RWA Strategy - A first proposal

Dear Venus community,

First we want to thank you for voting for the RWA proposal we made. Since approval, we have started to work on figuring out a strategy to move forward. It is still early days, but here is a sketch of what our next step can be. We envision a 3 prong approach. Please feel free to comment, like or dislike, to help us shape a RWA strategy that fits the Venus community.

First prong: Anchor VAI in the launching pad.

As you know, VAI history is somewhat tumultuous. We are at a stage where VAI is unpegged ($0.98) and very low capitalization ($4.5M). We are spending quite some time figuring out if it is sound to use it as RWA funding.

We have crunched the numbers and it is our understanding that only 100k-200k VAI are unbacked, as th treasury has 160k VAI and there are already 60k VAI on unrealized revenues this is fine. It sounds likely that what is impressive is that VAI is not above peg.

The recently proposed plan to add liquidity on PCS, introduce two PSMs and sa Saving DSR is solving most of this prong. In our view, the first prong should be our priority, establishing a sound foundation for VAI. We plan to assist other Venus team as much as possible on that.

To be clear, we expect to be paid with a pegged VAI.

Second prong: Fire the boosters

While the first prong is a needed step to achieve anything in RWA, we need to start as fast as possible a flywheel. Currently, VAI is minted from crypto-collateral, this is not scalable.

We are discussing with Backed Finance to see the feasibility of having a low risk and somewhat liquid backing for VAI (think t-bills or ultra short-term corporate bonds). This will allow expanding the supply of VAI while generating returns to increase the Saving VAI rate. The use of the sVAI BEP-20 should improve liquidity provisioning on Pancake Swap. For instance sVAI-BNB LPs would earn trading fees and the VAI Saving rate (on the VAI portion). Probably incentivizing sVAI-BNB pair at the beginning would help.

With a sound peg (first prong) and a deep liquidity (second prong), we should have the basis for serious RWA endeavours.

Third prong: To Venus and beyond

While we expect to generate growth with the second prong, it is unlikely that it would be generating significant revenues to Venus. Our understanding is that the interest rate market in Binance Smart Chain is just too competitive. Based on that, a higher yielding solution like the one proposed by Credix seems needed.

Key item on this path is the creation of a legal structure, tentatively codenamed VE68. This one will also serve for quite a lot of usage going forward (being a backup for Backed products redemption of the second prong for instance). This is a quite expensive and complex endeavor (~$50k and a few months of administrative work) but needed as described in the RWA initiative proposal.

We plan to start all those prong asap as the laters need more time and more planning. We also don’t doubt we will hit some roadblock, RWAs are not for the faint of heart.

Yet we are quite bullish.