This RFC seeks input from the community and MTA governors on sourcing 1,000,000 mUSD from the mStableDAO Asset Management subDAO to maintain a 1,000,000 mUSD interest-free loan to a market maker supporting mUSD liquidity on Coinbase. The loan is currently provided on a short-term basis from pre-approved project funding in the Funding subDAO, as well as through a loan from an investor.
In November 2021, the opportunity arose to have mUSD listed on Coinbase. This was seen as a great opportunity but came with an unforeseen requirement to almost immediately provide an interest-free loan to a professional market maker to support the liquidity of the mUSD/USD pair on the platform. At the time, the core team and Funding subDAO signers made the decision to support this listing of mUSD by lending 2,000,000 mUSD to a market maker called KBIT.
This was achieved by lending 500,000 mUSD from preapproved project funding, which was idle in the Funding subDAO, along with a short-term loan of 1,500,000 mUSD from an investor.
In February 2022, total amount loaned to KBIT was reduced to 1,000,000 mUSD and the loan from the investor reduced to 500,000 mUSD.
1,000,000 mUSD is currently seen as the minimum liquidity requirement to retain the mUSD listing on Coinbase. A short-term trial of only 500,000 mUSD led to price volatility that was unacceptable to Coinbase.
A decision to stop providing this interest free-loan would therefore result in mUSD being de-listed from Coinbase.
This proposal suggests sourcing the 1,000,000 mUSD by either liquidating 1M out of the 1.5M from our existing saave position on Convex, or converting the entire saave and alusd position, as well as a portion of our mUSD position into DAI and subsequently deposit 2M DAI into Alchemix to allow a loan of 1M alUSD to be used for this proposal.
This second option needs to be considered in light of potential future uses of treasury assets, as additional requests could require an Alchemix position to be closed to unlock the collateral for other uses.
However, the upside of continuing to earn yield on our stablecoin position in a semi-liquid state might be worth the slight overhead presented and leave us with more choices for when this time arrives.
The 1,000,000 mUSD currently loaned to the market maker is financed through the use of pre-approved project funding and a loan from an investor, which are not seen as sustainable sources of funds for the following reasons:
1/ The 500,000 mUSD loan from the investor is borrowed at an annualized interest rate of 10%. Since this is more than is currently generated on stablecoins in the Asset Management subDAO, it would make sense to repay this loan and use treasury assets to support the loan.
2/ The approved project funding that has been used to finance the other 500,000 mUSD was available primarily because expenditure was below budget over the last year. However, to safely see the projected funded through until the end of June and allow time to plan future funding, these funds will need to be returned to the Funding subDAO before the end of June.
Therefore, to maintain the mUSD listing on Coinbase on an ongoing basis, 1,000,000 mUSD will need to be sourced from treasury reserves and shifted to the funding subDAO to allow repayment of the investor loan and replenishment of the project funding.
- Maintaining the mUSD listing offers benefits for the mStable ecosystem as well as helps to build and maintain our reputation with Coinbase, which could potentially lead to a MTA listing in the future
- The 1,000,000 mUSD loan could be recalled with 48 hours if the funds were required for other uses and/or the decision was made to stop supporting mUSD liquidity on Coinbase
- The 1,000,000 mUSD would be loaned interest-free to the market maker so there is an opportunity cost in using the funds from the Asset Management subDAO.
- There is some level of risk inherent in offering an uncollateralized loan for this purpose.
It is suggested that the community comment on this RFC in the coming days, and bearing no significant opposition or change in ideation, we would use the feedback gathered to create a formal draft proposal on Github to be used for review.
Meta Governors are encouraged to provide as much feedback as possible until then, so we can create the best possible outcome for mStable and its users.