Should we remove USDT from the mUSD basket during Tether's trial?

Summary:

Considering the ongoing Tether’s trial, I’m wondering if we should not temporarily remove Tether from the mUSD basket to protect mUSD holders.

Abstract:

Fully remove USDT from the mUSD basket during Tether’s trial.

Motivation:

On January 20, the Tether team asked for 30 additional days to produce critical trial documents. In 4 days (Feb, 20th) If the justice finds out that USDT is not fully backed by FIAT USD / liquid assets, the USDT price might plunge, creating a recurring arbitrage opportunity within the mUSD basket, with potential losses for mUSD holders.

Therefore, I would suggest to temporarily remove USDT from mUSD, in order to mitigate the risk, and reevaluate its target weight once the trial is over.

Pros:

Reduce risks for mUSD holders.

Cons:

Reduce mUSD yield (less swap opportunities).

2 Likes

Thinking this through, my opinion is USDT may be better as a feeder basket asset, with DAI going back into the core mUSD basket perhaps in its place. Im just leaning towards this position, as USDT does have a lot of benefits also mainly due to its immense size and liquidity. This may mean our Save APY takes a hit, as DAI performed miserably when it was in the basket before, but this would be addressed by the new AMM upgrade for mUSD anyway.

Definitely agree that this trial and the risk it brings to USDT especially over the coming weeks, should give us a time to pause and re-assess the mUSD bAssets. It was overdue anyway with the new AMM & feeder pool concept. I note that this matter is one for the ProtocolDAO’s consideration and ratification.

Good eyes @Etienne on keeping track of all this Tether business, its important to keep a finger on the pulse and I haven’t had enough time to keep abreast of the latest events. Thank you!

5 Likes

Sorry for the slightly delayed response, but this being a somewhat comprehensively controversial topic, it’s not easy to put into words right away.

Overall, I must concur with @ScarceJim on most points, and I’d echo them in form and purpose.

What I would like to add is perhaps a similar move of simply removing the heaviness USDT exerts on the protocol overall would make me rest more easily in bed each night.

We all have a love/hate relationship with Tether, inclining that it comes down to our risk assessment if we tend to one side or the other more, but overall I feel for protocol safety, and for majority of users that simply with confidence wish to use our protocol to put their savings into fiat backed stable dollar denominated assets, I think that taking a comprehensively conservative approach seems best for the vast majority.

I’d therefore propose to reduce the total basket weight of USDT to be more in line with the risk it carries, similar to how we reduced the sUSD basket weight. Putting USDT entirely into a feeder basket might become a necessity, but I’d again be conservative here in risk vs reward and see how the majority of MTA stakeholders feel in relation to having USDT directly represented in the basket or not.

I caution this because I remember putting too many questions into one vote can be extremely detrimental for the movements of the protocol, so I want to absolutely make sure everyone understands all implications of the slightest change in core protocol structure.

Actually, I’d ponder to start discussion on ranking our underlying basket assets in different groups and give them weights and proportions as a result of this ranking.

Initially, we could have 4 or 5 different risk groups, similar to risk tranches seen in BarnBridge or traditional financial systems. Higher risk assets get put into a more risky branch, therefore only allowing a lower overall percentage to occupy the mStable basket, or only appear in feeder baskets initially.

Based on positive track record, sentiment, and other factors, they could work towards reaching a lower risk tranche, and therefore allowing for more risk to be allocated towards MTA holders, as they are the ones that carry the most risk at all times, and should be the ones to get first say in who is allowed to appear higher up in the ladder, as more trust is put into these protocols.

Just a few thoughts around this, and hope it helps doing it’s part in figuring this tricky terrain out a bit better :smile:

Let’s never forget we are still pioneers in the space, and mistakes will be part of the price to pay in making the overall protocol and DAOs more secure against manipulation and unforeseen events.

4 Likes

From what I understand the whole value proposition here is stability. If returns take a hit temporarily I’d say that’s okay. History tells us stability is what’s going to drive widespread adoption more than anything else. There’s a recent coindesk podcast that covers 2,000 years of monetary history. I’m sure I’m preaching to the choir, but check it out if you disagree.

3 Likes

I agree with all said. Looking forward to feeder pools, this will play out slightly differently. However, in agreement with @DefinitelyNotAWizard I propose we move to 20% max weight for the coming weeks until this trial is resolved

3 Likes

There’s some big news on this: Bitfinex, Tether settle with New York's Attorney General for $18.5 million

Seems like USDT is likely in the clear :crossed_fingers:

1 Like