MIR-24┃wUSK as collateral for paUSD on Ethereum, update parameters

Summary: This proposal aims to adjust wUSK collateral parameters for paUSD on Ethereum.

Rationale: Following MIP-14.1, which approved first tokens as collateral for paUSD on Ethereum, wUSK has been approved as collateral with these parameters:

• Minimum Collateral Ratio (%): 102
• Liquidation Ratio (%): 102
• Liquidation Bonus (%): 3
• Debt Limit ($): 500,000
• Initiation Fee (%): 0.2
• Borrow Fee (%/y): 0.3

wUSK (and the underlying USK) are quite new tokens. Mimo Labs, which is building the temporary oracle to price wUSK on Parallel cannot use onchain liquidity to price the wUSK, so it decided to use an oracle that fetches prices offchain (the wUSK being redeemable for underlying bonds at any time). As this oracle is very recent, we propose, for safety reasons, to adjust the wUSK collateral parameters conservatively for the time being, in order to avoid any risk of economic attack on the protocol.

Moreover, the wUSK is highly correlated with the USD, and therefore the paUSD. There is a “risk-free yield” opportunity for users, consisting in depositing wUSK as collateral (generating 4.5% APR), borrowing paUSD (-0.3% APR), swapping paUSD for wUSK, depositing wUSK as collateral, and repeating the operation several times, thereby generating higher yields (around 40% APR ‘without’ liquidation risk). However, this could lead to a depeg of the paUSD due to the downward pressure generated by the leverage. To reduce this risk-free yield, we propose to increase the borrowing fee from 0.3% to 1.5%. This will reduce the “risk free yield” from 4.2% → 3%.

Proposed Parameters:

• Minimum Collateral Ratio (%): 105
• Liquidation Ratio (%): 105
• Liquidation Bonus (%): 3
• Debt Limit ($): 100,000
• Initiation Fee (%): 0.2
• Borrow Fee (%/y): 1.5

Means:

• Human resources: If the proposal is accepted, this will need to add these new parameters to the wUSK vault’s smart contract
• Treasury resources: No treasury cost

Technical implementation:

• Update wUSK debt limit by using the ‘SetCollateralDebtLimit’ in the Config Provider contract
• Update wUSK borrow rate by using the ‘SetCollateralBorrowRate’ in the Config Provider contract
• Update wUSK minimum collateral ratio by using the ‘SetCollateralMinCollateralRatio’ in the Config Provider contract
• Update wUSK Liquidation ration by using the ‘SetCollateralLiquidationRatio’ in the Config Provider contract

Voting options:

• Accept these new parameters
• Against these new parameters
• Abstain

Authors: Starny & Jean Brasse from Mimo Labs