[TEMP CHECK] Putting treasury stablecoins to work

Proposal Discussion
1

Summary

Silo treasury owns a lot of stables that are currently idle while they could actively generate revenues without having the risk to be illiquid.

Introduction

Let me briefly present myself. I’m skewness_outlier, the designer of SUSD.

Specification & Rationale:

What’s SUSD ?

SUSD is an RToken that will launch soon on Reserve protocol. Reserve protocol is a protocol that permits to create asset backed, yield-bearing, overcollateralised tokens, they’re called “RTokens”. SUSD is one of those. SUSD hasn’t launched yet but will do very soon. SUSD will be able to procedure redeeming and minting at any moments insuring its liquidity and stability.
Here are SUSD backing collaterals :

  • 1/3(~33,33%) sDAI
  • 1/3(~33,33%) sFRAX
  • 1/3(~33,33%) sUSDe

RTokens have a lot of particularities, I will break down the most interesting ones here. For example, SUSD will rely on RSR(the Reserve protocol token) stakers for governance and overcollateralisation. The governance part means that if a collateral asset isn’t giving a good yield anymore or have some problems in the back(like not having enough dex liquidity for example) RSR stakers have the power to make a vote for changing it with a better one. RSR stakers also provide overcollateralization, which means that if a collateral default occurs, the defaulted collateral will be automatically sold for a predefined emergency collateral, such as LUSD. Then, all the losses will be covered by slashing RSR stakers. RSR stakers have a percentage of the collateral yield in exchange of all that(here 10%), and the unstaking period of RSR is 14 days. It already happened for eUSD, an other RToken, and the system worked perfectly as intended during the USDC depeg of march 2023 proving its resilience.

If you ever want to take a look, here is the SUSD RFC on Reserve protocol governance forum.

Why does SUSD fit perfectly for Silo treasury ?

  • Yield : SUSD will provide to silo treasury a competitive yield, standing on the best benchmarked and trusted yield sources of this industry. Yield will be very useful to fund SILO buybacks, audits and development.
  • Security : By relying on RSR stakers, when there will be any problems like one of the yield sources beginning to have some problems, RSR will be here to cover any damages. So SUSD has it’s own built-in insurance directly integrated in itself by redirecting a part of the yield to RSR stakers in exchange of overcollateralisation. As the time of the writing of this RFC(05/22/2024) SUSD yield would be 11.2%. Reserve protocol is a highly audited protocol, it was audited by the best like ackee, trails of bits, code4arena and many others as you can see here. Also, when SUSD will be displayed on the UI, it means that it has been audited by Reserve team.
  • Management : Silo governance wouldn’t have any need of management for this position since RSR stakers will do all the work if there is any need. They will keep high yield sources while maintaining security, since if there are any problems, they will be the first to repair the damages.

Allocation proposition

These allocation propositions seem the most relevant since they don’t use market maker funds, LUSD funds and operations funds which always needs to be operational.

Synergy

This could start a great synergy between SUSD and silo where we can see in the future, silo markets accepting SUSD as collateral. Or even thanks to v2 markets, seeing SUSD as a borrowing asset. Yeah I know that seems abstruse to lend a yield bearing asset, but let me explain it. The concept is simple, in lending markets, you always have to convince users(more precisely lenders) that your yield is the best one. But when it comes to lending to high yielding assets like PTs, you can lend yield bearing assets to that type of collaterals and it will still attract borrowers because it’s still interesting to borrow yield bearing assets. Let me tell you a concrete example : holders of liquid restaked ethereum are ready to pay at least 10% to borrow eth, so you can simply lend them wsteth that is yielding 3% apr and they will borrow it at a 7% at least. So, for borrowers it doesn’t make any change, but lenders have a guaranteed yield thanks to lido staking apr, and on top of that they can accrue the lending rate. So instead of telling to lender “hey come here, my yield is better than my neighbor”, the paradigm will change to “hey come here if you want yield on top of your yielding assets”. Rehypotecation is the future of the future of finance.

Contact me

You can contact me at @skewness_outlier on discord for any discussion or leave your comments and questions here, I will respond to it.

2

Posting from Discord:

Immediately what I would ask is what is the added benefit of minting SUSD vs simply holding sFRAX/sDAI/sUSDe (which would reduce the smart contract risk) - sUSDe being a fairly new stablecoin we would probably prefer to refrain from it imho.

Also, what would be the benefit vs us instead upping the amount of stables we deposit in the protocol - some DAO funds are already deposited across markets and earn significant yields (see our market making safes).

3

Immediately what I would ask is what is the added benefit of minting SUSD vs simply holding sFRAX/sDAI/sUSDe (which would reduce the smart contract risk) - sUSDe being a fairly new stablecoin we would probably prefer to refrain from it imho.

For the smart contracts risks, Reserve is pretty safe, like I said they are very audited(by the best), they’re very professional, and even a fintech bank deposit all its’ customers’ funds into one of the RToken(eUSD).
For me, sUSDe even if it’s a new stable is nearly as secured as sDAI.
The benefits of SUSD vs holding sUSDe/sDAI/sFRAX are multiples. Let’s say sUSDe have a problem and start depegging, the system will automatically sell sUSDe and then, all the losses will be covered by RSR stakers. You have an insurance directly integrated in SUSD. Also, no management need, let’s say as an example that Frax is deprecating sFRAX, we will immediately change the sFRAX contained in SUSD for an asset at least as secured as sFRAX. Or let’s say sUSDe mcap/liquidity ratio on the secondary market is doing bad, we would do the same thing, removing sUSDe from the basket for an other yield bearing asset. Last thing, assets from the basket are constantly rebalanced, like a CPMM(Constant Product Market Maker).

Also, what would be the benefit vs us instead upping the amount of stables we deposit in the protocol - some DAO funds are already deposited across markets and earn significant yields (see our market making safes).

  1. No management needed, SUSD governance is doing all the work so you don’t have to.
  2. Positions on silo can be illiquid, while with SUSD you are always liquid and have the possibility to withdraw your funds at any time. Very important in urgency situations.
  3. If silo have some problems like let’s say oracles manipulation on somes markets that leads to bad debt. Maybe silo would want to repay user by using DAO funds, but if they were in the markets that were exploited, well…

Bonus : For Silo it’s important to support their own markets by using DAO funds to provide liquidity on the different silo markets. SUSD and silo liquidity providing aren’t incompatible. SUSD approach is to be the best asset for DAO treasuries in a diversification process.

4

Posting from Discord:

I am personally against the proposal since the DAO currently has roughly $3M deposited into our markets and DEXs. That is enough exposure. In addition, part of the DAO’s revenues will be used to pay for audit costs - and maybe distribute some in case the community votes to activate rev-sharing once veSILO is deployed.