USDR Remediation: Plan Details
Goal:
Return $1 in value back to each USDR holder with as little governance token in the compensation package as possible.
Situation:
On October 11th, a mass redemption event occurred. ~$12MM in DAI from the USDR treasury was redeemed over a short period of time. This accelerated drawdown in the market cap, combined with the lack of any remaining DAI for additional redemptions, resulted in panic selling and the depeg of USDR. When the dust had settled, USDR was trading at approximately $0.54 and the collateralization ratio was ~90%.
Solution:
To return $1.00 in value to holders, the Tangible team is executing on a three-part strategy:
Liquidate real estate
- Finish development of Baskets
- Launch Baskets
- Liquidate Baskets for stablecoins
Close the gap in the collateralization ratio, returning it to 100%
- Secure funding for buybackS
- Set-up buyback trading strategy and tools
- Protocol buyback, 1,637,350 USDR to date with the plan to continue
- Burn all protocol-owned USDR
Open redemptions
- Holders will exchange USDR for a combination of stablecoins and locked governance tokens
- Redemptions will open once all real estate in the USDR treasury has been fully liquidated into stablecoins via Baskets
Liquidating Real Estate:
The majority of USDR treasury value is stored in the tokenized real estate backing the asset. This real estate must be liquidated from the treasury in order to return that value to USDR holders.
Off-chain, IRL liquidation was explored, however, the discount taken on the asset values to quickly liquidate the properties made this a non-feasible solution if the goal remained USDR redemptions for $1 in value.
The Tangible team was already developing Baskets, a tokenized real estate product which could be used to facilitate on-chain property liquidations. It was determined that Baskets would be the optimal solution to liquidate the real estate in USDR’s treasury.
During liquidation, real estate in the USDR treasury will be minted into Basket tokens and then sold into liquidity pools in exchange for stablecoins. Over time, all of the treasury real estate assets will be liquidated, returning fair market value to the USDR treasury. Users will be able to track this progress via stablecoin inflows into the USDR treasury.
By managing the liquidation process (opposed to issuing Baskets tokens to users as remediation for USDR) the team achieves two key goals:
- Adherence to the USDR whitepaper which stipulated USDR would be redeemable for DAI once the team had been able to liquidate real estate assets
- Selling of Basket tokens at pace with demand and liquidity, ensuring they maintain value
The team will share updates with the community as tranches of real estate are minted into Baskets and sold.
Baskets development was completed in December and the product was audited in January. Final security recommendations were implemented in late January and the product was prepared for launch on re.al.
Baskets will deploy on March 12th and real estate liquidations will begin shortly thereafter.
Closing the Gap in Collateralization
As a consequence of the depeg, some assets backing USDR also lost value. Combined with the mass redemption of treasury DAI, this led to an under collateralization of USDR. The only solution to this was a burn of circulating USDR to reduce the liability to asset ratio.
To burn enough USDR to close the hole in the collateralization ratio, Tangible needed to acquire more of the token, presenting two challenges:
- Securing funds to spend on buybacks
- Efficiently buying enough USDR, during a period of low trading volume, without significantly moving the price the of asset
To finance buybacks, the team secured loans on various real estate assets in the treasury. Funding was received on several portfolios of properties, which allows the protocol flexibility to close out loans incrementally as Baskets are liquidated. The following shares the details on how buybacks were used to close the gap in collateralization:
- Team purchased USDR at an average market rate of ~$0.629
- That USDR, which will eventually be worth $1.00, was traded to the treasury for only $0.629 of real estate
- Essentially, the treasury’s paying $0.629 to get rid of $1.00 of liability
- Each time this happens the treasury “makes” $0.371 which it no longer has to pay back to customers, improving the CR $0.371 at a time
- The USDR sits in the treasury, nullifying $1.00 of market cap/liability until it’s burned
- Treasury real estate is eventually liquidated at market rate via Baskets, the proceeds used to pay back the loans
Buybacks commenced in December, 2023 and we hit our base acquisition target on February 15th, 2024 with 1.6 million USDR purchased at an average price of $0.629
In the coming weeks, the protocol-owned USDR will be burned, returning the collateralization ratio to 100% with the Insurance Fund marked to zero and TNGBL constituting ≤ 10% of the backing.
Rental Yield
Since halting rebases on October 11, 2023, we have accumulated rental income of £296,975, which translates to $374,363 (using an exchange rate of approximately 1.26 GBP to USD), plus an additional $23,184, bringing the total to $397,547. As stated in our documentation, in the case of a depeg, the accumulated rental yield would be used to help recollateralize USDR.
Given the size of the gap in CR, the rental yield would not be enough to close the hole, which is why the buyback strategy was implemented. The withheld rental yield has been used to service the costs and financing of the loans for buybacks.
Open Redemptions
The Tangible team will open redemptions once all of the real estate in the USDR treasury has been liquidated for stablecoins. All holders should have the ability to exit at the same time. As such, redemptions will not open until all holders can exit.
USDR will be exchanged for $1.00 in value.
Users will receive two assets in their redemption:
- DAI ≥ 90% of the owed value
- Locked governance token ≤ 10% of the owed value
Our goal is for the governance component to be as small as possible. TNGBL clearly accounted for up to 10% of the backing of USDR, so we’ve set that as the upper threshold for governance tokens in the remediation package. The governance token will be provided to users in a locked position. Upcoming features will allow those tokens to be unlocked and sold.
Timeline
Oct 11, 2023 — USDR depeg
October 24, 2023 — Financing application for buyback funding
December 18, 2023 — Funding received for buybacks
December 20, 2023 — Buyback strategy commenced
December 22, 2023 — Baskets dev complete, commit hash sent to audit
January 24, 2024 — Baskets audit received
February 15, 2024 — Buybacks complete
February 16, 2024 — Audit remediations complete, Baskets prepared for deployment
End of February — USDR token burn, 100% collateralization reached
Week of March 18, 2024 — Baskets deployed
Week of March 18, 2024 — Liquidation begins
