This proposal suggests adding an LUSD pool on GearBox, enabling the borrowing of the asset. LUSD/3crv is already one of the top leveraged collateral on GearBox. This proposal paves the way for a more synergetic relationship between GearBox and Liquity.
The code for the whole Liquity Protocol, LUSD included, is open source: Github repository.
Please note that Liquity/LUSD are powered fully by immutable contracts: therefore, attack vectors such as infinimint are technically impossible. No multisig is involved in Liquity’s protocol operations.
The Liquity Protocol received four security audits, additional risk assertions, and economic modelings before launch. All can be found in the Liquity documentation.
Liquity is a protocol offering interest-free leverage on ETH. The LUSD stablecoin, the system’s output, offers some genuinely unique features, the leading one being the trustlessness of the whole Liquity protocol. The Liquity protocol is geared for sturdiness: dual oracle system, various fallback mechanisms, recovery mode, and more, making LUSD the most resilient and credibly decentralized stablecoin available on the Ethereum network.
App (list of front-ends): Liquity | Frontends List - Use Liquity
While LUSD/3CRV was a great fit for GearBox product launch, with still $5.3M used as collateral, the impact for Liquity was neutral – not because of GearBox product or intent, but because of the parameters:
Since LUSD is not available as a borrowable asset on GearBox, users leveraging LUSD/3CRV have to borrow USDC/DAI to supply it. While the pool TVL improved, its token balance remained, at best unchanged.
The addition of LUSD as a borrowable asset on GearBox would heavily mitigate this side effect, as LUSD/3CRV leveragers will be able to borrow LUSD and even lever up LUSD/3CRV using only LUSD – helping rebalance the pool.
Besides, having LUSD as a borrowable asset on GearBox paves the way for further collaborations if they are to GearBox’s community interest. Along with Aave, the GearBox LUSD supply market would be one of the only places to earn a yield on LUSD with limited exposure + a native yield (LUSD/LUSD).
The interest model for LUSD should use parameters similar to the USDC/DAI markets on Aave, with the interest rate formula targeting a ~85-90% optimal utilization rate. Since the usage of LUSD on GearBox is limited to opportunities to keep LUSD liquid with no lock (LUSD LP supply), the parametrization can optimize capital efficiency.
The main differences would be in the pool caps, where a 15M pool max is suggested, and ideally, min and max pers borrow halved compared to the DAI/USDC market – to ease the market’s growth.
You’ll find in this section additional information added to the proposal that were not fitting the proposal frameworks used.
LUSD to be added as an asset that can be supplied and borrowed on GearBox. 15M max cap, 50K min per borrow, 500K max per borrow, with a utilization rate formula targeting 85% utilization rate.
If possible, it would also be worthwhile to consider crafting a streamlined migration flow for current LUSD/3CRV depositors borrowing USDC or DAI: a one-click migration recipe enabling them to switch their borrow to LUSD.
To grow the LUSD supply market, the GEAR Liquidity mining rewards could be targeted at achieving 5% APY on a 15M LUSD pool.
It is competitive compared to the LUSD Stability Pool; currently, around 3% APY on a monthly average, the primary yield source for LUSD holders (100M+ LUSD deposited) is also usually seen as the safest (since it’s just another contract within the Liquity protocol).
- Synergies with ReDefine
- The Chicken Bonds bLUSD / LUSD-3CRV Curve pool is a 20M TVL Curve pool with attractive CRV yields depositors should be happy to leverage with GearBox, if LUSD is available to borrow.
I am TokenBrice, Liquity DeFi Strategist handling the protocol relationships with other DAOs and LUSD/LQTY liquidity strategies. I’m also a Gearbox fan since its inception, I took part in the Credit Account minting and covered it on my DeFi show back then (French).I fight to maximize the range of DeFi services that are available in an unstoppable fashion.