sCIP#39 - Add a DAI/USDP/LUSD the d3Pool

[catalyst]

Thanks for the thoughtful reply.

@samkazemian

If this sounds nonsensical, it is just as nonsensical in my opinion bringing up IRON to FRAX. Their fork of us was an old version of the protocol (I wrote the code they forked) and as you said with many of the safeguards and features removed intentionally to pump the governance token price since more of it would be burned for seigniorage fees. So I don’t think it is something to really bring up as you brought up much more necessary issues to address below.

If you want to suggest someone’s concerns about fundamental similarities between IRON & FRAX are “nonsensical”, there’s probably better reasoning available than a hand-wavy analogy about Ethereum Classic. I’ve heard repeated claims about IRON removing FRAX’s “safety rails” and do see IRON’s overall approach as far more reckless. However, despite reading FRAX’s whitepaper & actively searching, I have not been able to find any technical documentation of substance elaborating on exact differences in FRAX’s safety measures. Granted, FRAX has a multi-year value locking method with enough held to give observers reason to believe FXS has some non-zero value, but it appears TITAN’s death spiral would have happened just the same even if TITAN permitted value locking. The fundamental risks of attempting to back a $1-pegged stablecoin with part USDC, part highly volatile asset is nearly identical between IRON+TITAN and FRAX+FXS. That FXS’s value happens to have declined 88% in the last 3 months ($15.57 ==> $1.73), most of which occurred before TITAN’s collapse, may give some reasonable people pause before holding a substantial amount of FRAX. If you can link to a technical design document explaining why similar risks do not apply to FRAX that would go further in addressing concerns than brushing off what appear to be fundamental similarities as nonsensical.

@samkazemian

If Yearn gets hacked and the DAI gets stolen/drained, then such a large amount of dump/sell pressure of DAI would surely be existential to Maker’s peg as well as to this pool. It would be kind of the same as FRAX losing a massive part of its collateral.

A large amount of DAI changing hands while fundamentally remaining over collateralized for redemption Vs FRAX losing a large amount of its USDC-based collateral exacerbating its target (under) collateralization ratio are hard to see as “kind of the same” from a risk perspective.

@samkazemian

It’s only the large ones that matter imo and DAI (and alUSD and LUSD etc etc) have such a gigantic amount of supply on Yearn that a full exploit there would be existential to each token but for different reasons.

ETH price could drop 99.99%+ to $0.20 and 1 LUSD would be redeemable for $1 (5 ETH in that case). Even in the most extreme hypotheticals of LUSD supply being stolen by a hacker, there is no existential risk as long as someone is willing to buy ETH at market price. Considering ETH’s general utility, that’s an assumption many defi users may be willing to accept. It’s hard to suggest a similar existential risk profile for FXS losing USDC collateral to Yearn downstream smart contract risk.

@samkazemian

This seems like a rather odd and strange bar for inclusion in a highly experimental pool? First of all, I don’t trust all my own life savings in ANY one of these stablecoins myself.

Despite USDC’s imperfections, it has sufficient auditing and a “throat to choke” in meat space for many people to trust much of their savings to it (even if just for temporary positions). Ideally, the defi stablecoin ecosystem matures to offer a similarly low risk profile at its core.

To your broader point that the d3Pool is a “highly experimental” pool, I didn’t realize that was the case. When I saw the naming similarity between Curve’s 3pool and the newly suggested defi ‘d3pool’ I thought the goal might be to build a low risk pool that becomes the foundation of Curve’s defi stablecoin pools in a similar capacity as the 3pool today. If my assumption there is wrong & the d3pool is meant to be highly experimental, expanding to 5+ defi stablecoins of highly different risk profiles, I see nothing fundamentally wrong with that, except perhaps the name ‘d3pool’. Nothing against experimental pools & people having freedom to risk their liquidity in whichever capacity they want. If, however, d3pool is intended to evolve in a similar long term direction as Curve’s 3pool today, I appreciate that we’re having open discussions to further understand the risks (& safety measures) of each algorithm involved.

Apologies if I come across as throwing too many hard ball questions here. As I said initially, I have nothing but respect for all projects involved and want to see all succeed long term. At the same time, it appears there are fundamental differences in the risk profiles of each defi stablecoin, and I’m fairly sure at least some of my concerns aren’t purely nonsensical. It makes sense for projects to invite their community to come voice support here, but at the same time it ultimately hurts all of us it we don’t at least inquire about risks while exploring the cutting edge of defi together. Glad the suggestion of risk hedging insurance via something like Nexus Mutual was helpful & appreciate the open discussion. If a technical design document is available elaborating on FRAX’s safety measures in detail, it would be help alleviate concerns at their root.