List wUSDM as a collateral on USDC/USDT markets on Arbitrum and Ethereum

[Gauntlet] wUSDM Asset Listing on Compound V3 Arbitrum USDC and Ethereum USDT markets

If the community decides to list wUSDM on Compound V3 USDC/USDT markets on Arbitrum and Ethereum, Gauntlet recommends the risk parameters below.

Ethereum USDT Comet

Asset Collateral Factor Liquidation Factor Liquidation Penalty Supply Cap
USDM 88% 90% 5% 6.5M

Arbitrum USDC Comet

Asset Collateral Factor Liquidation Factor Liquidation Penalty Supply Cap
USDM 88% 90% 5% 4.5M

Analysis

The USDM token (reference) is a rebasing ERC20 token, redeemable at a pegged 1:1 USD value by primary users. USDM is a stablecoin, backed by “USDM Reserves”, which are held under custody with regulated financial institutions. The current USDM in Circulation is fully collateralized by USDM Reserves as of August 1, 2024 (reference).

USDM carries risks primarily related to depegging, where it could lose its $1 value if the collateral backing or algorithmic mechanisms fail. Additionally, there is regulatory risk, as stablecoins like USDM may face scrutiny over reserve management and compliance. Lastly, liquidity risk can arise if market conditions or platform issues reduce the ability to trade or redeem USDM at its intended value.

wUSDM stands for wrapped USDM. Wrapping and unwrapping tokens introduce risks such as smart contract vulnerabilities, centralization concerns, and liquidity issues, which can affect the safety and value of assets. Unwrapping risks also include redemption challenges and the potential for depegging, where the wrapped token may lose its value relative to the underlying asset. To mitigate these risks, it’s crucial to ensure smart contracts are audited, use decentralized custodians, and monitor market conditions closely.

Liquidity Sources

The following table summarizes the liquidity sources for wUSDM across various decentralized exchanges (DEXs) on Ethereum and Arbitrum:

pool_name Chain pool_type pool_url pool_tvl_usd
USDM / USDT 0.05% Ethereum uniswap_v3 Link $19.99M
pool_name Chain pool_type pool_url pool_tvl_usd volume_24h_usd
USDM / USDC Arbitrum curve_arbitrum Link $7.62M $121.21K

Total DEX TVL (Ethereum): $19.99M
Total DEX TVL (Arbitrum): $7.62M

wUSDM → USDC/USDT Liquidty Profile

Chain 5% Slippage 10% Slippage 25% Slippage
Ethereum 6.8M ($6.8M) 7.5M ($7.5M) 8.5M ($8.5M)
Arbitrum 4.6M ($4.6M) 5M ($5M) 5.5M ($5.5M)

Volatility Analysis

Metric Value
Min Price Change Log -0.30%
Max Price Change Log 0.37%
Daily Log Volatility 1.26%
30D Log Volatility 1.43%

The volatility metrics for wUSDM indicate that it deviates from the price of USDC/USDT with a 30-day volatility of 1.43%, indicating minimal deviations from the mean price over the past month.

Supply Cap and Liquidation Penalty (LP)

Based on the available liquidity, we recommend setting a supply cap that would cause 5% slippage, ensuring that the total slippage, should the entire supply get liquidated, remains less than the Liquidation Penalty. Given the above liquidity sources, Gauntlet recommends a supply cap of 6.5M for Ethereum USDT Comet and 4.5M for Arbitrum USDC Comet, with the optionality to increase them if the market shows demand. This level is aligned with the liquidity available and aims to balance liquidators’ incentives with minimal slippage risk.


Liquidation Factor (LF) and Collateral Factor (CF)

Gauntlet recommends setting the Liquidation Factor at 90% and the Collateral Factor at 88%. This approach aligns with the need to provide a safety margin while enabling efficient capital utilization within the protocol.

Next Steps

We welcome community feedback on the proposed risk parameters for wUSDM on Compound V3 Arbitrum USDC and Ethereum USDT markets


Note: The data provided in this document is accurate as of the publication date. Market conditions and liquidity levels may change, and it is advisable to regularly review these parameters to ensure they remain appropriate.

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