Proposal: TrueUSD Market Upgrades

[Joyce]

Hello Compound community, this is Joyce from the TrueUSD(TUSD) team!

It has been a while since TUSD first launched on Compound Finance and we at TUSD are pleased to see that it performed well over the past several months. Circulation and number of active addresses have increased dramatically with billions of dollars in monthly transaction volume. To take it a step further, we think that it would be an excellent opportunity to bring more members of the rapidly growing TUSD community to experience Compound and update TUSD market parameters.

These are the two aspects we would like to update:
Collateral factor.

We propose to add TUSD as a collateral asset on Compound. TUSD has proven its security and performance as a collateral asset on several other lending platforms with healthy utilization rates, and we believe it would be beneficial to the Compound community and project as a whole to have TUSD included here as well. As the TUSD collateral factor (or LTV) on AAVE is 80%, 80% on Venus, and 75% on JustLend, we propose to have TUSD’s collateral factor on Compound be 75%.
Add COMP rewards to the TUSD market.

We also propose to add COMP rewards to the TUSD market and bring more TUSD liquidity into Compound. TUSD is integrated on several DeFi projects across various chains, with total supply reaching approximately 80M from Compound, AAVE, PancakeSwap, and Ellipsis. This gives excellent APY to users, and we would like to further that for the Compound community.

To summarize, TrueUSD would like to propose the following updates:
1） Add TUSD as a collateral asset with a collateral factor of 75%
Comptroller._setCollateralFactor(“cTUSD”,750000000000000000)
2） Distribute COMP rewards to TUSD market participants.
Detailed parameters we are going to propose is as follows:
Update COMP speed for TUSD, USDC, USDT, DAI markets
From
Comptroller._setCompSpeed(“cUSDC”, 67000000000000000)
Comptroller._setCompSpeed(“cUSDT”, 9650000000000000)
Comptroller._setCompSpeed(“cDAI”, 67000000000000000)
To
Comptroller._setCompSpeeds([“cUSDC”,”cDAI”,”cUSDT”,”cTUSD”],[66500000000000000,66500000000000000,9150000000000000,1500000000000000],[66500000000000000,66500000000000000,9150000000000000,1500000000000000])
Comments:
cUSDC 67000000000000000 → 66500000000000000
cDAI 67000000000000000 → 66500000000000000
cUSDT 9650000000000000 → 9150000000000000
cTUSD 0 → 1500000000000000

Calculated by the COMP distributed per day, it would be 19.7 for TUSD market, 120.19 for USDT market, and 873.48 for USDC, DAI market.

We appreciate the support from the Compound community, and thank you for considering our proposals! We hope to hear from you soon, and we are available to provide any additional support or resources that the community may need.

Best regards,
Joyce

[hzlkmp]

Hey all - I’m bumping this thread since it’s now a live vote that significantly changes the parameters of TUSD and also changes the COMP rewards of 4 different markets, and there’s been zero forum discussion on the topic. Given the protocol is paying Gauntlet to provide risk management services, it seems inappropriate to have an on-chain vote of this magnitude pass before a more robust review. There has obviously also been a lot of speculation around how the vote was launched, but I think it makes sense to assess based on the merits of the proposal first.

@pauljlei has Gauntlet done a review of these parameter changes?

[dvf]

Similarly, I believe OpenZeppelin was going to provide a security checklist on new collateral tokens?

[Joyce]

Hi, @hzlkmp

Thank you for the reply, the post was posted on October 21th and we’ve been working for the preparations for a long time.

TUSD continues to be one of the most transparent stablecoins on the market, we would like to provide required materials that the community thinks would help for the estimation regarding TUSD security and risk assessment.

We have DMed @pauljlei, waiting for his reply.

[Joyce]

Hi, @dvf
Thank you for notification, we have contacted OpenZeppelin team for review.

[pauljlei]

@hzlkmp @Joyce - Gauntlet is conducting analysis from a market risk perspective and will follow up by EOD Pacific Time. As for a review on the technical side, the Community can consult @cylon at OpenZeppelin.

[cylon]

OpenZeppelin is still focused on audits of the Compound deployed contracts and the CToken Refactors. We didn’t get any notice of this proposal before it went live so we haven’t had time to fully review it nor do we have any security checklists for asset listings ready to share at this time.

Given the impact this might have, we recommend waiting to pass this proposal so that the community and our security team have more time to review the details.

We still don’t expect to audit every proposal that doesn’t change the underlying protocol. However, it is important that we and other core community members are involved in discussions on upcoming proposals early so that we have time to determine whether a proposal merits an audit or not before it gets submitted.

[pauljlei]

Gauntlet Market Risk Analysis

To summarize, this proposal suggests both enabling TUSD as a collateral asset with a CF of 80% and updating COMP emissions for other stablecoins. Below is Gauntlet’s analysis on enabling TUSD as collateral. In summary, from a market risk perspective it is safe to enable TUSD as collateral, but the Community should be comfortable with the peg mechanism before adding the asset as collateral.

Note that for future proposals like this, we would recommend creating two separate proposals to decouple the proposal to enable TUSD as collateral from the COMP emissions piece, as they are very different in nature and involve distinct risk considerations. We also would echo @cylon 's recommendation that a reasonable notice period should be given before an on-chain proposal is published.

Distribution speeds

One reason why the Compound community has voiced concern over increasing CFs for DAI or USDC above 80% is that the Community wishes to limit recursive borrows, which users do in order to farm COMP. Below is a table of the proposed distribution speeds. Note the total COMP speed remains the same in this proposal; it just redistributes the speeds.

The distribution speed for cTUSD is 1.5E+15/6.65E+16 = 2.3% of the distribution speeds for cDAI and cUSDC, so all else equal (same supply and borrow volumes & APY, same CFs), there is much less of an incentive for users to recursively borrow cTUSD. The supply APY - borrow APY for all the stables are very similar. However, cTUSD has roughly $0.14B/$4.49B ~ 3.1% of the total supplies and borrows for cDAI. So in the short term while Compound volumes are relatively low, users will gain 2.3%/3.1% ~ 74% of the COMP rewards for cTUSD as they would for cDAI.

Riskiness of stablecoin’s market statistics

Exchange liquidity isn’t nearly as great a concern for stablecoins as for risky collateral assets, since liquidators may not be in a rush to get out of their post-liquidation stablecoin positions. But we should still make sure there’s enough liquidity in case a liquidator does want to exit a stablecoin position they perceive to be riskier than others.

As of now, TUSD has an ADV / Total Supply on Compound of 52% (higher is better in terms of liquidity safety). In this regard, TUSD (52%) is safer than DAI (12%), and riskier than USDC (81%). We assume this ratio of 52% will decrease (become more risky) after enabling TUSD as collateral, since it will incentivize users to supply more. Still, post-liquidation exchange trades are unlikely to pose a significant threat to TUSD’s peg.

Riskiness of this particular stablecoin’s USD peg mechanism

DAI and USDC are established stablecoins with ~$2.7B and ~$2.5B locked in Compound, respectively.

TUSD has been growing and kept a robust peg, but is still a less established stablecoin which relies on distributed USD holdings in various bank accounts that belong to different trust companies. Note that USDT, which is essentially a less decentralized version of TUSD but with more liquidity, still isn’t enabled as collateral on Compound partly due to Community concerns around its peg mechanism.

Parameter values and performance on other lending protocols

Just for reference to the Community, TUSD is listed on Aave with a CF of 80%, with the following other protocol statistics:

Note that TUSD was added to Aave on 9/20/21, before the ownership change on 12/20/21.

Conclusion

All things considered, the market risk associated with enabling TUSD as collateral on Compound is low. Importantly, the more significant risk derives from the reliability of the peg mechanism, similar to USDT as Leshner outlined in the initial proposal. The peg depends on whether there’s enough USD reserve in their custody and the amount of TUSD minted. Understanding the permission of TUSD minting can be done by smart contract review by auditors, so the Community should consult OpenZeppelin for their assessment of the technical risks. In summary, from a market risk perspective it is safe to enable TUSD as collateral, but the Community should be comfortable with the peg mechanism before adding the asset as collateral.

[Joyce]

Hi, @pauljlei

Thank you for the detailed market risk analysis and nice suggestions, we are delighted to know about your conclusion: from a market risk perspective it is safe to enable TUSD as collateral as well as the consideration regarding peg mechanism.

For the TUSD reserves, it is 7/24 real-time audited by, one of the top accounting firms in America, Armanino. The live attestation report could refer to: TrustExplorer by Armanino: Real-Time Attest for TrueCurrency . As of today, the Toal supply of TUSD is 1,526,193,439 and Escrowed Fiat in the Trust partners is $1,531,250,040.

We have contacted @cylon for the smart contract review to ease the concern regarding technical risks.
We are open for any questions and concerns, and appcetion all the feedbacks from the community.

Thanks again for doing your due deligent.