PDP16: Increase Save liquidator's weekly USD contribution (MCCP-3)

Posted by a representative of the mStable protocolDAO

It is proposed that the maximum USD amount of liquidated COMP, AAVE and other lending platform tokens sent to boost the SAVE APY each week be increased. The current maximum is 5,000 USD, and it is proposed to increase this parameter to a value somewhere in the range between 10,000 -20,000 USD worth of tokens liquidated weekly.

We are seeking feedback from the community on this proposed change, and their thoughts on the value range proposed. This could be executed immediately following a snapshot vote were it to be authorised by governors.

Abstract

As defined in MIP-2, reward tokens (such as $COMP, $LEND) that have accrued in the mStable protocol are liquidated, with proceeds being used to bolster the Save product’s USD APY. These reward tokens that have accrued to the protocol have increased in market value since the original MIP, and now represent a more sizeable total USD value pool that can be liquidated.

On top of this, it is expected that the protocol will earn tokens from other platforms such as Aave.

The impacts of doing this will bolster the Save APY, and mean that concurrent proposals seeking to channel some of these Save APY flows to destinations other than savers (such as the Buyback and Make proposal) will have a minimal impact on Save yields.

Motivation

This has been proposed by the ProtocolDAO as its signers believe that now is an opportune time to bolster Save APYs whilst mStable engages in more aggressive growth strategies.

This MCCP is motivated by a desire to pursue these long term growth strategies that benefit mStable as a protocol whilst minimising Save APY dilution.

MCCP

Can be found here.

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Some more data:

  • there is currently $440k of COMP waiting to be liquidated
  • average accrual is roughly $13k per week at current mcap
  • Every $1k liquidated adds ~0.171% on to the APY for SAVE
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Hi guys,

l’ll be taking the side again I took last October already, on top of a few extra thoughts, and want to showcase a few numbers to consider below:

So far, almost 470 COMP have been liquidated for around $85,000, which boosted SAVE APY by less than 1% per week, according to @alsco77’s data above (perhaps this was a bit more back then with less mUSD in SAVE, but it couldn’t have been drastically different, but please correct me if I’m wrong)

Today, these COMP would be worth almost $228,000, and if put to use by simply staking them in Compound, would generate over 5% return in native COMP, which would have yielded us around $5,000 in COMP already, with all our COMP retained.

There is now an additional 870 COMP waiting to be used, which could easily generate an additional $20.000 this year alone in native COMP if staked conservatively in Compound, and quite a bit more if put to different use.

We should also not forget that the yield farming opportunity for COMP will end in around 3 years time, and we will lose the ability to boost SAVE with farmed COMP forever. In my view, it is therefore unsustainable to continue boosting SAVE APY with all of our farmed COMP in the middle- to long-term, without thinking of alternative routes as we’re continuing down this rabbit hole.

It’s now proposed to burn more COMP to boost SAVE to competitive levels again, and while it may achieve this in the short-term, it will leave the mStable SAVE protocol burning out of COMP in the longer term, and leave us empty-handed with ways to generate higher SAVE yields after COMP distribution ends, compared to other saving protocols.

If we start taking measures now, we can not only ensure a more healthy COMP allocation inside mStable, and start generating sustainable long-term yield for the SAVE protocol and its users, but we also secure governance rights for a protocol that we will most certainly continue to use for our SAVE product for the foreseeable future (please correct me if I’m wrong here again)

In my opinion, we should still continue to liquidate a portion of our COMP to remain competitive for now and not lose traction, but we should seriously consider the once-in-a-lifetime opportunity to receive free tokens for using these protocols, and contemplate the downside of simply liquidating yield-bearing and, dare I say, Capital Assets for short-term profits.

As we move forward in the Buyback & Make proposal, I also would see great potential in using a portion of the COMP to buying back mUSD for the pool (double benefit of bolstering the pool & not having those mUSD take part in SAVE, thus passively increasing yield).

It stings short term, but if Compound continues on their track, there will be appreciation of the COMP token similar to what we were able to witness in the last two quarters, and we’re still early enough to take advantage of all of this.

My 2 mcts :innocent:

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Im having trouble understanding exactly what your proposal is. Are you saying we yield farm with the COMP in the COMP/WETH pool and use the income from that to pay out to SAVE? Please distill in 1 tweet the action u are proposing :slight_smile:

Sorry, I tend to do that sometimes :wink:

In essence, yes, I would propose to keep the current contribution, and use the excess COMP for other yield-farming opportunities, like lending or LPing, to secure a long-term APY boost for SAVE.

I’d also propose to stream a very low percentage of earned COMP directly into the mStableDAO treasury, as well as MIP-8, to passively help MTA and imUSD appreciate in value and gain governance exposure to the Compound protocol.

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I like the idea. Yes, it makes sense for this capital to be more efficient.

Good to have governance exposure to Compound. Let MTA holders decide.

Relatively new mStable Save user here. I want to offer a perspective that may be helpful re: how newcomers perceive the mechanics of Save, and how that might have bearing on this question.

I previously had deposited my USDC directly with Compound, so I was simply holding cUSDC. I stumbled across mStable, and it seemed like mStable was going to automate many of the things that I had wanted to do “in a perfect world,” but that I was not going to do myself since (a) it would be too much hassle, and (b) the gas overhead of doing all of these operations relative to my own little savings pile would be prohibitive.

One of these things in particular: Compound’s listed “Net APY” is their Supply APY plus their COMP rewards. In a perfect world, I would be regularly liquidating these COMP tokens to USDC and then adding that USDC to my deposited stake. This is gas-prohibitive for me to do solo, but there would be negligible gas overhead relative to a large pool like mStable’s.

When I saw that imUSD “sat atop” both Compound and Aave – plus added additional fees from sources like mStable Swap – I assumed as a matter of course that imUSD would be aggressively liquidating all COMP rewards ~daily or so, and that this was part of how imUSD had historically achieved interest rates that were strictly higher than Compound’s. I knew that this strict win was not guaranteed, as imUSD was also hedging its bets across Aave and Compound, and across multiple underlying stablecoins, but I didn’t even think to ask/research whether COMP would be aggressively liquidated. It just seemed like the obvious thing to do, and I felt it was at least weakly implied by the mStable Save docs I was reading.

Anyway, I’m not up in arms about this, but at the very least, whatever is decided here I would suggest better documenting the sense in which imUSD “sits atop” Compound and Aave, and what mStable Save’s mix of goals are (i.e., the balance between achieving the best APY for Save users today vs. having governance pull in Compound, etc.). As a Save user myself, the only “product promise” I’m currently perceiving is the intention to maximize current APY while providing some hedge against underlying smart contract risk and underlying individual-stablecoin risk. It would be great to have a more fleshed-out picture presented up-front to users. Thanks!

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Great thoughts here.

Agree, that COMP rewards might belong to Save users. But there are also merits to utilise COMP more strategically for long term benefits of the protocol.

COMP might even be used in Compound Chain.

I’d propose liquidating COMP when 7 day Save APY is more than x% below stablecoin lending APY on other lending platforms. The right formula for x takes into account factors like gas/time savings of automatically farming COMP and the opportunity cost of depositing in mStable versus other platforms.

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Hi Kevin, thanks so much for giving this feedback, that’s super valuable for me to hear your thought process. I think you’re quite right, there’s a degree to which the internals are abstracted away that’s to Save’s detriment; it shouldn’t be necessary to guess as to how it works.

We’ll work this into some app improvements coming up soon!

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Ah, and just found the text that I think may need some updating, from the example on the “Save” documentation page (apologies; I do not appear to have permission to post a link directly):

During this period, the protocol also received $10 worth of Compound tokens from lending on that protocol and $10 worth of AAVE tokens from lending on that protocol. This $20 worth of tokens are autonomously liquidated into mUSD . This brings the total USD value accrued in the savings contract to 47.5 USD.

Thanks for being so welcoming of this feedback from a new user, all.

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