Executive Summary
LlamaRisk supports the onboarding of USDai and sUSDai to the Aave V3 Arbitrum instance. Since our initial analysis, several changes to these assets have been introduced, altering their risk composition and therefore our recommendation. In this report, we highlight the key changes and developments to USD.AI.
Key changes include the introduction of Barker value warranties for all new loan issuances, migration from $wM to PYUSD as the protocol’s reserve asset, and limiting minting and redemptions to Paxos-approved market makers. Liquidity conditions for USDai have worsened relative to our initial analysis, with only a single USDai/USDC pool providing meaningful liquidity. Peg stability issues have improved for both USDai and sUSDai, with the removal of the supply cap.
Based on our legal assessment, USD.ai’s operational changes still do not address fundamental regulatory gaps: existing legal opinions analyze only the warehouse receipts (WHRs/GWRTs) held by the SPV, not the USD.ai and sUSD.ai held by retail users. Observed insurance against GPUs provides meaningful protection against residual value risk.
Remaining core risks include uncertainties surrounding the novel tokenization design and the unproven nature of liquidations on secondary markets. Active loans still represent a fraction of sUSDai reserves (~6.4%).
Llamarisk recommends onboarding USDai and sUSDai under initial conservative parameters, taking a progressive approach to adjusting parameters as the USD.AI protocol model matures and establishes the core functionalities of its design.
Risk Developments
To address the varying risk concerns identified in our initial analysis, we present a consolidated assessment of how these new developments address them.
USDai: Peg Stability
As shown in section 2.2, USDai’s deposit cap limited the mintable supply, resulting in a sustained market premium. Lifting this cap has resolved the supply constraint, removing the persistent premium that USDai traded under. This removes the disincentive the premium created, allowing arbitrage opportunities to rebalance USDai to par whenever discounts or premiums occur in secondary markets.
Collateralization
Because PYUSD is the underlying asset of USDai, the valuation of a key NAV component has been simplified. Specifically, the combined value of unallocated USDai and outstanding debt positions can now be priced more directly. This shift reduces the contingency risk previously associated with relying on conversions between USDC, USDT, and wM.
Minting and redemptions are primarily supported via PYUSD, rather than using the USDC/wM Uniswap pool, reducing reliance on pool liquidity for these operations. USDC, USDT, and wM remain whitelisted assets; if users deposit them, they will be swapped for PYUSD via the UniswapV3SwapAdapter (depending on liquidity availability).
Currently, PYUSD liquidity on Arbitrum is supported by a single PYUSD/USDC Uniswap pool with a TVL of $60.2K. This places a heavy reliance on bridging PYUSD to Arbitrum for new USDai mints. In the event that USDai trades above par, minting may be delayed until liquidity has moved cross-chain, creating an extended period of USDai trading at a premium. The USDAI team informed us that they are working on a cross-chain liquidity solution with LIFI to facilitate liquidity on Arbitrum
sUSDai: Liquidation and Redemptions
In the event of defaults, Barker’s value warranties and secondary-market venues enhance price discovery and liquidation. With an effective guaranteed insurance coverage of 80%, the uncertainties related to bad-debt coverage are contractually secured, with valuations driven more by data from the protocol’s insurers.
However, sUSDai’s structure introduces delayed liquidations and redemption cycles: the 7-day auction window and 30-day redemption intervals would expose Aave to an extended window before insurance policies are paid out, in the event of collateral selling below its projected value. While bad debt is covered by the warranties, potential secondary-market sell pressure remains a factor until collateralization is achieved.
Should Aave onboard this asset, these risk dynamics would have to be accepted, given the underlying assets’ illiquidity. A potential method to mitigate this could be the implementation of a protocol-supported stopgap equal to the exposure taken on by Aave.
GPU Valuation
In our initial analysis, we noted contrasting opinions on GPU depreciation assumptions. We believed the lifespan of datacenter GPUs was overestimated in the USD.AI model, leading to overly conservative forecasts of asset values over time. Alternative data we observed suggested that GPUs used in intensive computational environments typically have ~3-year lifespans before units are replaced or used for less intensive work.
Barker’s depreciation schedule now aligns with our observations, with payouts based on a decreasing rate based on their valuations, resolving the potential for a mismatch in collateral valuation.
1. Asset Fundamental Characteristics
1.1 Asset
The main observed characteristics of USDai and sUSDai have remained largely consistent since our initial analysis; however, underlying mechanisms have changed, introducing a new base asset and minting/redemption constraints.
USDai remains as the non-yielding stablecoin, with sUSDai as the yield-bearing ERC4626. The core objective of these assets is to remain conduits for loans to AI infrastructure, with a focus on funding GPUs in AI infrastructure.
$M, the M0 protocol’s U.S. TBill-backed asset, served as the underlying collateral for USDai and the primary yield source for sUSDai. Loans were enabled via a SwapAdapter contract that would swap $M for USDC/USDT. USD.AI has replaced $M with PYUSD as the protocol’s underlying asset.
At the time of writing, 27 loans have been issued collectively worth $18.1M, making up ~6.4% of allocated sUSDai reserves, with an additional 16 loans in the pipeline. In contrast to our initial analysis, this update shows a modest increase, with yields primarily driven by TBills and incentives.
1.2 Architecture
The core components observed, namely, CALIBER, FiLo, QEV, Metastreet, M0 Protocol, and a set of off-chain components, have changed, with the replacement of FiLo and the M0 Protocol.
Underwriting Layer Change: from FiLo to Barker
First Loss Curators were intended to originate and verify loans for the USD.AI protocol. Curators would take first-loss positions in the event of defaults in exchange for higher yields. At the time, Permian Labs was the sole FiLo curator. In the event of loan defaults, we noted:
“USD.AI states that they are currently onboarding hardware partners for the resale process of GPUs, with FiLo curators to provide initial bids. GPUs are not appraised before being liquidated, and market prices are provided by USD.AI’s hardware partners.”
Additionally, proceeds from USD.AI’s ICO are intended to serve as a backstop for purchases of defaulted loans with short-dated holding periods (financed through a revolving credit facility leveraging the funds raised). The ICO is still in progress; therefore, its feasibility has yet to be determined.
While this setup provided some cover in the event of liquidations, this risk management approach exposed USD.AI and its holders to collateral risk that would ordinarily be offloaded during liquidations. It relied heavily on establishing a network of secondary-market buyers and on USD.AI taking on collateral risk as a last resort.
To mitigate this exposure, USD.AI introduced a value warranty partnership with Barker, providing insured coverage against potential gaps between the AI-predicted sale price and the realized sale price of financed GPUs. Barker is a financial technology company that allows institutions to underwrite loans against hard-to-price assets.
The use of FiLo tranches in USD.AI’s architecture continues to apply to previously issued loans and remains an option for future loans, while new loans are covered by warranties. Barker valuations are applied over the term of a loan at origination (i.e., 3 years), with the contract renewed every 12 months. USDAI pays for coverage upfront, covering the full term of each loan.
Value Warranties
Warranties allow lenders to transfer collateral value risk by providing liquidation-based coverage for assets enabled by their proprietary AI valuation model. Each asset is backed by a warranty, with Barker covering a minimum sale price; should the asset sell below this valuation, Barker and its insurance partner (Munich Re) cover the difference.
USDAI GPU loans were previously capped at 70% LTV; however, new loans now have a max LTV of 80%. Based on a sample warranty provided by the USD.AI team, on average, Barker coverage per GPU unit was ~85% of the evaluated GPU’s value and accounted for a depreciation schedule. Barker takes 5% of the total insured value of the assets, less service fees that USD.AI has already paid to Barker. This means Barker would cover at least 80% of the insured assets in the event of liquidation.
Therefore, in the event of a liquidation, USD.AI holders would be covered up to the max LTV by the warranties.
Source: Loan Insurance Coverage, USDAI
Barker states that their valuations are based on real-time data and advanced pricing models that determine the minimum expected sale price within a time frame when determining coverage. To date, Barker has completed $2B in collateral valuations across a range of asset classes, including luxury, commercial equipment, and aviation.
Munich Re
Risk related to asset valuation is mitigated through reinsurance backed by Munich Re for Barker’s models. Through its aiSure subsidiary, Munich Re provides a performance warranty that insures against potential errors in Barker’s AI valuation models. This arrangement ensures that, in the event of an inaccurate valuation resulting in a shortfall during liquidation, the resulting losses are covered, with Munich Re acting as the ultimate reinsurer.
Underlying Change: from M0 Protocol to PYUSD
wM has been replaced as the underlying protocol for asset PYUSD. The migration of wM reservers was effectively finalized on February 26th, facilitated by GSR.
Source: USDai Share of reserves, Entropy Advisors - Dune, March 30th, 2026
Generally, loans will now be denominated in PYUSD, but USD.AI retains the ability to use other stablecoins. Underlying PYUSD earns a promotional 4.5% APR, continuing up to the first 1B minted through USD.AI, or until March 1, 2027.
Lending Pool Change: From Metastreet to LoanRouter
Previously, Metastreet, a permissionless lending protocol, enabled USD.AI to create lending pools to manage its loans. A LoanRouter contract has since replaced this component, serving as the central point for creating and managing loans (e.g., repayments, loan states). Each lender’s position is collateralized as an ERC721 NFT and is transferable.
Other similar functionalities to the Metrastreet lending pool setup include:
- Loans can be tranched into different terms for lenders (see FiLo).
- Supports collateral wrappers, i.e., bundled NFTs.
- Liquidations occur after a repayment due date is missed and a 30-day grace period has elapsed.
Loans are repaid via the repay function, which handles both partial repayments (prepayments) and full repayment to close the loan (amortized repayments). Interest rates are determined via an interestRateModel address.
Liquidations can be initiated by anyone after a liquidate call. The collateral is transferred to the collateralLiquidator contract, where collateral is then sold at an English auction, with the proceeds sent back to the Loan Router contract to cover the bad debt. A 7-day auction window still exists, which retains the potential for prolonged bad-debt exposure.
Mint and Redemption Mechanism
To meet institutional compliance requirements and potential minting attack vectors, from April 6th, direct minting and redemption of USDai will be restricted to a set of whitelisted market makers (primarily Paxos-approved, e.g., Cumberland and Galaxy) and approved institutional depositors. This compliance measure applies only to USDai, with sUSDai staking and unstaking remaining permissionless, along with transfers and secondary market access to USDai.
This change focuses potential liquidations to a limited set of KYC’d market makers and their approved clients via the contract level. While this structure improves transparency of source of funds for regulatory compliance and reduces the risk of loan generation, it may constrain reserve growth. This change adopts a similar pattern to previously onboarded assets from Paxos (USDG and PYUSD) and Ethena (USDe and sUSDe).
In the event of off-market hours depeg events, minting or redeeming USDai to restore the peg on secondary markets will be delayed, increasing liquidation risk to collateral users in these scenarios.
To support this transition, secondary market access, and to facilitate mint/redemption, 2 pools will be seeded, namely:
- USDai/PYUSD: Uniswap pool with a ~1-2 bps target fee, and will be funded using capital from the sUSDai collateral pool. The pool has an initial liquidity target of $10M and serves as the primary route for cost-efficient redemptions.
- USDai/USDC: Uniswap pool with a 3 bps target fee and initial liquidity target of $5M.
Redemption Queue
sUSDai redemptions are currently set to FIFO, processing redemptions over a 30-day cycle, with auction-based redemptions (QEV) implemented at a 30% utilization threshold.
Contracts that will manage QEV have not been audited yet, with the USD.AI team indicating that audits would occur before the change from FIFO.
As utilization increases, sUSDai withdrawals will be limited to available unallocated reserves. During high-demand periods, redemptions may be constrained by idle liquidity, and repayments available after the 30-day window are insufficient. Secondary market prices could be affected negatively as holders look to sell on the open market.
USDAI’s recent redemption window processed approximately 130M in sUSDai redemptions against 342M TVL, coinciding with the end of the TGE points program.
Offchain Components
Aravolta, a GPU monitoring and compliance platform, has been deployed to track GPU availability and presence in data centers using 3rd-party tracking hardware. The data streams from Aravolta nodes are currently being integrated with Chainlink for a ‘proof of reserves’ solution.
1.3 Tokenomics
At the contract level, USDai’s baseToken parameter is set to PYUSD. Minting, redemptions, and loan generation have been simplified to only support PYUSD. Additionally, the previous supply cap has been removed on USDai.
1.3.1 Token Holder Concentration
-
USDai
299M USDai is currently available on chain with 3,108 total holders. The top 3 holders include: sUSDai (~61%), Deposit Timelock contract (~26.6%), and Pendle SY-USDai contract (~9.8%). The highest EOA holds ~2.1%. Supply on chain has declined, but holders have increased relative to our initial analysis.
Source: USDai holders, Arbiscan, March 31st, 2026
-
sUSDai
160M sUSDai is currently available on chain with 3,467 holders. The top 3 holders include: Pendle SY-sUSDai contract (~34.8%), Fluid Liquidity proxy (~32.4%), and an EOA (~2.1%). Supply and holder count have increased since October.
Source: sUSDai holders, Arbiscan, March 31st, 2026
2. Market Risk
2.1 Liquidity
Source: USDai/USDC Swap Liquidity, Kyberswap, March 31st, 2026
Source: USDai/USDC Swap Routing, Kyberswap, March 31st, 2026
Users can swap up to 5.6M USDai ($5.6M) for USDC on Arbitrum within a 7.5% price impact. Under the above scenario, USDai is first routed through the USD.AI protocol to stake for sUSDai before swapping for USDC, using sUSDai’s deeper liquidity. Swaps that don’t include this routing indicate lower swap volume, as shown below: approximately 924K USDai ($924K) can be swapped within a 7.5% price impact.
Source: USDai/USDC Swap, Matcha, March 31st, 2026
Users can swap up to ~8.4M sUSDai ($9.1M) for USDC on Arbitrum within a 7.5% price impact.
Source: sUSDai/USDC Swap Liquidity, DeFiLlama, March 31st, 2026
2.1.1 Liquidity Venue Concentration
USDai liquidity has declined significantly, with a single Fluid pool providing the deepest liquidity.
| Venue | Pair | TVL* |
|---|---|---|
| Fluid | USDai/USDC | $1.08M |
| Uniswap | USDai/USDC | $135.29K |
| Maverick | USDai/USDC | $276.73K |
| Curve | USDai/USDC | $246.70K |
| Uniswap | USDai/USDC | $73.27K |
*as of March 31st, 2026
sUSDai’s liquidity depth has improved, with 2 additional pools introduced.
| Venue | Pair | TVL* |
|---|---|---|
| Curve | sUSDai/USDC | $4.37M |
| Fluid | sUSDai/USDC | $10.61M |
| Fluid | sUSDai/USDT | $2.62M |
| Uniswap | sUSDai/USDT | $1.36M |
| Uniswap | sUSDai/USDC | $258.37K |
*as of March 31st, 2026
2.1.2 DEX LP Concentration
Liquidity for USDai is highly concentrated, with meaningful liquidity in a Fluid USDai/USDC pair, which has a total supply of 630K USDai. The largest supplier is an EOA 1, which supplies ~18% of USDai on Fluid.
For sUSDai, liquidity venues are more diverse. Fluid represents the largest source of liquidity for sUSDai, with the largest supplier, EOA 2, supplying ~22% of the sUSDai supply on Fluid.
2.2 Volatility
USDai
Source: USDai/USDC, Geckoterminal, March 31st, 2026
Source: USDai Price Volatility vs Other Stablecoins, Entropy Advisors - Dune, March 31st, 2026
Since November, USDai has traded closer to its Dollar peg, with the previously observed persistent premium resulting from the supply cap. The USDai supply cap has since been removed.
sUSDai
Source: sUSDai/USDC, Geckoterminal, March 31st, 2026
Relative to our initial observation, sUSDai’s secondary market price has behaved more in line with a yield-accruing exchange rate. Fluctuations have trended upward and are less pronounced than the highly divergent trends previously seen.
2.3 Exchanges
USDai and sUSDai are exclusively traded on DEXs and are not currently listed on any centralized exchange. The USDAI team indicated that they aim to list USDai and sUSDai on CEXs.
2.4 Growth
Source: USDai Supply by chain, Entropy Advisors - Dune, March 31st, 2026
USDai growth has stagnated over the last 3 months, declining from its 524M peak seen in January 2026 to a current supply of 299M on Arbitrum.
Source: sUSDai Supply and Staking Ratio, Entropy Advisors - Dune, March 31st, 2026
sUSDai has declined since its peak of 320M in February, with a staking ratio of ~59%. The decline is explained by the March 2026 redemption window, which processed ∼130M in redemptions, coinciding with the conclusion of the Season 1 points program, a strong yield-farming incentive driver, with farmers likely redeeming during this period.
3. Technological Risk
3.1 Smart Contract
Risk
2 additional audits have been completed for the USD.AI protocol. The following issue findings are summarized below:
- Kais Tlili - Loan Router (November 2025): 1 high risk, 2 medium risk, 2 informational.
- Kais Tlili - Loan Router Follow-up (December 2025): 2 informational.
All issues were either fixed or acknowledged.
3.2 Bug Bounty Program
N/A.
3.3 Price Feed Risk
New loans are issued in PYUSD, with the corresponding Chainlink price feed. Existing loans in USDC will remain denominated in USDC, with the updated ChainlinkPriceOracle contract used to price USDC repayments relative to PYUSD for NAV calculations.
3.4 Dependency Risk
Barker
Barker uses a domain-specific LLM trained on proprietary data to deliver loan collateral valuations. Valuations are made specifically for liquidation scenarios, and are stated at the loans’ originations.
Insurance coverage excludes certain exceptions:
- Macroeconomic shocks: In the event of a shock or market volatility that prevents a sale, insurance payouts will not occur, requiring sellers to wait for the period to end to liquidate GPUs at normalized market conditions before a payout can be made (should a shortfall occur following a liquidation).
- Bankruptcy: If GPUs are sold due to bankruptcy and the sales are deemed below market value (determined by 3rd party appraiser), no payout will occur for insured assets. However, this is not applicable to USD.AI, given that GPUs are held by bankruptcy-remote SPVs.
Additionally, loan coverage requires approval from Barker and Munich Re, with coverage applicable to all compliant loans within the USD.AI portfolio; i.e., the maximum coverage amount is dependent on the approved assets, loan conditions, and insurance premium payments. In the event of multiple defaults, coverage for new loans may be effected.
IT Asset Disposition
Asset repossession and sales by USD.AI are planned to be facilitated through their default auction platform and several resellers, marketplaces, and other platforms. These ITADs have been approved by Barker as the only venues for liquidations in the event of valid coverage payouts in the event of a shortfall. The approved platforms include:
Blockware, Procurri, Epoka, Computer Recovery Services, Compute.Exchange, Smith, SellGPU, Securis, Alta Technologies, BrightStar Systems, ASA Computers, Colt Recycling, Bitpro, Sustainable ITAD, Greest, and Dataknox.
4. Counterparty Risk
4.1 Governance and Regulatory Risk
Terms of Service Review
USDai’s formally operative end-user instrument is its Terms of Service (the “Terms”), last modified January 12, 2026. The Terms are entered into between the user and USD.AI Foundation, a Cayman Islands foundation company (“USD.AI Foundation,” “we,” “us,” or “our”). The Terms select the laws of the Cayman Islands as the governing law and, subject to matters preempted by the U.S. Federal Arbitration Act (9 U.S.C. §§ 1–16), mandate binding individual arbitration through the American Arbitration Association (“AAA”) under its Expedited Procedures as the exclusive dispute-resolution mechanism. Class action and jury trial rights are expressly waived. For intellectual property matters, USD.AI Foundation retains the right to seek injunctive relief in the Cayman Islands courts.
The contracting entity is thus USD.AI Foundation (Cayman Islands), not the previously designated Permian Labs, Inc. (Delaware). Permian Labs operates the protocol and front end under the trade name “USD.AI,” but the legal relationship with users runs through the offshore foundation.
The Terms regulate user access to and use of the USD.AI online services, website (usd.ai), application interface, software, and documentation provided in connection with the protocol (collectively, the “Service”). The Service description enumerates the core user activities: depositing supported Digital Currency (such as USDC) to receive USDai; staking USDai for sUSDai; redeeming USDai or sUSDai for supported Digital Currency, “subject to Protocol liquidity and applicable redemption terms”; posting collateral for qualified borrowers; and accessing dashboards and documentation.
The Terms do not expressly characterize USDai as a security, e-money, or any other regulated financial instrument. Instead, they deploy broad disclaimers, waivers, and limitations of liability—an approach consistent with avoiding treatment as a regulated securities or e-money offering under U.S. law—while carefully framing the relationship as access to a software service rather than participation in an issuer-backed financial product.
1.1 User Rights and Entitlements
Under the Terms, users are granted a limited, non-exclusive, non-transferable, and revocable license to use the Service (Section 1.2). This license may be terminated “at any time for any reason or no reason.” Access is conditioned on continued compliance and may be limited, suspended, or withdrawn by USD.AI Foundation in its discretion (Section 1.6). No proprietary rights in the platform, its software, or its content are conveyed to users, and the Terms do not create any specific property interest or claim over particular assets, over USDai tokens themselves, or over any underlying reserve.
There is no clause granting users a contractual right, vis-à-vis the operator, to mint or redeem USDai on demand. The Terms are silent on hard reserve-maintenance obligations, a binding 1:1 redemption covenant, and any formal mechanism for converting USDai into fiat or other assets directly through the operator pursuant to an off-chain promise. Section 7.3(h) states explicitly: “The value of USDai and sUSDai may fluctuate and is not guaranteed to maintain any particular exchange rate with any fiat currency or other Digital Currency.”
Likewise, the Terms contain no express representation that USDai will be maintained at a fixed U.S. dollar peg or that any particular reserve methodology will be upheld. While they acknowledge market volatility, potential protocol upgrades, and chain forks, they stop short of imposing an obligation to defend a peg or to provide specific reserves. As drafted, users have no operator-level right to redemption and no contractual claim against USD.AI Foundation or Permian Labs for delivery of fiat, collateral, or other backing assets.
1.2 Risk Disclosures and Disclaimers
Section 7 of the Terms contains an extensive risk disclosure framework:
- Collateral Risk (Section 7.3(a)): The Protocol’s yield is derived from loans collateralized by physical assets, including GPUs. Collateral value may decline, borrowers may default, and liquidation may not fully recover amounts owed. “Such events could result in losses to depositors and reductions in the value of USDai or sUSDai.”
- Redemption Risk (Section 7.3(b)): Redemptions are “subject to Protocol liquidity.” During periods of high demand, low liquidity, or market stress, “redemptions may be delayed, restricted, or may not be possible at all.”
- Oracle and Data Risk (Section 7.3(d)): The Protocol relies on price oracles and external data sources. “Failure, manipulation, delay, or inaccuracy of such data sources could adversely affect Protocol operations and the value of your tokens.”
- No Deposit Insurance (Section 7.3(g)): USDai and sUSDai “ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SECURITIES INVESTOR PROTECTION CORPORATION, THE CAYMAN ISLANDS MONETARY AUTHORITY, OR ANY OTHER GOVERNMENTAL AGENCY.”
- Elimination of Fiduciary Duties (Section 7.1): The Terms purport to “eliminate any and all fiduciary duties” of USD.AI Foundation to users, limited only by the implied covenant of good faith and fair dealing and protection against misappropriation of assets.
1.3 On-Chain vs. Off-Chain Entitlements
In practice, USDai holders rely on in-protocol smart-contract mechanics. These reflect an on-chain claim to the Protocol’s pooled stablecoin reserves, typically expressed as the ability to redeem USDai for approved deposit currencies via the contracts. That entitlement functions economically like a bearer-style redemption right within the code environment. The Terms of Service, however, do not create an additional, off-chain undertaking by the operator to redeem or to make holders whole outside the Protocol.
By contrast, sUSDai holders obtain a smart-contract claim on the loan portfolio’s pooled economics and cash flows, subject to the defined unstaking period, the Queue Extractable Value (QEV) priority process, and the stated loss waterfall, which places borrower equity and first-loss curator capital ahead of stakers in absorbing losses. There is no direct, individualized property interest in collateralized GPUs or other hardware in favor of sUSDai holders; remedies on borrower default are pursued through the CALIBER framework and the designated underwriters or agents, not through direct enforcement actions by retail stakers. sUSDai holders’ economic entitlements rest entirely on code execution rather than contractually enforceable undertakings.
1.4 PYUSD Transition Risk
A further dimension of operational risk arises from the Protocol’s announced transition from USDC to PYUSD as the primary loan denomination currency, facilitated through GSR. Existing loan repayments remain denominated in USDC, while new loans are expected to be denominated in PYUSD by March 2026. While PYUSD benefits from strong regulatory oversight (issued by Paxos under NYDFS and OCC supervision), the Terms are silent on the Protocol’s right to change the denomination currency, on the implications of such a change for existing stakers, and on the operator’s obligations in the event of a PYUSD de-peg or Paxos disruption.
1.5 CALIBER Framework
USD.AI’s collateralization architecture, the CALIBER framework, uses a title-and-bailment sequence. A Delaware single-purpose, bankruptcy-remote SPV holds title to GPUs that serve as collateral for the protocol. The originating entity transfers the GPUs to the SPV under a Sale and Contribution Agreement structured as a true sale, with a precautionary UCC Article 9 security interest as a fallback. An Independent Manager (provided by Gemsbok Partners LLC) must consent to any bankruptcy filing, merger, or dissolution of the SPV, creating the bankruptcy-remoteness protection typical of securitization vehicles. The datacenter operator then issues a negotiable Electronic Warehouse Receipt under UCC Article 7, tokenized as an ERC-721 NFT on the Arbitrum blockchain, which serves as the protocol’s on-chain evidence of collateral ownership.
The commercial flow operates as follows: once the SPV holds the GPUs and the warehouse receipt is tokenized, the receipt-token is deposited into the USD.AI Protocol to draw stablecoin proceeds. Users deposit stablecoins into the protocol to receive USDai; those who stake USDai into sUSDai earn yield generated by the GPU-collateralized lending portfolio. On the borrower side, the SPV makes periodic payments from revenue generated through GPU leasing and usage agreements. Default triggers an automated liquidation through the protocol’s smart contracts, with the warehouse receipt transferring to the winning bidder, who then becomes the “Bearer” entitled to demand physical delivery of the GPUs from the datacenter under UCC Article 7.
The framework is assembled and draws on established structured finance principles—true sale isolation, SPV bankruptcy remoteness, independent management, negotiable documents of title. However, the architecture layers a novel blockchain-based control mechanism onto a traditional UCC Article 7 framework, creating an intersection of on-chain functionality and off-chain legal enforceability that has not been tested in court.
The entire CALIBER structure depends on the warehouse receipt qualifying as a negotiable electronic document of title under UCC Article 7. This is a legal mechanism that: (a) establishes the collateral claim as a property right rather than a mere contractual promise; (b) enables the bearer to demand physical delivery of the GPUs from the datacenter, creating a direct enforcement path that bypasses the borrower’s potential insolvency; (c) makes the receipt transferable by “control” under UCC § 7-106, which is what allows the automated on-chain liquidation to constitute a legally effective transfer of title; and (d) ensures that the warehouse receipt is not classified as a “security” under UCC Article 8, which would subject it to an entirely different regulatory regime. If any of these UCC characterizations fail, the structure’s collateral enforcement mechanism collapses from a property-based bearer instrument backed by physical delivery rights into an unsecured contractual claim against the SPV.
One of the legal memoranda provided by the team examines whether the Electronic Warehouse Receipt (WHR) qualifies as a negotiable electronic warehouse receipt under UCC Article 7, and whether it is transferable by control under UCC § 7-106. The memorandum concludes that the WHR should qualify as a negotiable electronic warehouse receipt based on three requirements. First, the WHR meets the definition of a “document of title” under UCC § 1-201(b)(16) because it is a warehouse receipt issued by a person engaged in the business of storing goods for hire. Second, the WHR is negotiable because it states the goods are deliverable to bearer and contains no conspicuous legend that it is non-negotiable. Third, the WHR qualifies as electronic because it is evidenced by a record stored in electronic form at an Arbitrum Mint Address. Regarding transferability by control, the memorandum explains that UCC § 7-106(a) requires a system that “reliably establishes” the identity of the person to whom the document was issued or transferred. The WHR designates the Arbitrum Mint Address record as the authoritative copy and the Arbitrum blockchain as the system for identifying the current bearer. The memorandum also confirms that the WHR would not be a “security” under UCC Article 8 because it is not divisible into a class or series, will not be traded on securities exchanges, and does not state that it is governed by Article 8.
The other legal opinion assesses whether tokenizing warehouse receipts and using blockchain to evidence the lender/borrower/collateral relationship converts a loan into a “security” under U.S. federal securities laws. The memorandum applies the four-prong Howey test from SEC v. W.J. Howey Co. to the tokenized WHRs and concludes they should not be treated as securities.
1.6 Legal Concerns Around USDai and sUSDai
Our assessment is that the existing Cayman foundation structure does not obviate the need for a securities law analysis of USDai and sUSDai, principally for two reasons.
First, the existing legal opinions do not cover USDai or sUSDai. The memoranda address only the tokenized warehouse receipts — the instruments held by the SPV and used as collateral within the protocol. USDai and sUSDai are the instruments that retail users actually hold, and they have materially different economic characteristics from the WHRs. Neither instrument is analyzed in any opinion provided.
Second, sUSDai may present a closer case to satisfying the Howey test than the WHRs. The Cayman foundation’s role as the nominal service provider may not sufficiently alter the economic substance of these arrangements: U.S. securities law applies a conduct-and-effects test that looks through offshore wrappers where the operational nexus to the United States is substantial, and here Permian Labs — a Delaware corporation — builds, operates, and markets the protocol, a fact that any U.S. regulator would weigh heavily in determining jurisdiction and enforcement posture.
Given the novelty of the protocol and the significant time and resource investment required to address legal design considerations across multiple regulatory frameworks, these concerns should not be treated as immediate blockers to engagement. However, we strongly encourage the USD.AI team to provide an actionable plan outlining how and on what timeline they intend to mitigate the concerns expressed herein — including, at a minimum, a securities law analysis of USDai and sUSDai.
4.2 Access Control Risk
4.2.1 Contract Modification Options
USD.AI’s DEFAULT_ADMIN_ROLE is assigned to Multisig A and Multisig B, with Multisig B
The main changes to contracts enabling USD.AI include:
- ChainlinkPriceOracle: Updated feed now uses PYUSD as the base/reference asset. Used to value assets, collateral, and calculate the NAV of sUSDai. The DEFAULT_ADMIN_ROLE can add/remove price feeds.
- SwapAdapter: Is now only used to swap whitelisted assets (currently USDC, USDT, wM) that users deposit to be swapped for PYUSD. Managed by DEFAULT_ADMIN_ROLE
- LoanRouter: originates, manages, and liquidates loans. The DEFAULT_ADMIN_ROLE can set where fees go, and can change the fee from liquidations. The PAUSE_ADMIN_ROLE can pause and unpause the contract.
- SimpleInterestRateModel: Calculates loan repayments under a simple interest model, tracks repayment schedules.
- AmortizedInterestRateModel: Amortized calculations of loan repayments, tracks repayment schedules.
- USDaiQueuedDepositor: Manages deposits in a FIFO queue structure of whitelisted assets for USDai and sUSDai.
USD.AI utilizes a role-based access control system. The following roles and functionalities are described below.
USDai
| Role | Assigned Addresses | Functionalities |
|---|---|---|
| DEFAULT_ADMIN_ROLE | Multisig A, Multisig B | Can grant/revoke all other roles, and can adjust the total supply cap for USDai. |
| DEPOSIT_ADMIN_ROLE | sUSDai, USDaiQueuedDepositor | Privileges for deposit operations, and can bypass the supply cap check during deposits. |
| CONVERT_BASE_TOKEN_ADMIN_ROLE | EOA 1 | Can convert between base token and wM tokens. |
| BRIDGE_ADMIN_ROLE | OAdapter 1 | Manages mint/burn bridging operations. |
| BLACKLIST_ADMIN_ROLE | unassigned | Can add/remove addresses from the blacklist. |
sUSDai
| Role | Assigned Addresses | Functionalities |
|---|---|---|
| DEFAULT_ADMIN_ROLE | Multisig A | Can grant/revoke all other roles. |
| PAUSE_ADMIN_ROLE | Multisig A | Pause/unpause the sUSDai contract. |
| STRATEGY_ADMIN_ROLE | Multisig C | Manages the redemption queue processing and services redemptions. |
| BRIDGE_ADMIN_ROLE | OAdapter 2 | Can mint and burn sUSDai tokens, updates the bridged supply tracking. |
| BLACKLIST_ADMIN_ROLE | inherits from USDai | — |
4.2.2 Timelock Duration and Function
No timelock has been implemented to date. The team indicated that a timelock will be implemented in line with their governance token launch ($CHIP).
4.2.3 Multisig Threshold / Signer identity
Multisig A’s threshold was initially 2/3 but has since increased to 3/3. Multisigs are likely still under the control of the USD.AI team. Signers include:
- 0xe982B3F68981eFEA221F5B4F843757dEd2c0a69C
- 0x986868c921075f31514015E6ecdbB4A6526579b2
- 0xD1Affe275f09cD11bfDf38F3c9b85c016F47b75e
Multisig B has a 2/4 threshold, signers include:
- 0xe982B3F68981eFEA221F5B4F843757dEd2c0a69C
- 0x986868c921075f31514015E6ecdbB4A6526579b2
- 0xD1Affe275f09cD11bfDf38F3c9b85c016F47b75e
- 0x7781149a2CA561bF0F5B3cA03071B364f8b71E72
Multisig C has a ¾ threshold, signers include:
- 0xe982B3F68981eFEA221F5B4F843757dEd2c0a69C
- 0x986868c921075f31514015E6ecdbB4A6526579b2
- 0xD1Affe275f09cD11bfDf38F3c9b85c016F47b75e
- 0x034d28A39c5c48aaca4D87E7775fe202f6CBfC6B
Aave V3 Specific Parameters
Aave V3 specific risk parameters will be presented jointly with @ChaosLabs.
Price feed Recommendation
We recommend using a PYUSD/USD feed to price USDai. sUSDai can be priced using the internal exchange rate, i.e., convertToAssets(), in conjunction with the base PYUSD feed with CAPO.
Disclaimer
This review was independently prepared by LlamaRisk, a DeFi risk service provider funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.