[Discussion] Incentivise Rari Fuse lending markets

Summary:

Seeking feedback from community to seed liquidity into Rari Fuse pool through one of proposed means

Abstract:

  • mStable has deployed a Rari Fuse pool (Pool #30) with mAssets, imAssets, MTA and ETH as deposit assets
  • Rari Fuse is an open and decentralised protocol for permissionless money markets with US$846m supplied across its markets, deployed as as a modified fork of Compound Protocol
  • This is a protocol controlled lending/borrowing market for mStable assets as though if our assets are listed on a tier-1 lending market like Aave and Compound
  • How can we turn the flywheel?

Why?

  • mStable assets do not have a native lending and borrowing market due to their relatively low on-chain liquidity
  • Protocols like Aave have minimum liquidity and trading volume thresholds for listing, and require a Chainlink oracle as a price feed
  • Chainlink oracles only exist for MTA, and not mAssets/imAssets due to their lack of on-chain liquidity and trading volume
  • Lending and borrowing markets are key to growth, especially for stablecoins as they allow users to obtain leverage
  • Leverage is good in DeFi :slight_smile:

Example use case

  • mUSD leverage: mint mUSD > deposit into Save > deposit imUSD into Rari > borrow mUSD (repeat)
  • mUSD yield farming: mint mUSD > deposit into Save > deposit imUSD into Rari > borrow mUSD > deposit into fPool
  • Unlock imBTC as collateral to yield farm on imBTC deposits

Seeding initial liquidity

  • In order for lending markets to be of utility, initial liquidity needs to be seeded to bootstrap the pool
  • Liquidity could be seeded in one or multiple ways:
  1. DAO seeds liquidity from treasury or buyback and make pool
  2. Channel some % of fPool deposits as in the case of CREAM’s Iron Bank
  3. Use token incentives to incentivise users to seed liquidity
  • Would like to propose approach #3 or a combination of #2 and #3 is deployed as the DAO has limited liquidity outside of MTA and most mUSD deposits are already deployed to Iron Bank, leaving US$1.8m from the alUSD fPool to be used as potential seed liquidity.

Discourse

  • Keen to hear everyone’s thoughts about this

Motivation:

  • Bootstrap lending markets for mAssets, imAssets and allow users to leverage on their capital
4 Likes

I am keen to support this effort! In essence, this could give Feeder Pool depositors an additional yield on the mUSD side (the current native yield is quite low now), while also allowing leveraging up the position. This could appeal to the more degen targeted user base that wouldn’t use mStable otherwise.

  1. Using the Buyback & Make the pool to move to Rari Fuse instead is an interesting idea. However, this would also mean that we would need to use another value-driving mechanism to buy MTA or rebalance the holdings. Also depositing MTA into Rari Fuse would not add much value, since borrowing MTA is disabled.

  2. The mUSD from the alUSD Feeder Pool is currently unallocated. Since Rari is a close fork of Compound/Cream the integration would be very similar. The mUSD from the other Feeder Pools is currently deposited in Cream. If the initial seed is successful, we could even more the mUSD from Cream.

  3. This is a difficult one since we are curbing our inflation. New rewards are difficult to allocate. I think we could have a couple of options: carve out some of the MTA allocations from Save Vault or replace it entirely. The Vault could become the Fuse Pool?

Very interested to make it seamless as well, Imagine leveraging up in Save directly from our UI using Rari Fuse in the background.

2 Likes

I am in support of exploring this @derc , thank you for detailing the options and presenting a way forward.

I think we explore options 2 & 3 and try and think to see if any other brainwaves come to a core contributor or Metanaut. I’m looking at the same issue with the protocol tightening its emissions in the future meaning incentives will be scarcer. In the meantime, lets get the ball rolling on the current options.

1 Like

Do we have any historical data on how much utilization we’ve seen since depositing mUSD in the ironbank? Depending on the answer, perhaps it makes sense to simply migrate our position and constant deposits from IB to the Fuse pool?

In order to offer competitive borrow APRs on mUSD, there’s going to need to be a significant amount of capital seeded (if anyone has more information on the formula for this, ie x amount of liquidity supplied ~= y amount of borrow APR, I would love to see it), otherwise, users won’t borrow against it.

Almost certainly we won’t beat the borrow APR on IB (<1%), which is expected in moving to the multi-asset collateral/borrow options available with Fuse, but if we’re not seeing any utilization there, why not try migrating to the Fuse pool - especially given this will be the primary place for users to leverage up using imAssets. There’s no market for this currently, and expanding usage of imAssets beyond farming MTA seems like a win for us all around. Plus, if there ends up being strong demand, there’s a good chance (I know much of what I’m saying is handwavy at this point…but bare with me) that the supply APY could spike much higher than 2%, which is what we’re seeing with IB today.

Lastly, even though borrowing MTA is not enabled, if we’re going to move forward seeding this pool, is there a reason we shouldn’t send some MTA to the fuse pool to help source borrow liquidity for it? Perhaps I don’t fully understand the fuse pool mechanism, but as I understood it the more liquidity in the overall pool, the better the borrow APRs are for each individual asset. I suppose the primary consideration is smart contract risk with fuse pools? Is there a situation where MTA could be liquidated even though it’s not being borrowed against?

I’m a little ambivalent about having deployed on Rari to begin with. I’m concerned by the complete lack of organic engagement with the pool by users on the site as well. Maybe that’s because the DAO hasn’t specifically made a push to promote it? I’m also concerned that it was deployed without a specific plan in place to jumpstart it.

If the Rari deployment was the right move, then I think the treasury needs to provide the liquidity. I glanced at the docs and it seems that holding an fToken yields fees to the lenders. So if the Treasury owned most of the liquidity then it would benefit from the fees, providing an income stream. It would need to drive users to it in order to justify the risk in using treasury assets. This means a marketing push of some sort.

From the perspective of a sample DeFi user looking to earn yield on stables though, I don’t know why I would go with this over using abracadabra (if I wanted leverage) or Alchemix (if I preferred safety).

What I mean is, it provides an option if I am already a Save user. If I’m not, why it would make me a Save user in the context of the competition?

I guess this isn’t very positive feedback from me. I apologize.

Great discussion so far here, and going to chime in with my 2 cts:

Basically, I think if we wanted to kickstart the Rari pool, we should also consider what our goal with this would be. Creating an ecosystem market with mAssets and MTA makes sense to me, but we always got to ask ourselves why anyone would want to do that.

Here’s a few examples if I were to ape this:

1.) TreasuryDAO provides 500k MTA liquidity to the pool. I can borrow these MTA to either short the asset, or to use the MTA to stake them for leveraged MTA rewards (long).

2.) I deposit an interest-bearing imAsset in order to leverage, and borrow mUSD in order to gain interest while being leveraged in a very safe way (actually this is potentially higher-yielding and safer than Alchemix, with certain precautions considered).

Alternatively, I can create a loop and re-deposit the borrowed mUSD into Save and leverage my way into an ape position on Rari.

3.) I borrow imAssets and actively manage my borrowed position so my interest borrowing is lower than what the Save Vaults generate.

4.) I deposit generic collateral in order to gain more exposure to the mStable ecosystem while keeping my ETH (potentially very interesting with imAssets). I think many would not do this unless incentivized to do so, as the interest rates are better on other protocols.

I think some of these options I’d personally be interested in, but I’m not sure how much better this pool would be in accomplishing these tasks, without a real eye-catching mechanism enabling this.

For instance, I’d love if the TreasuryDAO could borrow some mAssets from the provided MTA collateral and then use this to buy back more MTA from the market, to provide more MTA liquidity on Rari, or to use these to yield farm other protocols, potentially offsetting incentivization with platform rewards from these ventures.

Alternatively, I’d love for the Olympus DAO bonds to perhaps be used in this respect, and liquidity on Rari be in the hands of the TreasuryDAO for a discounted issuance of MTA to the person to provide the Treasury with the lending-side tokens, thus creating long-term markets on Rari that won’t go away and make it safer to consider by the invididual if they know that the collateral is custodied by the DAO.

I think there is a lot of possibilities here, but we most certainly want to avoid just dumping non-vested MTA on the market that will further destabilize the price in the coming weeks and months at all costs.

1 Like

Could this actually be a way of how the TreasuryDAO could deposit MTA and borrow mUSD for expenses? Especially when we say the price of MTA is below a set threshold at which we wouldn’t feel comfortable liquidating the MTA? Sort of doing this instead of the Bondselling.

Could we deposit fPool mAssets here instead of Iron Bank? This will allow MTA depositors some liquidity to access

1 Like

Seeding initial liquidity
Liquidity could be seeded by
Option 4: Quest Boosting Reward

1 Like

Thought we just try first with the mUSD from alUSD Feeder.
Around $612.71K is currently borrowed in Iron Bank. So probably we would need to leave at least one feeder there. Otherwise the migration might fail?

Not sure, I think you mean a quest specifically for depositing into Rari Fuse? Not sure if that’s worth it for the user, forgo the MTA rewards in exchange for an increase in scaled balance, plus you need to pay the gas to migrate.

1 Like