[sUSD] MIP6 Collateral Onboarding Application

Hello everyone,

This is my proposal to include sUSD as a collateral asset for MCD.

  1. Who is the interested party for this collateral application?

The strong and rapidly growing SNX community, with the full support of the Synthetix developer team would love to be able to mint DAI against sUSD collateral. This would allow sUSD holders, including SNX stakers, to easily generate DAI to lend, pool, or spend without selling their sUSD. This is particularly advantageous for SNX stakers, who manage debt obligations which must be repaid in sUSD, but may want to generate yield on DAI over sUSD for higher rates or deeper liquidity. Similarly, this would provide great value to MakerDAO and DAI holders by capturing a slice of the higher yields on larger amounts sought by sUSD depositors. This generates interest for the DAO. It also adds supply side liquidity to DAI and thus helps to strengthen its peg against ever increasing demand.

  1. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

For a high level overview of the Synthetix project in general, see my MIP6 for SNX here:

SNX holders can stake it as collateral backing newly minted sUSD, Synthetix’s stablecoin. Instead of a predictable or DAO controlled interest rate for this loan against one’s own assets, the cost of minting synths is in the form of a debt obligation to back a fraction of all synths, which is proportional to the minted value. This means that while the value of the staker’s sUSD stays relatively constant, the value of the corresponding debt can fluctuate based on the performance of all synthetic assets. When synth holders gain value, SNX stakers owe them that value, or must forfeit their 500% overcollateralized SNX tokens. If the staker can manage a portfolio funded entirely with their minted sUSD that manages to beat the market of other synth holders, they have managed to turn staking into a profitable activity before staking rewards are even considered. This means SNX stakers holding sUSD have strong incentive to be using it to generate yield and at least balance but ideally demolish their debt.

The primary motivator for the non-SNX-staker to purchase and hold sUSD is to use the Synthetix Infinite Liquidity Mechanism to trade for other synthetic assets, on a permissionless DEX without slippage. Trading fees from this activity are paid to SNX stakers in sUSD.

  1. Provide a brief history of the project.
  2. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated…
  3. Link any available audits of the project. Both procedural and smart contract focused audits.
  4. Link to any active communities relating to your project.

For 3-6, please see the corresponding section of my MIP6 for SNX here:

  1. How is the applying collateral type currently used?

sUSD is principally used for trading with the Synthetix Exchange through one of several front end exchanges, but it also a very popular token for several other Defi Protocols including most notably aave and curve.

As of writing sUSD is 70% utilized on Aave V2 with $6.19M earning 1.97%, and 85% utilized on Aave V1 with $1.77M earning 25.86%. The sUSD pool pairing sUSD, DAI, USDC, and USDT is currently the second most active pool on curve.fi with $58M in daily traded volume. Only ‘3pool’ of USDC, DAI, USDT is marginally higher, with $63M.

As mentioned above trading fees are awarded to stakers in sUSD. sUSD is minted by stakers against SNX collateral, with the c-ratio currently at 500%, meaning every $1 sUSD is backed by $5 in SNX. This is a very safe ratio, and makes sUSD even more appealing as a collateral type.

  1. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

Synthetix has taken an aggressive approach towards decentralisation and is now fully governed by a number of decentralised governance bodies and elected representatives of token holders.

  1. Where does exchange for the asset occur?

Coinmarketcap markets list:

Synthetix Exchanges:

https://synthetix.exchange/#/

Aggregators:

https://1inch.exchange/

sUSD has a modest but rapidly growing market cap of $147M. Due to the highly decentralized nature of the Synthetix protocol, sUSD is much more liquid on DEXes than on CEXes. the largest CEX is Binance ( $500k 24h/USDT), ( $220k 24h/ETH), ( $220k 24h/BTC). Where it really stands out is defi liquidity. It is infinitely liquid on the synthetix exchange and all interfaces for it, but its biggest source of external volume is curve pools, with the aforementioned sUSD pool reporting a whopping $58M in daily traded volume. Sushiswap and OneInch both have over $1M in daily volume for it.

This volume profile falls in line with sUSD’s intended functionality, as once it is held its most core function is to be traded with the synthetix exchange, taking advantage of the infinite liquidity mechanism. The majority of the volume is in the curve sUSD stablecoin pool, as people enter and exit the synthetix trading environment by buying into and selling out of sUSD. This pool functions as a major liquidity onramp and offramp for synthetix.

  1. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.

Synthetix has taken an aggressive approach towards decentralisation and is now fully governed by a number of decentralised governance bodies and elected representatives of token holders.

  1. (Optional) List any possible oracle data sources for the proposed Collateral type.
  1. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.

SNX stakers, sUSD lenders, or sUSD poolers looking to buy sUSD at a lower price, as well as arbs looking to resell what they can buy at a discount on the open market for short term profit. The obligation of SNX stakers to repay sUSD denominated debt in order to retrieve 500% of its market value in SNX is perhaps the strongest core motivator for liquidation participation.

Thank you for your consideration,

Kevin

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