LIP 009 - Proposal to Launch Peg Stability Module (PSM) with lisUSD Savings Rate (LSR)

Summary

This proposal aims to enhance the price stability of lisUSD through the Peg Stability Module (PSM) while introducing the lisUSD Savings Rate (LSR) to provide a stable yield for deposits.

Initially, the PSM will exclusively support USDT, with a total allocation of 5 million lisUSD. Support for additional cryptocurrencies, such as FDUSD and USDC, will be introduced gradually in response to market demand. The PSM’s maximum limit is capped at 15 million lisUSD.

The initial interest rate for LSR will be pegged to a fixed spread of 1% below lisUSD’s borrowing rate against BNB and adjustable based on the market demand.

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Abstract

This proposal introduces two key functions:

1. Peg Stability Module (PSM): Enables bidirectional exchange between lisUSD and USDT to enhance price stability.
2. lisUSD Savings Rate (LSR): Provides stable yields for lisUSD deposits.

By capping the PSM at 5 million lisUSD, initially supporting only USDT, and dynamically adjusting the LSR interest rate, this proposal improves lisUSD’s stability and appeal. Early implementation is recommended to prepare for the gradual addition of FDUSD and USDC as market demand grows.

Motivation

Current Challenge:

lisUSD relies on the AMO system for price stability, which is highly dependent on the circulating supply and liquidity pools. This leaves room for potential depegging risks.

Proposed Solution:

Launching the PSM and LSR strengthens lisUSD’s $1 peg by creating a more stable mechanism and providing attractive deposit yields. Together, these initiatives make lisUSD a more robust and appealing stablecoin.

Specification

Functional Description

Peg Stability Module (PSM):

1. Provides users with a bidirectional exchange between lisUSD and USDT.
2. Initial Limitations: Initially supports only USDT, with plans to introduce FDUSD and USDC based on demand.

lisUSD Savings Rate (LSR):

Staking Functionality:

Users deposit lisUSD into the LSR LP to earn stable yields.

Yield Calculation:

The fixed interest rate is the BNB lending rate minus 1%, dynamically adjusted based on actual market conditions.

Deposit Flexibility:

Users can deposit or withdraw lisUSD at any time. Withdrawals no more than 14 days in extreme cases.

Interest Calculation Method:

Compound interest accrued per block.

Key Metrics

PSM Conversion Parameters:

Initial Supported Currency:

USDT only, support for FDUSD and USDC based on future market demand

Initial Total Allocation:

5,000,000 lisUSD (adjustable based on demand with a cap of 15,000,000 lisUSD).

Daily Exchange Limits:

USDT → lisUSD: Unlimited. lisUSD → USDT: Daily limit of 500,000 lisUSD.

Conversion Fees:

lisUSD → USDT: 2%. USDT → lisUSD: 0%.

LSR Parameters:

Maximum Deposit Limit:

30,000,000 lisUSD.

Initial Interest Rate:

Fixed at 1% below lisUSD’s borrow rate against BNB and will be dynamically adjusted based on market conditions.

Implementation Plan

Development and Testing Phase:

1. Deploy the PSM smart contract, integrating initial support for USDT and applying limit controls.
2. Deploy the LSR smart contract, completing tests on dynamic interest rates and LSR staking logic.

Mainnet Launch Phase:

1. Configure initial parameters and launch on mainnet.
2. Educate users on how to utilize PSM and LSR through announcements and tutorials.

Optimization and Expansion Phase:

1. Gradually increase support for FDUSD and USDC based on market demand.
2. Regularly update LSR rates and parameters to ensure stable protocol operation.

Benefits (Pros)

PSM Revenue:

1. The 2% conversion fee from lisUSD to USDT provides stable income for the protocol.
2. The 0% conversion fee from USDT to lisUSD attracts more stablecoins into the protocol, strengthening reserves.

LSR Revenue and Costs:

1. The LSR interest rate is pegged to the BNB lending market and will be dynamically adjusted to adapt to the protocol's funding conditions.
2. The high cap design (30 million lisUSD) will lure in users looking to lock up large amounts.

Overall Market Confidence:

The combination of PSM and LSR enhances the appeal of lisUSD, boosting the competitiveness of the protocol.

Downside (Cons)

PSM Risks:

1. Setting an initial cap of 5 million lisUSD to prevent liquidity shortages or excessive redemptions.
2. Putting a daily limit of 500,000 lisUSD on redemptions from lisUSD to USDT.

LSR Risks:

1. Capping total staking volume at 30 million lisUSD to reduce the risk of overloading the funding pool.
2. Dynamically adjusting interest rates to mitigate excessive funding pressure.

Smart Contract Risks:

Conducting a comprehensive code audit prior to deployment to prevent vulnerabilities and attacks.

Operational Risks:

Providing a user-friendly interface and educational materials to avoid user errors that could lead to funding issues.

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Voting

Yes: Approves the launch of the Peg Stability Module (PSM) and lisUSD Savings Rate (LSR).
No: Rejects the proposal, keeping PSM and LSR off the ListaDAO platform.