This VIP proposes a set of parameters for the new USDT PSM and enables VAI borrowing with a new borrowing rate.
- PROPOSAL: Deploy the VAI PEG Stability module and Supply Liquidity to PancakeSwap for the VAI/USDT Pair
- RWA Strategy - A first Proposal
- Proposal: Real-World Asset initiative
- The solution to re-peg VAI is coming
Following our previous post on RWA strategy, we want to propose some parameters regarding the first prong, stabilizing the value of VAI.
- Enforce the peg, avoid VAI going above 1.0010 USDT
- Increase VAI borrowing cost in line with other stablecoin to ensure VAI remains valuable and improve revenue generation.
Modification of this VIP:
- PSM USDT
feeIn(swap USDT → VAI): 0bps (updated 2023-05-05 from 10bps)
- PSM USDT
feeOut(swap VAI → USDT): 10bps
- PSM USDT `vaiMintCap : 5M
baseRate: 2.72% (to be updated when VIP submitted according to the formula)
feeIn (swap USDT → VAI): 10bps
feeOut (swap VAI → USDT): 10bps
This will provide a tight enough peg, yet let third parties provide liquidity pools on different exchanges (PCS, Uniswap, …) with 1bps or 5bps fees tiers. The spread is important to provide some utility to VAI (getting a yield from providing LP), decentralize liquidity provision with the users and increase the demand of VAI. Assuming people prefer to use front-ends that don’t integrate the PSM (like PCS), the deviation from the peg will be at maximum between 11 and 20bps which seems comfortable for now.
We also recognize that USDT is currently a bit away from USDC and BUSD despite significant liquidity. It is our view that USDT might be traded at a premium/discount to the dollar due to minting/redeem costs. More research is needed to be sure we don’t peg to something that isn’t $1.
The PSM would also provide an outside spread on Binance by incentivizing people to provide a wall order around 1.001 and 0.999 as it could be arbitraged with the PSM (assuming liquidity in it).
We suggest a 5M
vaiMintCap (maybe after a very low cap for testing purposes).
We also suggest that the VIP should fill the PSM with the $55k vUSDT Venus has in its treasury.
With the deployment of the PSM we propose to enable VAI borrowings again. While the PSM will disable all possibility of VAI going significantly above $1, it can’t ensure VAI not going below $1. Granted, the 225%
floatRate for price deviation is already providing an incentive for borrowers to repay when VAI is far below $1. But at the peg (what we are set to achieve), the current VAI borrow rate is 1% while borrowing other stablecoins is many times more expensive.
baseRate would be a weighted average of borrow rate from other stablecoins proposed on Venus minus a discount. We suggest a 0bps discount to start with. At the time of writing that would lead to 2.72%. The
floatRate for price deviation would remain, but we hope it wouldn’t be significant going forward.
We provide a spreadsheet were we track from time to time the market rates and the
baseRate that would be derived from (could be automated later on).
- New smart contracts always come with a risk
- Increasing the VAI borrow rate might reduce VAI borrowings and TVL
Key Discussion Points
- What is your view on the peg deviation of VAI that is suitable?
- Would you rather force VAI = USDT (no fees?)
- Do you have another perspective on how to set the borrow rate on VAI if not linked to the market borrow rate of stablecoin?