Hello,
This is a proposal to add Mountain’s USDM as a collateral in the Transmuter to mint USDA on Ethereum.
Context
On USDA, the protocol derives its yield earnings from 2 main sources:
- investments of USDC into the Steakhouse Metamorpho vault: this brings exposure to DeFi yields
- the bIB01 held by the protocol on its backing: this brings exposure to TradFi/RWA yields.
When it comes to bIB01, the protocol has to pay an issuance and redemption fee of at least 20bps (+ what is paid to market makers who buy/sell to the protocol). On average, acquisition costs for bIB01 were around 35bps (Backed 20bps+15bps for market makers).
While this is not a problem in a high interest rate environment as these costs can be paid off through 1 month worth a yield, in a high volume setting where the protocol needs to often rebalance its reserves and mint and burn bIB01, this fee can be more problematic.
On top of this, even though they have a super consistent and rigorous bankruptcy remote setup, redemption times with Backed can be quite slow since these depend on the underlying security markets which often settle at T+2. The consequence of this is that, even when each USDC held as a buffer represent an opportunity cost for the protocol, the protocol has to keep a rather important liquidity buffer in USDC: in case the protocol has no more USDC to handle redemptions, it might take 2 days to refill the buffer.
Proposal
Putting all this in the balance, the proposal is to:
- revoke bIB01 as a collateral in the Transmuter
- recover the bIB01 held in the Transmuter and swap them to USDM
- add Mountain USDM as a collateral in the Transmuter on Ethereum with the same exposure parameters as those currently in place for bIB01, and a temporary oracle value of 1.
Value to the protocol
The main advantages for using Mountain USDM instead of bIB01 are the following:
- deeper onchain liquidity: the protocol will be able to permissionlessly buy/sell USDM on the secondary markets from USDC. USDM has deep liquidity pools on Curve and these are pretty well arbitraged by market makers which constantly rebalance them if these start to be too imbalanced. This means that by splitting large orders in multiple small orders, the protocol could essentially get really decent acquisition prices in a fully permissionless way.
- faster issuance and redemption times: Mountain is built on top of Blackrock’s BUIDL tokens and so it could handle in <1hr redemptions as large as $25m for entities that are onboarded with their primary market
Mountain USDM currently offers a 5% APY, while bIB01 is at 5.24%. The protocol will earn less on USDM, but at the same time it’ll pay far less (close to 0 fees) on the acquisition of these USDM and on the redemption.
The increased liquidity for USDM also means that the protocol will be able to afford less USDC in the liquidity buffer and thereby generate more revenues.
Implementation
We are building a harvesting contract so anyone will be able to permissionlessly launch rebalancing transactions for the protocol, enabling it to automatically buy/sell USDM based on the current exposures to USDC that the protocol has.
With this, Transmuter will move one step closer to full automation and scalability.
For the rest, all the logic pertaining to the offboarding of bIB01 and onboarding of USDM is already easily supported within the Transmuter admin functions.
Risks
Mountain USDM is a regulated USD stablecoin. The stablecoin has gone through several independent assessments, notably by Steakhouse and Bluechip.
- Security resources: Security resources | Mountain Protocol
- Steakhouse review: Steakhouse Financial
- Bluechip assessment: Mountain Protocol USD
- Bermuda assessment: Digital Asset Business - BMA
There is no oracle currently for USDM on mainnet, but the Mountain team committed to providing one from Chronicle when Angle ownership in USDM reaches $5m.
