[PSM-GUSD-A] Collateral Onboarding Risk Evaluation

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  1. Summary Proposed Risk Parameters
  2. Overview
  3. Metrics and Analysis
  4. Risk Parameters

Summary Proposed Risk Parameters

Debt ceiling: 100m
DC-IAM gap: 10m
DC-IAM ttl: 24h
Fee in (tin): 0%
Fee out (tout): 0%

Overview

The first GUSD risk assessment by the @Risk-Core-Unit, “[GUSD] Collateral Onboarding Risk Evaluation”, was published in October, 2020. The following risk evaluation addresses a possible Gemini Dollar (GUSD) Peg Stability Module (PSM). This is in response to the GUSD-PSM proposal posted on the Maker Forum on October 22, 2021. This report presents updated GUSD data that will serve as a benchmark to evaluate GUSD specific risks and to set appropriate risk parameters for the PSM-GUSD-A vault.

Project Summary

GUSD is a stablecoin issued on Ethereum, backed 1:1 by the US dollar. The GUSD stablecoin was first introduced in September, 2018. For each GUSD issued, Gemini receives one corresponding US dollar from its users. The primary channel to buy and sell GUSD is the Gemini Exchange, where the largest and most liquid trading pair is GUSD/USD. Gemini offers zero fees for buying and selling GUSD through the Gemini Exchange. According to a GUSD independent audit by BPM, the underlying USD is held across: (i) one or more omnibus bank accounts at depository institutions insured by the Federal Deposit Insurance Corporation (FDIC), and/or (ii) one or more money market accounts, collectively referred to as “Gemini dollar Accounts”.

Metrics and Analysis

Supply and Market Share

One year ago, when the first GUSD risk assessment was carried out, the circulating supply of GUSD was circa 14 million GUSD. At the time of writing, the circulating supply is one order of magnitude higher, approximately 150 million GUSD. During this period, GUSD experienced a new all-time high, reaching 327 million in July, 2021.


Source: Coinmetrics

The cryptoasset ecosystem in general, and other stablecoin projects in particular, have also experienced significant growth. The chart below illustrates the GUSD market share versus the top 10 stablecoins by market capitalization. GUSD is currently number 16 in terms of market capitalization and holds circa 0.1% of the stablecoin market share compared to the top 10 stablecoin projects. GUSD has not captured any significant market share compared to one year ago.


Source: CoinGecko

DeFi Presence

The number of unique addresses holding GUSD has increased by 157% since October, 2020.


Source: Nansen

GUSD has been onboarded to several DeFi platforms, such as: Curve, Balancer, Uniswap, Maker, Aave, Yearn, and 1Inch. However, the holder distribution is currently skewed towards the Gemini Exchange. As illustrated in the pie chart below, the wallet “Gemini 4” holds circa 54% of all GUSD supply. According to jg_gemini, these funds represent holdings by Gemini exchange clients. The low presence of GUSD, despite the availability on several DeFi platforms, suggests that DeFi is not currently the primary use case for most GUSD holders.


Source: Etherscan

Earlier this year, however, a large portion of GUSD was allocated to Curve. The chart below shows that GUSD utilisation on Curve reached an all-time high on April 7, 2021 of 108 million GUSD. The total GUSD supply on April 7, 2021 was approximately 132 million GUSD. In other words, on this date circa 81% of all GUSD was locked in Curve. After this date, however, Curve and Gemini experienced a seemingly inverse relationship in terms of GUSD holdings. Today, Gemini holds 54% of all GUSD, while circa 6.7% of all GUSD is locked in Curve. According to Etherscan, Curve is still the DeFi protocol with the largest GUSD holdings. One reason for the increased supply volatility, according to jp_gemini, could have been the rising cryptoassets prices, leading to less demand for GUSD exposure.


Source: Nansen

Price Volatility

One key concern in the previous risk assessment was the high volatility of GUSD compared to other stablecoins. GUSD is still more volatile than most stablecoins on the market. The chart below compares the daily volatility of GUSD with USDT, DAI, USDC, BUSD, TUSD, and USDP for 30d and 180d time periods.


Source: Coinmetrics

Daily Volume Traded

As illustrated in the chart below, the vast majority of GUSD volume is on the Gemini Exchange. Other centralised exchanges that support GUSD include OKEX, Bitfinex, Cexio and Bitstamp.

CEX Volume - GUSD


Source: Cryptocompare

However, these exchanges account for less than $200k trading volume per day on average.

CEX Volume - GUSD (Excluding Gemini Exchange)


Source: Cryptocompare

On-chain transactions and median transaction value

The average daily transaction count in 2020 was 125. In 2021, the average daily transaction count increased to 609.


Source: Coinmetrics

In 2020, the average daily median transaction value was 880. In 2021, it was 1916.


Source: Coinmetrics

Risk Parameters

The GUSD PSM proposal suggested setting the DC for PSM-GUSD-A at 500m, with a starting value of 50m, and then to be fully increased after launch. We believe, however, that 500m may be too high. There are several reasons for this. First, at the time of writing, the GUSD supply is approximately 150 million. Generally speaking, it is always risky for Maker to hold the majority of the supply of a specific cryptoasset. Second, despite GUSD being available on several DeFi platforms, GUSD utilisation has been very low in general in the DeFi ecosystem. Third, GUSD, compared to other stablecoins, is relatively volatile. This is probably due to the lack of secondary markets, and hence active market makers. For the reasons mentioned above, the Risk Core Unit believes that a more reasonable debt ceiling would initially be 100m. This would most likely result in Maker holding a bit less than 50% of all GUSD supply after utilisation. We may be able to increase the debt ceiling once we witness more organic growth of GUSD.

The GUSD PSM proposal suggested setting fee in (tin) and fee out (tout) to 0.1% and 0% respectively. However, since a signal setting tin/tout for PSMs to 0% passed in a recent executive vote, we have set the proposed tin and tout parameters to 0% for GUSD as well.

Debt ceiling: 100m
DC-IAM gap: 10m
DC-IAM ttl: 24h
Fee in (tin): 0%
Fee out (tout): 0%

Sources:

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