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MIR-30┃Add wFRK as collateral for paUSD on paUSDallel on Ethereum

Voting ended almost 2 years agoSucceeded

Summary:

This proposal aims to add wFRK as new collateral for paUSD on Parallel on Ethereum.

Rationale:

The KUMA Protocol is a decentralized protocol issuing interest-bearing tokens backed by regulated NFTs, themselves backed by Real World Assets (RWA). At its launch, the KUMA Protocol accepts regulated KUMA NFTs that are backed by bonds. The protocol aims to make investing in bonds more accessible and user-friendly by allowing anyone to buy and sell KUMA interest-bearing tokens (KIBT) on decentralized applications, similar to stablecoins.

The KUMA Protocol is a collaborative effort between Mimo Capital AG, a company that issues NFT-backed tokens, and the KUMA DAO, a decentralized entity governed by MIMO token holders that issues interest-bearing tokens using the NFTs.

Overall, the KUMA Protocol aims to offer a transparent, secure, and audited process for issuing interest-bearing tokens, backed by real-world assets, that can be easily traded on DeFi platforms.

You can learn more about these mechanisms in their announcement article.

wFRK is the wrapped version of FRK, a KUMA interest-bearing token backed by KUMA NFTs, themselves backed by French 360 days T-Bills. The FRK is currently deployed on Ethereum, Polygon PoS, Linea and Mantle with a SellBondFee (via the ‘sellBond’ fees function) set at 0.01%. Contract addresses can be found here.

Currency: EUR
Issuer: France Bons du Tresor
Term: 360 (days)

FRK is a rebase token which accrues the generated yield from underlying bonds every 4 hours by minting new tokens that are automatically added to the owner. It means that the price of the token doesn’t move but the quantity increases. Parallel does not support token rebases, however KUMA has developed a wrapper to keep the same amount of tokens whose price increases over time.

Adding wFRK as collateral would both diversify the backing of paUSD and increase capital efficiency for users, as wFRK generates yield while being collateral. This would allow users to be remunerated for long USD (wFRK = 3.5% APR > borrow rate = 0.3% APR) but also to increase capital efficiency in leverage farming. For the protocol it allows to generate additional revenue with a low risk token as collateral.

Once the vote is accepted on Snapshot, we will determine the associated liquidation ratio, minimal collateral ratio, debt ceiling, liquidation bonus, initiation fee and borrowing fee on a second MIR discussion.

Project Presentation:

Protocol name : KUMA Protocol Token requested : wFRK Token contract address : wFRK to be deployed Audit(s) links :

Hacken: https://hacken.io/audits/kuma-protocol/
Code4Arena: https://code4rena.com/reports/2023-02-kuma
Grant Thornton Financial Audits: https://app.kuma.bond/reserve Chain requested : Ethereum Relation with the project : Mimo Labs is a contributor to the KUMA Protocol. Website: https://kuma.bond/ Github: https://github.com/mimo-capital/mimo-defi Twitter : https://twitter.com/KumaProtocol/ Discord : discord.gg/mimodao

Token metrics & Risk assessment:

Smart Contract risk: B

The Kuma Protocol launched in March 2023 and code has audits from Hacken and Code4Arena and has Financial audits by Grant Thornton.

wFRK is the wrapped version of FRK and is redeemable for FRK at any point.

Counterparty risk: B-

The Kuma Protocol multisig is owned by 4/7 multisig currently held by the Mimo Labs team members (this will change in the near future with a multisig shared with elected DAO members), and this multisig has access to different functions such as: Admin_role, Pause/Unpause_Swap, Set_Uri and Set_Epoch_Length.

In addition, KumaSwap uses a central bank oracle to keep the protocol competitive and avoid an excessively high KIBT rate. There is one oracle for each risk class since different risk classes have different interest rates.

Keepers monitor the KIBT and KUMASwap contracts to keep the KIBT yield up-to-date. Keepers are incentivized through the KUMAKeeper contract

Mimo Capital AG (MCAG) is the centralized entity that holds the physical bonds represented by KUMA NFTs is MCAG. MCAG mints new KUMA NFTs every time a user buys a claim to the physical bonds off-chain. Additionally, MCAG maintains the central bank oracle and a multisig with a manager role in the MCAG access controller to manage centralized aspects of the system.

See Kuma Smart Contract Architecture to learn more.

Market Risk: B-

wFRK is a rebase token, which means that the value of 1 wFRK increases continuously according to the central bank's Oracle feed rate.

wFRK is the wrapped version of FRK (ERC-4626 compliant) and is redeemable for FRK at any point.

FRK is a Kuma IBT (interest-bearing token) backed by ERC-721 NFTs that represent ownership of a physical bond. The NFT holder can redeem the NFT off-chain from MCAG for the market-rate bond value at any point.

Chain Risk : A

Ethereum had 0 outages over the last 6 months. (https://etherscan.com/chart/blocks)

Liquidity Risk of paUSD on Ethereum: A

paUSD is currently being deployed by the DAO Multisig, liquidity will come when the protocol will be deployed.

Overall Risk : A-

The Overall Risk is the average of the points mentioned above.

Means:

Human resources: Parallel Multisig DAO signers will need to sign and execute transactions to add wFRK as collateral on Parallel on Ethereum.
Treasury resources: There is no cost for the treasury to add wFRK for paUSD on Parallel on Ethereum.

Technical implementation:

Add wFRK in the paUSD ConfigProvider Contract with all parameters decided by the Mimo governance.
Set the MimoLabs’s customized Oracle PriceFeed related to the wFRK Contract

Voting options: