Tempus Takes #4
Tuesday 3 May 2022
The battle of the stablecoins incentives has started:
- UST > USN > USDD with the latest USDD promising a whopping 30% ‘risk-free’ return
- New Basepool (DAI/USDC/USDP/GUSD) proposed between MakerDAO & Curve
USDD
USDD is set to launch on Thursday 5 May, but as of today (Tuesday 3 May), we can see its contracts already live on TRONScan, Etherscan and BSC. On CoinMarketCap and UniswapV3, it is trading very closely to $1. So the production alpha has already started. Generally, there is a gap between a token listing to when you can start staking. Only after the stability is proven, then one may start staking for 30% return. So do not expect immediate staking.
When USDD’s staking is up, we expect UST and/or USN depositors to move some of their funds to USDD, not 100% immediately as the platform/security risks are still high in the early days.
This will help to reduce UST’s deposits, and thus its daily cash outflow and the potential additional top up.
Once USDD proves its reliability, the pace of moving from UST and/or USN will increase. The 12% premium (30% USDD vs 18% UST in May) in our opinion is unnecessarily high — investors would have acted the same whether it is 30% or 25%, i.e. inelastic demand. It will probably make more long-term financial sense for USDD’s return to be lowered to just a few percentages above the second best.
Altogether, the lure of these new incentivized stablecoins (e.g. UST/USN/USDD) should see a growth in borrowing of non-incentivized stablecoins (e.g. USDT/USDC/DAI), as more people borrow cheap stake high to earn the rate differences.
New Basepool
Likely due to the 4pool announcement, MakerDAO & Curve are now proposing a new basepool containing DAI/USDC/USDP/GUSD.
MakerDAO is offering a Liquidation Ratio of 102% on this, which implies a 50x maximum leverage when the Basepool LP is posted as collateral to mint DAI. It is also offering 0% borrowing cost, in exchange it retains a portion of the CRV directed as incentives to the Basepool LP.
With this 0% borrowing cost, it will switch DAI borrowers from lending and borrowing platforms such as Aave/Compound to MakerDAO directly, which will lower stablecoins’ demands and yields on lending and borrowing platforms.
With fees all sharply lowered, generally speaking this competition is good news for the trading community. But for the Basepool depositors, do be aware of the liquidation risk, as when at maximum 50x leverage, one can be liquidated when the peg breaks and a cascade is caused.
The proposal will also offer better balance for Curve’s gauge votings.
Market Move
The yield market has generally been stable for the past 2 weeks, with USDT and USDC yields moving closer to each other.
Yearn Fantom pool’s variable yields have lowered, making Tempus’s fixed rate very attractive. For example:
- USDT is 5.34% fixed on Tempus vs 1.51% floating on Yearn, i.e. 3.8% of free APR.
- DAI is 5.52% fixed on Tempus vs 2.14% floating on Yearn, i.e. 3.4% of free APR.
- YFI is 5.46% fixed on Tempus vs 0.32% floating on Yearn, i.e. 5.1% of free APR.
Disclaimer
The information provided in this article is provided for informational purposes only and does not constitute, and should not be construed as, investment advice, or a recommendation to buy, sell, or otherwise transact in any investment, including any products or services, or an invitation, offer, or solicitation to engage in any investment activity. You alone are responsible for determining whether any investment, investment strategy, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. In addition, nothing in this article shall, or is intended to, constitute financial, legal, accounting, or tax advice. We recommend that you seek independent advice if you are in any doubt.
