SCCP-264: DAI Wrapper

Simple Summary

This SCCP proposes to implement the following:

Create DAI wrapper on ethereum by calling createWrapper with the following parameters:

• token: 0x6B175474E89094C44Da98b954EedeAC495271d0F
• currencyKey: sUSD
• synthContractName: SynthsUSD

Set the parameters on ethereum and optimism DAI wrappers to the following:

• maxTokenAmount 20m DAI
• burnFeeRate 10 bp
• mintFeeRate Peg (around 1%) and lower it gradually until we reach 25 bp in incremental steps

Abstract

• createWrapper creates a wrapper by assigning a mapping of synth to token.
• maxTokenAmount is the maximum amount that can be wrapped with a designated token underlying.
• mintFeeRate is the minting fee rate applied when wrapping a token to mint the equivalent synth.
• burnFeeRate is the burning fee rate applied when unwrapping a token by burning the equivalent synth.

Motivation

The motivation behind this are as follows:

• Atomic swaps are getting little traction because of the scarcity of synths which is resulting in only small trades
• The imminent release of Perps v2 requires an abundant supply of synths to support robust volume
• Loans are not optimal at scaling, given the capital inefficiency and the need to manage collateralization ratio in case of sUSD loans
• SNX price decline has led to a major synth liquidity contraction.
• Fragmentation between L1/L2 liquidity adds more friction
• Fragmentation will only increase when sUSD/sETH are migrated to snxUSD/snxETH
• Incentives and bribes do not in principle increase the supply of synths

It is important to mention that this is a temporary scaling solution and that DAI Wrappers will need to be unwound in the next 6 months in order to fully migrate to v3, hence unwind on V2x is a technical guarantee. Alternative scaling solutions would have materialized by then in the form of SIP-256 and on-boarding other collaterals such as ETH for issuance.

Dai Unwind

The precise details of DAI unwind will be laid out when the pertinent v3 SIPs are ready for release, but it could take the following form:

• set DAI wrapper burnFeeRate to e.g. -5bps and limit to 0 DAI so it winds down in one direction
• allow snxUSD to be interconverted to sUSD
• this creates an arb to do: snxUSD > sUSD > DAI > sUSD > snxUSD

Although this will cost the protocol, on the order of $100k, more than offset by the fees that will be earned while DAI is wrapped

Further Scaling

One final point, more scaling might be required, to be laid out in futures SCCP's, based the demand for sUSD and the peg. This will take the form of a combination of DAI and ETH wrapper capacity increases in order to control the skeweness of the debt pool.

Copyright

Copyright and related rights waived via CC0.