Under the USDs Hood
SPA stakers act as capital allocators with Sperax DAO. How will the community direct capital to balance risk tolerance and value accrual?
TL;DR Good risk management = funded auto-yield and hefty revenue split
SPA stakers become capital allocators with the new governance structure. For the first time, the community is voting on diversifying stablecoin collateral in the USDs protocol. The strategy will fund Auto-Yield generation, slightly increase fund risk tolerance, and produce strong APY for veSPA holders from rev split.
With the recent launch of off-chain governance, the SPA community now works hand-in-hand with the Sperax core team. SIP-1 has proposed to diversify collateral into FRAX and VST, and the team anticipates further proposals that will add assets to the collateral pool and delegate new yield strategies.
SPA has a key role within SperaxUSD. This article is written to better understand how SPA functions in the ecosystem, and to communicate roles and expectations of SperaxUSD ecosystem participants.
Collateral Pool — The Stablecoin Fund
At the core of the Sperax USD ecosystem is the USDs Collateral Pool: a diversified basket of assets that are managed by SPA stakers and owned by USDs holders.
SperaxUSD smart contracts deploy the funds in secure, high-yield, delta-neutral DeFi strategies to fund a target Auto-Yield rate of 11% on USDs. As the collateral fund increases, the power of the SPA staker grows tremendously. SPA stakers have the ability to play the role of bankers, deploying stablecoin liquidity through DAO voting in response to ecosystem needs.
Incentives for SPA holders will always align with USDs health. When collateral works to generate target Auto-Yield for USDs holders, SPA stakers and USDs holders enjoy sustainable, organic yield.
USDs — The Auto-Yielders
Individuals, investment funds, DAOs and businesses store value in USDs to generate reliable yield. Currently, the DeFi space has lucrative yield opportunities but is challenging to navigate. When holding USDs, investors are actually holding $1 worth of the high-yield, non-volatile stablecoin fund, generating 11% yield.
This is the annual rate at which users holding USDs earn more USDs. As the collateral fund backing USDs grows, more $1 shares of the fund are distributed to the owners of the fund; USDs Auto-Yield to USDs holders. This APY rate is set by the SPA stakers, the strategy managers of the fund.
Assets in the fund are always redeemable. Users can always redeem USDs from vault funds by redeeming USDs for stablecoin collateral. This feature combined with liquidity to facilitate DEX swapping keeps USDs at $1.
This design decision was made so the fund’s share token can be fungible and highly liquid. Instead of the share token increasing in value according to a growing position, USDs holders see growth as they receive more units of USDs.
SPA Stakers — The Fund Managers
Anyone who holds SPA can stake their SPA to become a capital pool manager. These users are important to the system because they decide how the stablecoin fund is deployed to generate yield. Read about SIP-1, the proposal to onboard FRAX and VST. Once onboarded, the strategy will be used to generate ~28% Auto-yield.
50% of all yield generated is given to SPA stakers, who can decide where the SperaxUSD protocol deploys its stablecoin fund. When doing their job well, the multi-million dollar collateral pool will produce double digit yield, which is shared 50/50 between USDs holders and SPA stakers. For now, half of all yield earned is sold for SPA and distributed to stakers. This generates a constant buying stream for SPA with up to four digit APYs for SPA stakers.
SPA stakers are motivated to manage risk since their rewards partially rely on the stablecoin funding generating yield. If stablecoins in the fund are deployed to a strategy with too much risk, the value of the fund may drop below the value of USDs–the $1 share token representing the fund. Instead of the share token going below $1 (depegging), the protocol will use protocol owned SPA to make USDs holders whole once again. This aligns incentives between the revenue share and risk mitigation.
Since only USDs held in wallets earns Auto-Yield (USDs in smart contracts doesn’t receive Auto-Yield), the liability to maintain a target 11% Auto-Yield is less than 30%. Excess yield not distributed to USDs holders or SPA stakers can be either kept in reserves to ensure future Auto-Yield funding, or held in SPA to accumulate weight in strategic ecosystems — like FRAX gauge with FXS accumulation.
SIP-1: Sperax Off-Chain DAO is Live
Community voting through Sperax DAO is live this week with the introduction of SIP-1. The snapshot vote is the first time veSPA holders are actually performing as fund managers, with a vote to ‘Diversify out of USDT into FRAX and VST.’ Voting on SIP-1 is live until July 16, 2022 at 9:59 PM UTC.
The DAO is where incentives align in the Sperax protocol. In its early stages, Sperax DAO proves that SPA has the opportunity to be an exceptional capital producing instrument. With the community acting as fund managers, rich discussion on future SIPs will allow for a fund that aligns fair risk tolerance with healthy deployment to earn yield. The best outcomes for SPA stakers are also the best outcomes for USDs holders.
The USDs collateral fund performs when:
1. The stablecoin fund collateralizing USDs provides SPA stakers capital to delegate for yield earning
2. SPA stakers allocate capital to sustainably produce organic Auto-Yield for USDs holders
3. The fund sustainably produces organic yield to buy back SPA, and provide SPA stakers with high APYs through the revenue split
Sperax is dedicated to benefiting all financial lives with blockchain technology.
Sperax has built the first Auto-Yield stablecoin, $USDs, to harness DeFi yield with a target 11% APY.
$SPA, the Sperax governance token, rewards stakers who empower Sperax DAO to make $USDs fully decentralized, and 100% collateralized by exogenous, on-chain assets.
The protocol is currently in a growth stage, bridging the gap to crypto for a global user base by offering $USDs on user-friendly platforms.
Read more at sperax.io and join the Sperax community!