[ARFC] Onboard fdUSD to Aave v3 on BSC

Title: [ARFC] Onboard fdUSD to Aave v3 on BSC

Author: ACI ( Aave Chan Initiative)

Date: 2024-01-23

Summary

The proposal aims to onboard fdUSD, a fiat-backed stablecoin, to the Aave v3 protocol on the BNB Chain (BSC).

Motivation

fdUSD is a dollar-pegged stablecoin that provides stability and value preservation for users on the BNB Chain. It is issued by FD121 Ltd. (First Digital Labs), a subsidiary of First Digital Group that is incorporated in Hong Kong.

As part of the approved deployment on BSC, fdUSD will be a key asset for supply liquidity and borrow demand. As this is a net-new asset for Aave, we propose this ARFC to confirm community approval to add fdUSD as an asset for the launch of the BSC deployment of Aave. The proposal seeks to leverage the strong demand for stablecoins and the growing popularity of the BSC ecosystem to provide users with enhanced liquidity options.

Benefits of listing fdUSD:

  • Enhanced liquidity options for Aave users on the BSC deployment
  • Increased utility for fdUSD as it becomes available for lending and borrowing
  • Strengthened collaboration between Aave and the BSC ecosystem, fostering growth and innovation
  • Aave’s BSC deployment will be integrated with Binance’s web3 wallet, making easy access for Binance users to deposit fdUSD in Aave through the Earn program.

Market Impact:

Listing fdUSD contributes to the overall growth of Aave by expanding the range of assets available for lending and borrowing on the BSC pool.

As a main asset for use in Binance launch pools, we expect there to be good borrow demand for this asset.

Chains to be deployed/listed:

The intention is to list fdUSD on the Aave’s upcoming BNB Chain deployment.

Proof of Liquidity (POL) and Deposit Commitments:

  • Collaborations with external parties are in place to bootstrap liquidity and contribute to a robust and diverse liquidity environment for fdUSD. BNB chain partners have committed to providing an initial supply side liquidity of up to 5m fdUSD.
  • Plans for implementing liquidity mining programs tailored to Aave’s BSC deployment are under consideration.

Specification

Ticker: fdUSD

Contract Adress: 0xc5f0f7b66764f6ec8c8dff7ba683102295e16409

Chainlink Oracle: 0x390180e80058a8499930f0c13963ad3e0d86bfc9

Based on Risk Service providers, the following Risk Parameters are proposed:

Risk Parameter FDUSD
Isolation Mode NO
Enable Borrow YES
Borrowable in Isolation YES
Enable Collateral YES
Emode Category NO
Loan To Value 70%
Liquidation Threshold 75%
Liquidation Bonus 5.00%
Reserve Factor 20.00%
Liquidation Protocol Fee 10.00%
Borrow Cap 3,600,000
Supply Cap 4,000,000
Debt Ceiling N/A
Stable Borrowing NO
uOptimal 90%
Base 0%
Slope1 6%
Slope2 75%

Useful Links

Disclaimer

ACI worked with relevant partners in the BNB Chain ecosystem to craft this proposal. ACI holds no conflict of interest or relationship with the fdUSD protocol, and no compensation has been received for publishing this proposal.

Next Steps

  1. If consensus on ARFC stage is reached and risk service providers provide feedback on risk parameters, escalate to ARFC snapshot stage.
  2. If ARFC snapshot stage outcome is YAE, escalate to AIP stage

Copyright:

Copyright and related rights waived via CC0.

3 Likes

Overview

Chaos Labs provides risk parameter recommendations for the addition of FDUSD to the BNB deployment. Following are our analysis and risk parameter recommendations for the initial listing.

Chaos Labs does not account for counterparty risk in our assessment and the recommendations below are based purely on market and liquidity conditions

Liquidity

Untitled - 2024-01-23T185428.943

Peg Stability

Since its launch, FDUSD has demonstrated relative resilience in maintaining its peg to the US Dollar. While the peg may not always be steadfast, it consistently maintains its value and trends to its intended target, showcasing its ability to navigate fluctuations and sustain its value relative to the USD.

Untitled - 2024-01-23T185445.509

Liquidity and Market Cap

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. For FDUSD, since its launch in late July, the average market cap over the past 180 days was ~$847M, and the average daily trading volume was ~$1.3B (CeFi & DeFi).

Untitled - 2024-01-23T185518.433

Liquidation Threshold

Considering the relatively short track record of FDUSD, we suggest starting with a more conservative LT parameter compared to USDT and USDC, setting it at 75%.

Supply Cap and Borrow Cap

Applying Chaos Labs’ approach to setting initial supply caps for new assets, we propose setting the supply cap at 2X the on-chain liquidity available under the Liquidation Incentive (configured to 5%) price impact.

Given the current liquidity, and in addition to the bootstrap liquidity discussed in the proposal above, we recommend an initial supply cap of 8,000,000 FDUSD.

IR Curves

We recommend setting the IR curve in line with those of USDT

Recommendation:

Risk Parameter FDUSD
Isolation Mode NO
Enable Borrow YES
Borrowable in Isolation YES
Enable Collateral YES
Emode Category NO
Loan To Value 70%
Liquidation Threshold 75%
Liquidation Bonus 5.00%
Reserve Factor 20.00%
Liquidation Protocol Fee 10.00%
Borrow Cap 7,500,000
Supply Cap 8,000,000
Debt Ceiling N/A
Stable Borrowing NO
uOptimal 90%
Base 0%
Slope1 6%
Slope2 75%
2 Likes

Gauntlet Analysis

Summary

Gauntlet recommends onboarding fdUSD to Aave V3 BNB. We give further color below.

Assessment

Market Cap

First digital usd (FDUSD) is the fourth-largest stablecoin in terms of market capitalization, currently valued at ~$2.6 billion. Its 2.2% supply (~$49M) is on BSC.

Screenshot 2024-01-23 at 3.44.44 PM

Liquidity

  • Mostly traded fdUSD pair is FDUSD/USDT with 24hr trading volume being ~2M on Pancakeswap V3 (BSC). See here.
  • FDUSD/USDC trading pair has 24hr trading volume of ~18K on Pancakeswap V3 (BSC). See here.

Reserves

First Digital Labs publishes a monthly reserve report outlining the composition of reserves including U.S. treasury bills maturing in less than three months, cash deposits in U.S. dollars, one-month U.S. dollar fixed deposits, and overnight reverse repos collateralized by U.S. treasury bills.

S&P Global assesses the ability of fdUSD to maintain its peg to the U.S. dollar as constrained.

Recommendations

Given the on-chain liquidity and market cap profile analyzed above, Gauntlet recommends parameters as below.

Parameter Recommendation
Isolation Mode NO
Borrowable YES
Borrowable in Isolation YES
Emode Category NO
Collateral Enabled YES
Stable Borrowing NO
Supply Cap 4M
Borrow Cap 3.6M
Debt Ceiling N/A
LTV 70%
LT 75%
Liquidation Bonus 5%
Reserve Factor 20%
Base 0%
Variable Slope 1 6%
Variable Slope 2 75%
Uoptimal 90%
1 Like

The following proposal has been escalated to ARFC Snapshot.

Voting starts tomorrow. We encourage everyone to participate.

Following governance monitoring, the following ARFC Snapshot has passed with both quorum and YAE as winning option with 505K votes.

Next step will be the potential onboarding through an AIP vote and execution if decided.