[TEMP CHECK] - Add support for fUSDC on Ethereum v3 Pool

Governance
1

TEMP CHECK - Add support for fUSDC on Ethereum v3 Pool

References:

Project: https://fluxfinance.com/

Whitepaper: https://docs.fluxfinance.com/

Github: https://github.com/flux-finance

Documentation: https://docs.fluxfinance.com/

Dune: https://dune.com/steakhouse/ondo-finance

fUSDC: https://etherscan.io/token/0x465a5a630482f3abd6d3b84b39b29b07214d19e5

Oracle: we have a custom Oracle audited and ready to be deployed that uses the fUSDC/USDC Flux exchange rate and piggybacks to the USDC chainlink oracle.

Governance forum: https://forum.fluxfinance.com/

Governance votes: https://www.tally.xyz/gov/ondo-dao

Twitter: https://twitter.com/FluxDeFi

Discord: http://discord.fluxfinance.com/

Summary:

This ARFC presents the community with the opportunity to add fUSDC to the Ethereum v3 Liquidity Pool.

Motivation

Flux Finance is a fork of Compound V2, with minor changes to support permissioned tokens, such as Ondo Finance’s Short-Term U.S. Government Bond Fund (OUSG), alongside permissionless tokens, such as USDC. USDC lenders receive the corresponding fUSDC, representing their right to reclaim the underlying USDC plus accrued interest, and which can be freely transferred. Positions are collateralized by OUSG, which is invested into Blackrock’s SHV ETF (with a small portion of USD and USDC for liquidity purposes). Read more on OUSG here.

fUSDC is a new financial primitive with arguably the best risk-adjusted yield available in DeFi.

Isolated mode

Adding support for fUSDC on Ethereum V3 in isolated mode would allow fUSDC holders to borrow stablecoins on Aave and leverage their fUSDC position, boosting the stablecoin utilization rate on Aave, while attracting new stablecoin deposits thanks to boosted supply rates.

For example, as the fUSDC yield oscillates around 4% APR, borrowing USDC on Aave should be profitable up to 90% utilization rate.

image

USDC IR model on Aave eth V3. A 90% utilization rate would align Aave borrow and Flux supply APR.

Oracles: A custom Oracle audited and ready to be deployed leveraging the fUSDC/USDC Flux exchange rate and piggybacks to the USDC chainlink oracle.

fUSDC is not a traded token and therefore does not have or need a chainlink oracle based on trade volumes.

Specification

What is the link between the author of the AIP and the Asset?

The ACI is an independent service provider to the Aave DAO, while Ondo finance provided support & Data for the creation of this TEMP check, the ACI is not linked nor paid by Ondo to publish this AIP

Provide a brief high-level overview of the project and the token?

Flux Finance is a fork of Compound V2, with minor changes to support permissioned tokens such as Ondo Finance’s Short-Term U.S. Government Bond Fund (OUSG), alongside permissionless tokens, such as USDC. USDC lenders receive the corresponding fUSDC, representing their right to reclaim the underlying USDC plus accrued interest, and which can be freely transferred. Positions are collateralized by OUSG, which is invested into Blackrock’s SHV ETF (with a small portion of USD and USDC for liquidity purposes). Read more on OUSG here.

fUSDC is a new financial primitive with arguably the best risk-adjusted yield available in DeFi.

fUSDC Token Ethereum Address: 0x465a5a630482f3abD6d3b84B39B29b07214d19e5

  1. Explain positioning of the token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?

Isolated mode

Adding support for fUSDC on Ethereum V3 in isolated mode would allow fUSDC holders to borrow stablecoins on Aave and leverage their fUSDC position, boosting the stablecoin utilization rate on Aave, while attracting new stablecoin deposits thanks to boosted supply rates.

For example, as the fUSDC yield oscillates around 4% APR, borrowing USDC on Aave should be profitable up to 90% utilization rate.

Avoid using fUSDC as a borrowable asset

fUSDC can be exposed to price manipulation (up-only via donation). As this can put borrowers under liquidation risk in case of price manipulation, fUSDC should not be added as a borrowable asset.
The recent issue with 0vix and vGHST asset is a prime example of this potential vector of risk.

Provide a brief history of the project and the different components: DAO (is it live?), products (are they live?). How did it overcome some of the challenges it faced?

Flux is governed by the Ondo DAO, which went live on January 12th 2023. Its first Flux markets got initialized on February 3rd 2023.

Flux offers yield opportunities to stablecoin lenders (USDC, DAI, USDT, FRAX), while allowing OUSG investors to borrow stablecoins against their underlying tokenized US Treasuries.

How is fUSDC currently used?

Holding fUSDC allows users to earn a yield on their USDC.

fUSDC can also be used as a RToken collateral, launched by the Reserve Protocol
https://twitter.com/FluxDeFi/status/1643350249207889920?s=20

Emission schedule

There is no emission schedule. fUSDC is minted or burned based on deposits or withdrawals of USDC.

Token (& Protocol) permissions (minting) and upgradability. Is there a multisig? What can it do? Who are the signers?

The Flux Lending Market and fUSDC contracts are owned by the Ondo DAO. The Ondo DAO is gated behind a 3 day voting period and 1 day time lock.

Similar to Compound, Flux has upgradeable comptroller and fToken (cToken) contracts.

For the Comptroller, the Ondo DAO controls all admin actions, including initializing markets, setting collateral factors, setting the close factor, setting the price oracle, setting borrow caps, and all pause actions below. A 3/n multisig (0x118919e891D0205A7492650AD32E727617FA9452) controlled by the Flux team acts as the pauseGuardian, which can pause transfers, liquidations, mints, and borrows.

For fUSDC, the Ondo DAO controls all admin actions, including setting the interest rate model, comptroller, reserve factor, and KYC registry. The KYC registry is controlled by the Ondo 3/n team multisig and gates which users can be permissioned security token holders and permissioned borrowers.

Currently, the InterestRateModel and Oracle contracts are controlled by the Flux team’s 3/n multisig. The Oracle contract allows a 3/n multisig to set the underlying asset’s hardcoded price or Chainlink price feed. The InterestRateModel contract sets the interest rate curve for the markets. Post an upcoming vote (week of April 24, 2023), both of these non-upgradeable contracts will be controlled by the Ondo DAO.

Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)

  • Market capitalisation: $7,091,198

Decentralized exchange liquidity pools

Curve

Social channels data (Size of communities, activity on Github)

  • Discord: 22,304 members
  • Twitter: 3283 followers
  • Github: 4 followers

Contracts date of deployments, number of transactions, number of holders for tokens

  • Date of Deployment: 3rd February 2023 (after the vote ended)
  • Number of transactions: 802
  • Number of token holders: 400

Risk Management

fUSDC is collateralized by OUSG, which is invested into Blackrock’s SHV ETF (with a small portion of USD and USDC for liquidity purposes). The underlying assets in the SHV ETF have a very low risk profile, and the ETF itself is highly liquid.

To mitigate risk, we suggest implementing the following risk parameters for fUSDC:

  • Loan to Value (LTV): 75%
  • Liquidation Threshold: 80%
  • Liquidation Bonus: 5%
  • Reserve Factor: 10%
  • Interest Rate Strategy: Similar to USDC

Conclusion

Adding support for fUSDC on Ethereum v3 in isolated mode has the potential to attract new stablecoin deposits, increase stablecoin utilization rates on Aave, and provide additional opportunities for users to leverage their fUSDC positions.

Next Steps

  1. Gather community feedback: Engage with the Aave community to collect feedback and address any concerns or suggestions.
  2. Publish a temperature check snapshot vote: Conduct a preliminary snapshot vote to gauge community sentiment on the proposal.
  3. Escalate to ARFC stage: If the temperature check is favorable, move the proposal to the Aave Request for Comments (ARFC) stage for further discussion and refinement.
  4. Gather feedback from risk service providers: Consult with risk assessment teams like Gauntlet and Chaos Labs to evaluate the potential risks and benefits of adding fUSDC as collateral.
  5. Escalate to ARFC snapshot vote: If the risk assessment is positive and community feedback is supportive, proceed to an official ARFC snapshot vote.
  6. Escalate to AIP stage: If the ARFC snapshot vote passes, move the proposal to the Aave Improvement Proposal (AIP) stage for final approval and implementation.

Copyright

This TEMP CHECK is released under the Creative Commons CC0 1.0 Universal (CC0 1.0) Public Domain Dedication. You can find the full text of the license here.

17 Likes
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Strongly in favor of bringing assets with RWA exposure like fUSDC to Aave. Would support the addition of fDAI and fUSDT should this experiment work out.

5 Likes
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We strongly support adding fUSDC as we believe tokenised RWA will be play a significant role on-chain.

3 Likes
4

this proposal has been escalated to Snapshot stage

1 Like
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Hi @MarcZeller a question from our side: fUSDC does not seem to be a tradable asset. In case of liquidations if the borrowed asset loses value significantly, how would the underlying fUSDC be liquidated?

1 Like
6

Why not list $OUSG directly?

1 Like
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flux is compound v2 fork is fUSDC is just a cToken of USDC deposit in flux, as such, secondary liquidity is mainly not relevant as the asset can be freely minted/burned with underlying asset.
fUSDC is nearly as liquid as USDC but does assume a layer of SC risk.

permisionned securities are unfit for the Aave permissionless market.

2 Likes
8

Gauntlet recommendation on fUSDC

fUSDC represents claims to USDC deposits on Flux Finance, a Compound v2 fork where the only acceptable collateral is OUSG, a tokenzied implementation of short term US Treasuries that directly invests in the ETF iShares SHV. fUSDC is analagous to cUSDC on Compound v2. That being said, Gauntlet cannot quantify the above RWA risk; the below parameters are determined from the on chain characteristics of fUSDC only.

We do not recommend setting fUSDC in isolation mode, since this could prevent the natural behavior of fUSDC collateral from evolving without significantly reducing risk.

Risk Parameter Gauntlet Rec
Isolation Mode NO
Enable Borrow NO
Enable Collateral YES
Borrowable in Isolation NO
Loan To Value 74%
Liquidation Threshold 76%
Liquidation Bonus 4.5%
Reserve Factor 10%
Liquidation Protocol Fee 20%
Borrow Cap* N/A
Supply Cap* 270M ($5.4M)
Debt Ceiling N/A
Base 0%
Slope1 4%
Uoptimal 90%
Slope2 60%

*1 USDC = 49.4 fUSDC

Isolation Mode
We do not recommend setting fUSDC in isolation mode, since this could prevent the natural behavior of fUSDC collateral from evolving without significantly reducing risk.

LTV, LT, LB, RF, LPF, IR
As stated above, fUSDC represents claims to USDC deposits on Flux Finance. Utilization for USDC (as well as USDT and DAI) on Flux all hover at the kink of 90%. fUSDC is directly convertible to USDC via Flux Finance in normal situations (when USDC utilization on Flux Finance < 1). We recommend using the same LTV, LT, LB, RF, LPF, and IR curve parameters (Slope 1, Uopt, Slope 2) as USDC.

Supply Cap
fUSDC is unique in that it has no external liquidity and its only exit is to be redeemed for USDC on Flux Finance. We recommend initializing supply cap at 25% of the circulating supply (~$22M has been minted on Flux Finance), and will monitor usage and growth before recommending subsequent increases.

Next steps

Should community approve the snapshot vote to list fUSDC, Gauntlet will follow up with all the parameters for next steps.

2 Likes
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This TEMP CHECK has successfully passed snapshot vote and has been escalated to ARFC stage.

closing this topic now, the next steps of the discussions are in the dedicated thread : [ARFC] Add fUSDC to Ethereum v3

3 Likes