[Gauntlet] Recommendations for sUSDf on Mainnet USDC and USDT Comets
Simple Summary
Should the community choose to onboard sUSDf on the Compound USDC and USDT Comets on Mainnet, we recommend the following initial parameter recommendations:
Risk Parameters
| Asset | Collateral Factor (CF) | Liquidation Factor (LF) | Liquidation Penalty (LP) | Supply Cap |
|---|---|---|---|---|
| sUSDf | 86% | 91% | 5% | 3,000,000 |
- Collateral Factor: 91% LLTV reflects sUSDf’s on-chain yield strategies while preserving prudent risk buffers.
- Liquidation Factor & Penalty: A 91% LF with a 5% penalty aligns with existing Comet conventions, ensuring liquidators remain incentivized without overly penalizing users.
- Supply Cap: Capped at 20% of current USDf DEX liquidity (~$31 M), i.e. 3M sUSDf on each Comet, to keep maximum liquidation size within acceptable slippage tolerances.
Rationale
Token Overview:
USDf is Falcon Finance’s overcollateralized synthetic dollar, minted when users deposit eligible collateral assets, including stablecoins (e.g., USDT, USDC, DAI) and non-stablecoin assets (e.g.,BTC, ETH, and select altcoins). The overcollateralization framework is designed to ensure that the value of the collateral consistently exceeds the value of the USDf issued, preserving its stability across varying market conditions.
sUSDf is the yield-bearing version of USDf. Minted when USDf is deposited and staked into Falcon’s ERC-4626 vaults, the amount of sUSDf received by users is calculated based on the prevailing sUSDf-to-USDf value. Redemptions are permissionless and settle on-chain immediately with no extra lock-up period. Yield Generation is achieved by providing Liquidity to Pools, Funding Rate Arbitrage, and Staking (more details here). Users need to burn sUSDf tokens to get the underlying USDf tokens (plus any underlying yield) in the vault.
Redemption Process
sUSDf
- There is no waiting period or cool down period to get the underlying USDf tokens.
USDf
- In the case of no onchain DEX liquidity, the fallback option is to redeem through Falcon’s on-platform redemption service, but those withdrawals are subject to a 7-day cooldown before the underlying stablecoins become available to the user.
DEX Liquidity:
USDf’s aggregate DEX TVL is $31.2 M, with deep pools across Curve, Uniswap V3, and PancakeSwap. This depth supports a conservative 20% cap to limit liquidation slippage.
| Pool Type | Pool Name | Pool TVL (USD) | 24H Volume (USD) | URL |
|---|---|---|---|---|
| curve | USDC / USDf | 16,801,639 | 396,240 | Link |
| uniswap_v3 | USDf / USDT 0.01% | 10,836,307 | 2,090,000 | Link |
| pancakeswap-v3-ethereum | USDT / USDf 0.01% | 2,612,104 | 570,610 | Link |
| uniswap_v3 | USD1 / USDf 0.01% | 980,730 | 7,860 | Link |
When we simulate swapping 5M USDf tokens, there appears to be very minimal slippage when converting to USDC. There is capacity to do a 10M USDf swap to USDC with ~4% slippage, which indicates that the Caps recommended for this token can be easily liquidated during the time of stress.
Risk Margins:
A high CF of 86% leverages sUSDf’s native yield (liquidity provision, funding-rate arbitrage, staking) while leaving a 14% over-collateral buffer. The 91% LF and 5% penalty follow established Compound norms to balance liquidation incentives and user protection.
Risks
Gauntlet would like to highlight the following findings to the community about USDf:
- Protocol Backing Ratio, which is \frac{\text{Risk‐Adjusted Collateral Value}}{\text{USDf Outstanding}} \times 100\%, shows the extra buffer for backing USDf supply.
- 62% of the reserves are off-chain (at the time of review). The way to track these funds is through the reserve report, which is provided here.
- Important to note that the Reserve Report mentions that Collateral Value is calculated based on the current prices available on Coingecko, which is $624.91M in value compared to the USDf supply at the time i.e 485.95M.
- There remains ambiguity around the insurance fund (Falcon Finance indicated more details will be shared soon, but they are not yet available).
Next Steps
- We welcome community feedback.