[yUSD] MIP6 Collateral Onboarding Application

[freiza]

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

@freiza - community member on behalf of MakerDAO and YFI

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

yUSD (also known as yyCRV) is an ERC-20 token issued by Yearn.finance that represents shares in Yearn’s most popular vault: the yCRV Vault.

yUSD aims to be a ‘better USD’—a smart-asset backed by a basket of stablecoins autonomously working to harvest yield from sources such as Aave, Compound, dydx, and Curve.

3. Provide a brief history of the project.

yEarn was launched in 2020 and initially optimized yield across Compound, dydx, Aave, and Fulcrum. The yCRV vault is the most popular yield strategy and currently has over locked $250 million in stablecoins.

4. 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.

yEarn documentation

yUSD documentation

yUSD token contract

vaults.finance source code on github

Current yCRV strategy

5. Link any available audits of the project. Both procedural and smart contract focused audits.

yEarn audits

6. Link to any active communities relating to your project.

Twitter

Community/governance forum: gov.yearn.finance

Voting portal: ygov.finance

Discord

7. How is the applying collateral type currently used?

As a long term Stable coin interest account (in the yCRV vault current value ~$250 million)

Within the current yETH strategy which deposits ETH into a Maker vault

As the reward token for the YFI staked in the governance contract.

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

yUSD is a decentralized token.

9. Where does exchange for the asset occur?

yUSD is minted by depositing assets into the yCRV vault. yUSD also trades on decentralized exchanges such as Uniswap or Balancer.

[ejbarraza]

I would love to see this onboarded.

[alexis]

And what about yDAI

[iammeeoh]

@freiza

stablecoins autonomously working to harvest yield

Hi! I know there is some excitement in the community around yUSD as collateral. And I imagine that’s great!

Would you please spend a few words, for the less Defi-savy of us, discussing the intricacies of this collateral onboarding?

In my simple-minded view, yUSD is a basket of stablecoins (including DAI), which are actively and cleverly managed to gain some interests.

Question: what would you do (useful and productive) if yUSD was a collateral?

It’s not immediately clear to me, why you’d want to mint new DAI from yUSD (which is itself composed in part of DAI).

We already support the major stable-coins as collaterals. Why isn’t this sufficient for your purposes (the basket of stablecoins that yUSD represents can be used in CDPs now)?

It seems to me like onboarding yUSD implies some kind of circularity. I am not saying this negatively, but I’d like to try to understand it better.

Thanks in advance

[ejbarraza]

yUSD would effectively become the reserve asset for DeFI.

[monet-supply]

@iammeeoh

It’s not immediately clear to me, why you’d want to mint new DAI from yUSD (which is itself composed in part of DAI).

The idea would be that MakerDAO could charge a lower interest rate on the yUSD vault than yUSD is earning from interest, trade fees, and CRV rewards. So users could deposit yUSD, borrow DAI, and use that to mint more yUSD to increase their returns.

This could be a decent collateral type, because yUSD price is fairly stable and less correlated to ETH or BTC.

[reuptaken]

The idea that DAI backs DAI is a strange one.

Should we eg. allow yDAI as a collateral? Also very stable one.

[freiza]

Thanks for all of the questions.

Question: what would you do (useful and productive) if yUSD was a collateral?

The most basic way to use a yUSD Maker CDP/vault is to simply mint dai from the yUSD (which is a credit to my underlying yCRV strategy on yearn), turn the Dai into yCRV, and deposit back into the vault to earn more yUSD.

What makes this vault particularly exciting is that the Yearn community incentivizes its community to create ‘strategies’ (what they call ‘vaults’) for yield. Some of their strategies utilize Maker CDPs (such as their ETH-vault strategy–although it is currently paused). If they had the ability to mint Dai from yUSD it is likely they would create vault strategies that allows for greater returns than their current yCRV vault without end users having to play with CDP’s.

Currently the outstanding 258M yUSD is largely sitting idle (although it accrues value on its own, and it may be farmed by newer protocols).

The idea that DAI backs DAI is a strange one. Should we eg. allow yDAI as a collateral? Also very stable one.

It is important to note that yUSD does contain underlying Dai, by association of being a claim on yCRV. Here is the current breakdown of yCRV collateral makeup:

• DAI: 33,437,386.49 (5.14%)
• USDC: 159,826,477.28 (24.58%)
• USDT: 253,537,768.17 (38.99%)
• TUSD: 203,399,884.98 (31.28%)
• DAI+USDC+USDT+TUSD: 650,201,516.92

There has been some in-depth discussions around Dai backing Dai / recursive assets in these threads, particularly aDai/cDai:

[Discussion] cDAI/aDAI/yDAI collaterals as a peg enabler tool

Please find below a capture of the last balance sheet of the Fed regarding the collateralization of dollar bills (federal reserve notes). You can see that most of the collateral is US bonds which are promise to pay dollar bills in the future which is like aDAI/cDAI in a sense. [fed notes coll]

Research: cTokens as Collateral

cToken Introduction cTokens represent tokenized deposits supplied to Compound and accrue interest via an increase in the exchange rate of the cToken relative to the underlying asset. If a user has an outstanding borrow against the cToken collateral, then they are unable to send the tokens (they are encumbered by Compound). Full cToken documentation is available here. cDAI: a tokenized representation / claim of DAI deposits in Compound cUSDC: a tokenized representation / claim of USDC deposits …

[Governor]

Ofcourse I support this

[Governor]

Gaad damn, I’m so excited for this.

[iammeeoh]

@freiza Thanks for the detailed answer and for the useful links.

Some other people asked about yDAI.

Even if this thread is about yUSD, could you comment on the yDAI addition too (perhaps the two can be bundled and approved together)?

Can you please:

comment on the differences (wrt to addition as Maker collaterals) between yDAI and yUSD (if any)?

Thanks again.

[monet-supply]

@iammeeoh

(perhaps the two can be bundled and approved together)?

A separate application would need to be submitted for yDAI or the other stablecoin vaults. But the domain review work (oracles, risk, smart contracts) may have some overlap which might speed up the onboarding process.

[ejbarraza]

yUSD is a great form of diversification because the curve pool is minimally exposed to DAI and generates yield from the active strategies in the vaults. yDAI on the other hand is exclusively exposed to DAI unlike yUSD which is far more diversified.

[Aaron_Bartsch]

I’m not a big fan of yusd essentially being backed 40% by USDT. Good thing to keep in mind risk-wise.