I’ve already sent these thoughts to our core team chat, but thought they might serve users here to add further context…
Our users are skeptical to mint H2O even at $0.90. It’s still a 10% instantaneous risk if peg returns to $1 if they want to unwind, or else they’re imprisoned in our contracts/platform. No one wants to feel like they can’t move their funds around freely, and that is the general consensus from the community, not my words.
Incentivizing the whole pool does what we have right now, an H2O heavy pool and an unpegged stablecoin for months, severely hurting confidence and faith in DeFrost.
This is how the new contract could work:
Pool/Farm Contract on DeFrost.
Moving MELT emissions from the DeFrost Boost Farm to this new pool/farm so there are rewards. Consider moving MELT emissions from the H2O/AVAX pool as well being that the TVL is nearly gone in that pool, and it would help to either offset what we’d need to transfer from the DeFrost Boost Farm or add an additional buffer of rewards for the users of the new pool/farm.
Users are required to deposit USDT, USDC, or DAI in this new pool/farm.
Our contract then automatically takes their deposit and establishes the position in the Curve pool on their behalf using the DAI/USDT/USDC (We can require an entry fee on this new pool/farm to cover gas costs, something small and negligible but enough to cover our maintenance costs for establishing said position).
The contract then takes the DeFrost-3CRV LPs created and holds them in the reserves of the contract. When a user wants to withdraw their USDC, USDT, or DAI from this new pool/farm on DeFrost.Finance, the contract will swap those LPs back to USDC, USDT, or DAI and return them to the user.
It will be like an autonomous USDT/DAI/USDC position in the Curve pool for the users, that the contract controls so that we can verify users are depositing USDT/USDC/DAI. The whole point of the new pool/farm behaves sort of like an escrow verifying that users are depositing USDT/DAI/USDC into the Curve pool. Otherwise we don’t know what they’re depositing and they could just be depositing H2O. We can’t alter the Curve pool contract, so this is a solution to verify the aforementioned.
The only solution to directly mitigate the possibility of H2O being looped/swapped for DAI/USDT/USDC (thereby ending up in the end with the same amount of av3CRV in the Curve pool) is by dynamically limiting the supply of H2O available to mint in the vaults until H2O regains peg.
This won’t motivate any current vault owners to unwind/leave their vaults - their positions can be accounted for.
It would simply mitigate the possibility that users would utilize this tactic.
Btw, it’s not guaranteed that users would, but this additional change in conjunction with the new pool/farm would ensure the new pool/farm is utilized as intended…
…The end result is, in theory, a stable coin pool that benefits H2O’s peg by depositing USDT/USDC/DAI into the Curve pool, all while ideally/potentially offering users rewards in the 30-40% APR range, higher than they can get looping in most of the vaults a few times, or by depositing their stables on external platforms.
The main qualm, then, would be one of two things;
- Slippage Risk
- Rewards dropping quickly due to TVL moving from DeFrost Boost farm to the new pool/farm.
I will address these separately…
Users already face significant slippage risk in DeFrost’s current state. With this new method users can be made aware of any slippage risks and move forward with participating in the new pool/farm or not participating in the new pool/farm, accordingly.
The current APR on the Defrost Boost Farm is 3.74%. It’s fairly clear that any users who are still using the platform aren’t using it for the MELT rewards from this farm, but rather the front-end yields on stable positions by looping via our vaults. This 3.74% is simply an added bonus to the bulk of their main position which is their leveraged vault, where most of their returns reside.
That said, even if a ton of the liquidity did move over into the new pool/farm, it would be FORCED to become DAI/USDT/USDC liquidity in the Curve pool, whereas most of it right now is H2O liquidity (from looping/leveraged positions).
This means that worst case scenario we shift to be heavier on USDT/USDC/DAI in the Curve pool, rather than H2O, and the rewards at this point might diminish in the new pool/farm. But choosing whether or not to be in said new pool/farm will work itself out naturally that way - Deterring any new users from entering if the rewards are too low, and naturally working out a favorable reward depending on how incentivized users feel to participate in said new pool/farm.
If the above did occur, and H2O went above $1 like we saw in the early days of DeFrost I still think it would give us a better foundation to work upon and I honestly believe long time investors on the DeFrost platform would take a sigh of relief to see H2O slightly above $1 as opposed to significantly below.
Lastly, to touch on some of the numbers…
H2O currently sits at $0.92 as of 11:08 pm, 5/13/2022. But it was just at $0.75 earlier today.
The current Curve pool makeup is as follows:
H2O: 16,047,851.52 (91.87%)
av3CRV: 1,419,287.59 (8.13%)
The Curve pool could be shifted to 83%/17% H2O/3CRV with just $1,500,000 of 3CRV deposited.
At a weight of 17% av3CRV in the pool, H2O would be at peg or devastatingly close.
If we were to take the emissions from the normal DeFrost-CRV Boost farm and apply the math using current MELT prices we would be left with an approximate BASE reward rate of 41.7% APR on this new proposed 3CRV pool with a deposit of $1,500,000 from users.
It wouldn’t require users that are looped to unloop, they can stay looped as they wish if they prefer that strategy of rewards.
What it could do is motivate other users who don’t want to risk looping at $0.75 - $0.92 and risk losing 8% - 25% instantly when we repeg, by giving them access to a 40%+ stable pool, effectively, which is higher than most stable pools/farms out there, atm.
…Okay, that’s all I have. I know this was long. Thank you for reading.
Everyone that’s here now is truly invested in DeFrost’s success long-term, that much is clear.
If we all work together we can certainly achieve that goal.