[Closed] Add sUSD to mUSD basket

Summary:

Integrate sUSD from the Synthetix protocol as a basket asset (bAsset) to the basket for mUSD.

Abstract:

This simple proposal requests an additional USD token, sUSD, be represented in the mUSD mStable asset (mAsset) basket.

sUSD is an ERC20 token minted by stakers on the Synthetix platform. Stakers overcollateralize the SNX token (currently at a 600% ratio) in order to mint sUSD which is then used to trade synthetic assets on the Synthetix Exchange platform.

The current bAssets underlying mUSD are USDT, USDC, TUSD, and DAI. This proposal would add sUSD as a fifth asset.

Motivation:

Three of the assets currently in the mUSD basket (USDT, USDC, TUSD) are centralized. This concentration leaves mUSD exposed to risks such as opaque collateral assets and censorship. Adding another decentralized stablecoin (sUSD) to the basket (along with DAI) will mitigate these risks for mUSD.

Also, mUSD could use more total value locked and trading activity. It can be assumed that additional basket assets will increase demand on the mStable platform. Users holding sUSD would mint mUSD to take advantage of high yield in the SAVE module and traders will seek sUSD for arbitrage or ecosystem needs.

Pros:

  • Diversify mUSD basket exposure into another decentralized stablecoin (sUSD)
  • Increase demand for mUSD from sUSD holders
  • Increase swap fees with sUSD as an additional mUSD basket asset

Cons:

  • sUSD is prone to floating significantly away from its $1 peg: sUSD is currently above peg and will be underweight in the mUSD basket if added
  • Yes, add sUSD to the basket
  • No, do not add sUSD to the basket

0 voters

1 Like

I think something to keep in mind here is that decentralised issuance (DAI, sUSD) cannot keep up with centralised issuance (USDT, USDC, TUSD). The result is that stablecoins such as DAI and sUSD trade at a premium, and therefore will be in a permanent drained state when added to the bAsset pool.

I do fully agree that sUSD should be added (if DAI is added, no reason not to add sUSD), but we need to keep in mind that the current 1:1 swap mechanism will just result in an empty sUSD reserve.

Transitioning to an AMM model for managing bAssets should allow this, as described in this proposal:

2 Likes

Adding sUSD to the basket in the current economy would not be good. Since sUSD is trading at a premium (generally around $1.01) it would likely not be used for minting and thus contribute not much to the basket. In addition it would have negative knock on effects on the average gas cost for each user action, given that there will now be more storage to read and more parameters to consider.

Voting a strong NO at this stage. Would reconsider after we have caching implemented to reduce gas costs, or sUSD starts to trend around the $1 mark instead of $1.01.

2 Likes

More stablecoins = more liquidity = more opportunity for more arbitrage = more swap fees for mUSD savers

If we add unbacked stable assets like Tether, we should be adding all and every USD asset in the Ethereum ecosystem imho.

I like the arguments from the previous posters though, and providing a certain “weight” of each coin in the future to balance out the basket might make sense.

I think it’s very important that we understand the consequences of adding sUSD into the basket.

The Block Crypto has a good deep dive on this topic https://www.theblockcrypto.com/genesis/26882/synthetix-synthetic-asset-issuance-protocol illustrating some risks and weaknesses of sUSD

Synthetix’s response - https://blog.synthetix.io/response-to-the-block-analysis/

2 Likes

Can you summarize the findings of the Block please? Not everyone has a subscription and can read the article :grin:

Among other things, Synthetix does not have a liquidation process, and with a highly illiquid token as collateral, the system is uniquely exposed to scenarios where the price of SNX collapses and the value of outstanding debt exceeds that of collateral.

Anyway you can just use your email to unlock the article.

Depeg risk being higher for sUSD is something to be considered imho (to your point derc). Our initial idea when the team was thinking about sUSD inclusion in the basket was to set its max weight at 20% instead of 50%+ where our other bAssets are at. This would mean that downside from a peg loss event would be limited.

Of course, with an upgraded AMM (like the one leg has mentioned) this consideration may need to be revised, I think we should still be able to manage the risk with whatever future AMM model we choose, but thats to be seen.

I’m for sUSD inclusion. I acknowledge there will be material impact on gas costs, which are really high right now. What this means for users sourcing mUSD from other sources instead of minting/redeeming directly I don’t know. By the logic of a bAsset creating “more storage to read and more parameters to consider” as alsco rightly brings up, I’d almost want sUSD in the basket INSTEAD of DAI, DAI has literally done nothing for the platform since inception. I’ll stop here before I overcomplicate this discussion too much. +1 on sUSD inclusion from me.

1 Like

Excited to see this go to snapshot for voting!! :100:

1 Like

As the proposal sponsor, it would be good to see sUSD voted into the mUSD pool. Unfortunately, however, the likely scenario is that sUSD will join the pool and have a 0% weighting since it has been consistently over peg (like DAI). sUSD will appear drained from the pool which will be met with criticism from observers and the community. Since sUSD is worth more than $1, no users will use it to mint mUSD as it will be instantly arbitraged for a less valuable stablecoin and not available for redemption.

It would still be worth it to add sUSD as a decentralized stablecoin that will likely return to its $1 peg, but since adding a stablecoin will increase gas costs (that are already prohibitively high given current ethereum network usage) sUSD should probably not be added to the mUSD basket at this time.

2 Likes

While this is good for marketing and increases the combinations of swaps, it’s hard to see how this doesn’t immediately become an empty basket like DAI.

In order to bring some of the Discord voice here as well, another idea was given to include a third voting option to “add at a later stage”.

This should be a predetermined date at which this asset will be added to the basket, but this way we might be able to prioritize another asset first.

Also, a few voices said that even though it would just be an empty basket piece that increases gas costs, it could still warrant including for the publicity and the positive network effect generated by having Synthetix included.

Also, we might not see sUSD above 1$ forever either.

3 Likes

Yes, this is a valid point and the governance vote will include this option to act as a compromise between simple Yes/No responses.

I think mstable AS-IS is great for hard-pegged stablecoins but it’s not great for soft-pegged coins that have trouble keeping it’s peg.

I think I may have voted differently above, but I’ve thought through this more. I vote to delay this decision 3-6 months to see if they can get a better handle on keeping their peg in line. There are plenty of dex’s that can handle coins with vastly different prices but if mstable only had hard-pegged stablecoins that kept their peg well, we would be unique and settle into an excellent niche that I think would be adopted well by paying customers.

4 Likes

Vote in progress

Proposal 1: Should sUSD be added to the mUSD basket? #QmWsCRy

Proposal 2: When should sUSD be added? #QmVgxe7

Vote closes Oct 11 2020

1 Like

The vote closed with the following outcomes:

  • 60 members of the community participated in the vote.
  • 84.11% of the voting power voted Yes in favour of the proposal to add sUSD into the basket.

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  • 47 members of the community participated in the second vote to decide when sUSD should be added into the basket.
  • 74.45% of the voting power voted to add sUSD into the basket when sUSD stabilises around its US$1 peg.

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We will share more communications shortly.

sUSD was added as an mUSD basket asset today!

1 Like