Summary
In light of the recent collapses of Silicon Valley Bank, Signature Bank, and the resulting depeg of USDC, this RFC intends to inform the community that PopcornDAO should eliminate all exposure to traditional banking via digital assets in its treasury and diversify away from USDC. Given this is a potential bank-run scenario where investor confidence in USDC could go to zero, PopcornDAO will need to move very fast and potentially make a move prior to a snapshot proposal passing. PopcornDAO has been actively monitoring the situation, with Liquidity Group announcing a $3B emergency loan to SVB and now the Fed bailout, restoring short term faith in USDC. However, several other regional banks listed on Circle’s balance sheet holding their cash reserves can now be legitimately be perceived as under threat.
Motivation
To preserve the value of PopcornDAO’s treasury by rotating the treasury into a decentralized stablecoin with no exposure to TradFi banking. Ethereum and Bitcoin should be considered as well.
Desired outcomes:
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Immediately diversify away from USDC
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Options:
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Rotate USDC into LUSD, Ethereum, or BTC
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Use USDC to create CDP’s with ETH for LUSD. Deposit LUSD into the Stability Pool and earn ETH liquidation bonuses and LQTY rewards. This can be done using defisaver.
What is LUSD?
Liquity (LUSD) is a decentralized lending protocol that allows users to withdraw funds with zero percent interest loans when they leverage ETH as collateral. Loans are paid in LUSD, a dollar-pegged stablecoin. The Liquity protocol is non-custodial, immutable, and governance-free.
Liquity aims to provide several borrowing conditions in the market, and the main benefits are:
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0% interest rate
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The collateral ratio of 110%
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No governance - all operations are algorithmic and completely automated
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Directly redeemable - LUSD can be redeemed for the underlying collateral at face value and at any time
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Censorship resistance - protocol is not controlled by anyone. Liquity’s token, LUSD, is a completely redeemable stablecoin. The system allows holders to exchange their LUSD tokens for underlying ETH collateral based on the face value of the redeemed tokens. This enables direct arbitrage when LUSD trades below $1 by creating a price floor for LUSD. Therefore, redemption is subject to a redemption fee, a function of the base exchange rate and the LUSD redemption amount. The minimum redemption fee is 0.5%. Fees are deducted from redeemed LUSD, reducing the ETH that redeemers receive in return.
Liquity provides liquidity without charging borrowers interest or recurring fees. ETH holders can use their collateral for liquidity. However, as an algorithmically controlled instrument, the protocol charges a borrowing fee (one-time fee) on newly withdrawn liquidity to support the peg to the U.S. dollar. Users can use their stablecoin LUSD to participate in the wider DeFi market, consisting of many different products designed to generate revenue.
Additionally, Liquity has incentivized new avenues for decentralization and growth by tokenizing and redistributing a significant portion of its protocol revenue to users and front-end operators.