A plan to deprecate XAI Stablecoin

The end of XAI experiment

We released the XAI stablecoin for the purpose of seeding liquidity in our markets and generate revenue to SiloDAO. The design was simplistic: Multi-collateral stablecoin without a stability module, relying on deep DEX liquidity to maintain its peg. The basic assumptions were 1- users would borrow XAI to LP it in the Curve pool along with FRAXBP to earn APRs that would far exceed the cost of borrowing XAI, 2- and the DAO would use generated revenues to grow the Curve pool incentives in tandem with its liquidity.

However, in practice the following happened:

  • Most users borrowed XAI and exchanged it for USDC in stead of LPing, leaving the pool almost always imbalaned. The imbalance, which resulted in positive price impact for future LPs, didn’t serve as an incentive to borrow XAI to LP.
  • Despite high LP APRs, XAI failed to scale up its DEX liquidity.
  • Shallow liquidity on DEXs meant that large borrowers could not exchange it for other stablesoins, decreasing XAI’s appeal.
  • Not having a stability module meant XAI hovered slightly below the peg almost all the time, which discouraged users from holding the stablecoin or staking it.
  • The DAO paid roughly $300K in incentives to maintain ~$5M of liquidity. Increasing liquidity would have needed a much bigger budget that would result in negative ROI on the project.

For the aforementioned reasons, it’s in DAO’s best interest to deprecate XAI and use the development and financial resources to focus on the lending product, while researching other viable stablecoin designs.

Deprecation timeline

  • Stop incentivizing XAI/FRAXBP Curve pool on February 14, 2024. We expect incentives to to be cutt off completely by the end of February, 2024.
  • Retract XAI credit lines and direct deposits progressively from relevant markets.
  • Burn credit lines and deprecate the XAI module so no more XAI can be minted.
  • Remove SiloDAO’s deposit into the Curve XAI/FRAXBP.
  • Use vlCVX to vote for SILO/frxETH/crvUSD market and collect bribes.

Next steps

  • Deliberate the proposal.
  • Execute the deprecation plan via onchain proposals.

Resources

XAI Stats: XAI Statistics

2 Likes