# Vote 009: Proposal to increase yield and risk profile of Vault, and remove PWRD withdrawal fee

Vote 009: Proposal to increase yield and risk profile of Vault, and remove PWRD withdrawal fee

TLDR: This proposal significantly increases Vault’s yield and changes its risk profile, while maintaining similar yields for PWRD and removing its withdrawal fee. It is an updated vote wording based on iterations of the initial community post [RFC] Proposal to increase yield and risk profile of Vault and PWRD

The post is co-authored between @Slacking, @mjohanm4, @graadient and myself.

Summary

  • Increase overall Vault and PWRD base yields through increased exposure to Curve strategies (which have higher yield)
  • Less protection against major stablecoins and major protocols, so PWRD is not fully protected against failure of USDC/USDT/DAI, or failure of Curve/Convex
  • *This protection is not valued highly by PWRD users, who would prefer more yield plus protection against failure of more ‘exotic’ stablecoins and protocols (e.g. oUSD, mUSD, MIM, FRAX)
  • PWRD is still protected with over $2 of diversified stablecoin collateral to every $1 of PWRD (200% collateral ratio), so there would need to be significant losses for PWRD to be affected
  • Increase utility, liquidity, and the peg stability of PWRD by removing 0.5% withdrawal fee
  • Update the yield sharing curve to maintain PWRD yield, as Vault yield will increase due to overall strategy changes
  • The initial strategy selection would be FRAX-3CRV, mUSD-3CRV and oUSD-3CRV [UPDATED], but this will change over time and will be in line with the risk framework shared and iterated

PWRD is more protected than it needs to be, resulting in lower protocol yields for Vault and PWRD

Right now, PWRD is currently 149% protected by Vault (see dApp) against the failure of any protocol or any stablecoin. Based on community surveys and actual user behaviour, the core team believes that the outsized protection is not worth the opportunity cost of lower yields due to diversifying capital into lower risk strategies.

Conjoint Analysis surveys show PWRD and Vault users prioritise yield

We have used conjoint analysis from 1000minds.com to test a hypothesis from the community (including @MJohanm) that PWRD users do not need full protection against major stablecoins (USDC, USDT, DAI) or major protocols (Curve, Convex) and would prefer higher yields - while keeping some protection.

These surveys have shown that the majority of PWRD users (67%) prioritise higher yield with some exposure to major protocols (e.g. Curve/Convex) and major stablecoins (USDC/USDT/DAI), ahead of full protection against major protocols (17%) or major stablecoins too (16%). Overall, yield was the most important attribute with 43% of the weight (sample size 29). We saw similar results with non-PWRD users (sample size 27).

PWRD deployment into 3CRV pool shows users do not value protection against major stablecoins and Curve

We see this behaviour in effect in real life where 75% of PWRD held by users is staked in the PWRD-3CRV pool. This means the majority of PWRD users are already accepting the risks of USDC/USDT/DAI and Curve in return for higher yield.

PROPOSAL 1: Increase USDT/USDC/DAI and Curve/Convex strategy allocation to increase yield, while remaining protected with at least $2 collateral for each $1 PWRD

Focusing on higher return strategies (e.g. Curve/Convex) while continuing to protect PWRD against exotic stablecoins and protocols such as FRAX/Frax, oUSD/Origin and mUSD/mStable (or in future, MIM/Abracadabra or LUSD/Liquity) enables higher protocol returns (10-20%). Vault users will then get higher returns (up to 30%) thanks to leverage from PWRD and the share of withdrawal fee.

Curve pools currently have the best yield opportunities on stablecoins, especially given Curve’s track record (safely live since Feb 2020 with over $20bn TVL), although in future different strategies could be chosen.

PWRD will always be protected with at least $2 major stablecoin collateral for each $1 PWRD (200% collateral ratio), and often this is higher ($3 or more). In all cases PWRD is protected fully against a failure of a minor protocol (e.g. Origin, mStable, Abracadabra, Frax, Liquity).

PROPOSAL 2: Update the yield sharing curve to maintain PWRD yield, as Vault yield will increase due to overall strategy changes

Updating the yield sharing curve to give a higher share of the system yield to PWRD will make it a more compelling product for PWRD users. This provides higher leverage to Vault who are also getting higher yields as the whole system yields will increase. Vault users are taking on additional risk for higher yields and the ability to access undercollateralised leverage from PWRD.

Exact details of this will be fleshed out in the future and shared with the community. The parameters of the curve will be iterated on an ongoing basis by the core team, together with active community members (e.g. this post and this post from @Slacking), until the protocol finds product/market fit.

PROPOSAL 3: Increase utility, liquidity and peg stability by removing PWRD 0.5% withdrawal fee

PWRD’s utility is constrained by lack of liquidity. Despite being marketed as a stablecoin, PWRD has one of the lowest velocities of all stablecoins in DeFi (velocity calculated as annualised trading volume divided by market cap). Tether, DAI, and USDC have velocities north of 40; Tether has trended around 40x, USDC at roughly 55x, and DAI at over 100x. Though there is no data on PWRD annualised trading volume, it is likely to be similar to US Money Supply at around 1x. Therefore, it is clear PWRD has been much more of a DeFi yield farming savings account akin to Yearn Vaults or a (much higher yield) savings account with redemption fees, than to a stablecoin which inherently has much more velocity than traditional fiat.

Removing the HODL contribution fee of 0.5% will allow for more liquidity to enter PWRD, as a 0.5% fee can negate about 10% of PWRD APY based on current yields (5.8% APY as of January 26th, 2022).

Alternative considered of only removing protection against USDT/USDC/DAI

PWRD could continue to keep full protection against Curve/Convex however this would result in 30% lower PWRD yield as Gro would need 6+ strategies to ensure there wasn’t too much exposure to Curve/Convex.

Given the safety of Curve and the high collateral levels in both scenarios (at least $2 collateral for each $1 PWRD), and based on the results of the Conjoint Analysis, the core team has come to the conclusion that the best thing for users is to focus on yield, protection against exotic risks (i.e. less established stablecoins/protocols), and utility of the product.

Vote wording

  • Yes: the Proposals listed in this vote should be implemented
  • No: the Proposals listed in this vote should not be implemented

Next steps

As this has already been raised as a community post, this will go to a vote after three days in the forum. If there are no major unresolved objections or comments the vote will be posted where it will remain live for a further five days.

We will use dedicated discord channels and the weekly community call to discuss the vote so that all DAO members are aware of the changes.

7 Likes

Am totally up for the proposal. But just noting since we mentioned MIM/3CRV

With the whole debacle surrounding the MIM ecosystem there is definitely significant idiosyncratic risk trying to put our funds into a MIM pool. I just checked MIM’s peg recently and I saw the following:



A depegging event for a couple of hours is definitely a scenario of concern. But at the same time the APR for the MIM/3CRV has also skyrocketed during this period:

You usually don’t see those kind of fee projections on Curve

Options we have are:

  • Holding off from depositing into a MIM pool (but still go with the others). Will increase exposure to FRAX and LUSD
  • Choose a different non-major stablecoin to have exposure to. Reasonable options include UST-Wormhole/3CRV, d3pool (FEI, FRAX, alUSD), mUSD/3CRV

From a return’s perspective the UST-Wormhole/3CRV has the best return when leveraging Convex right now. But there have been some trepidation on UST’s peg (twitter voice) and it is a significant collateral for MIM too

Curve APR on UST/3CRV (not UST-Wormhole) reflects the perceived risk:

Personally I am fine either of the approach above with some leaning towards d3pool for current sentiment safety. Maybe there are better ideas out there

Following the recent activity we don’t plan to start with either MIM or UST pools.

The current view on initial strategies is as follows (post above updated):

  • FRAX
  • oUSD
  • mUSD

These may change weekly, based on a balance between the yields on Convex and the strategy selection framework shared previously. In particular, this could use a MIM or UST pool in the future (although unlikely both at the same time due to the links between the two assets).

We do not propose a governance vote for each strategy change, just for fundamental product changes. Ultimately protocol users are putting their trust in the protocol to pick the best strategies, otherwise much of the value of easy passive investing is lost.

As always, comments are appreciated :purple_heart:

1 Like