example, a >50% fall in the price of ETH would leave the PSM under-collateralised with respect to Dai. Unfortunately, such drops have occurred previously, most recently in May this year, and I don’t think we should assume they couldn’t happen again.

2 Likes

thank you for point this , it is a typo error . I update the new pic.
I just draft the idea , the core idea is user deposit eth and borrow to mint eth2D. Maker can risk free with careful design.

there is a similar product on-chain: eth2x-fli
it will down the leverage when market down , it works well without liquidation.

1 Like

this link have more info for eth2xfli

eth2xfli have 170M market cap now 3M daily volume , and it is early , I think there so much room to growth

Thank you for updating the figures.

Well ETH2x-FLI did not perform well in May. From their own documents here:

While liquidation is very unlikely, FLI investors should note that their investment can still realise significant losses during a large price drop. For example, between May 15th to 23rd 2021, the price of ETH fell by 48%. During the same period an investment in ETH2x-FLI lost 72% of its value.

PSM is not a suitable route for these volatile collateral types because of this. If we wanted to onboard leveraged ETH positions an ETH2X-FLI Vault would be a more appropriate vehicle.

2 Likes

PSM holding ETH and sell leveraged product to user , so user absorbs the volatile for speculation . maker just earning fees and don’t risk volatile
It is not to onboard ETH2X-FLI , It is about a new balance sheet.

https://www.angle.money/ is doing something along those lines.

2 Likes

yeah , it is cool . thank you for refer .