sCIP#8 - USDN Interests Distribution

Summary:

USDN in the USDN Metapool is currently yielding around 10-15% APY. We would like governance to consider how those interests should be distributed between LPs and veCRV holders.

Motivation:

Please take into consideration when voting that Curve needs to find a healthy balance and have aligned incentives between liquidity providers and veCRV holders.

We propose that trading fees on this pool remain exempt from an admin fee. Because of an omission when the pool was created, the pool cannot differentiate between interests in USDN and trading fees which would also be in USDN as a result, we think it is preferable all trading fees remain with LPs and that veCRV holders receive a share of USDN interests to compensate (which are likely to outpace trading fees).

Poll:

https://signal.curve.fi/#/curve/proposal/QmYRijdxESdpgEoryX8FA2nvZVstBETQ213bLcLzkhVbXw

3 Likes

Some background on where USDN interest comes from and how it is determined:

The current estimated annual interest for holding USDN (based on payouts received in the last 3 days) is 10.07%.

Waves uses a “Leased Proof of Stake” consensus mechanism that lets Waves token holders lease their tokens to a validating node they trust. That node will return fees earned from block propagation back to the leasers.

Neutrino Protocol uses leasing to incentivize people to mint USDN. Waves is used as collateral backing the USDN stablecoin, and is leased to a Neutrino node that returns fees back to the protocol. Fees are converted to USDN and distributed as interest to USDN stakers.

When USDN is transferred from Waves to Ethereum, the original Waves token is deposited in the staking contract. Therefore all USDN on Curve (and Ethereum) is staked USDN and earns interest.

As per the Neutrino docs:

The amount of potential earnings in USDN depends on when the staking started, on the amount of staked USDNs out of the total USDN supply, and on the changes in Waves market capitalization.

Increase in Waves price => higher interest on USDN
Increase in staked USDN => lower interest on USDN

Given that Waves has a 6.7% annual yield for leasing, the current amount of USDN staked is 66.4%, the USDN interest is 6.7 / 66.4 = ~ 10%.

Sources

https://docs.neutrino.at/neutrino-smart-contracts-and-business-logic#staking
http://waves.exchange/investments/staking/USDN/client
https://cointelegraph.com/news/staking-for-waves-neutrino-dollars-comes-to-the-ethereum-network
https://www.stakingrewards.com/earn/neutrino

2 Likes

Interesting, initial votes are leaning to distribute more than half of the USDN interest to LPs.

How is this situation is any different than any other pool in which trading fees are generated in some asset that requires subsequent exchange before being aggregated and then paid out?

The poll is asking what percent of the trading fees should be directed to veCRV holders.

This seems like a different question than the text of the resolution above is saying that, “all trading fees remain with LPs and that veCRV holders receive a share of USDN interests to compensate”.

Is the issue how to compensate the veCRV holders OR whether to compensate them?

If the suggestion is that veCRV holders get a tiny number of pool tokens as compensation, my concern would be that I wind up with a small number of tokens that I would then need to pay further fees to exchange into something more useful. I think a better outcome would be for that aggregation and exchange and distribution to be handled by Curve, so that veCRV holders receive payouts in the same currency as their other payouts.

veCRV will receive all payout in the form of 3crv LP token. The proposal is to keep the admin fee at 0% (veCRV does not earn trade fees from this pool) but to share the built in token interest between LPs and veCRV. The question is, how much of the USDN interest should veCRV be entitled to?

1 Like

Thanks for clarifying. This sounds pretty technical. I think veCRV holders care that they get paid. The precise mechanics of how exactly that payout happens is less concerning.

first off, I understand where everyone is coming from in that the usdn rewards are not trading fees and thus should be allocated to the LPs. or splits evenly etc as the signal vote says.

however with the current pool there is no way to calculate LPs’ share on-chain. anyone who is in the pool at time of distribution would be given their share. this means that anyone could stay out of the pool while fees are collecting and then jump into the pool right around where distribution happens. Distribution will probably be an anyone-can-call method too since we dont want to have to do a vote each week to distribute. this means anyone can jump in the pool, call distribute, then jump out whenever they want. much like the comp coins in balancer pools where people can flashloan in, call gulp(), and exit immediately.

you would need a new swap contract that can detect this type of inflation to be developed, audited, then launched to replace the current pool.

This is why giving the inflation to vecrv was/is “the easy way out”. This also means that the best way to protect these earnings is also to only give to vecrv. this is because someone who is NOT a crv LP holder nor a vecrv holder can flash in for the claims and then we basically just give away the interest to some random jagoff.

i would love if someone could point me to a solution that would work and be fair but i dont see it right now. thus i dont really see any other way than to give to vecrv holders until someone makes a new swap contract for these types of coins. then we could obviously return the inflation rates back to the LPs etc

(evidently the new aToken swap pool being made will be able to handle these situations correctly)

3 Likes