Proposal includes a batch of changes to the Tether token (USDT) on Euler. These include: promotion of USDT to the collateral tier. Increase of USDT collateral factor to 0.90. Increase of USDT borrow factor to 0.94. Enable cross borrowing. Reduce reserve factor to 0.05 (previously 0.10, amended after forum discussion).
We do commit to backstopping liquidations on USDT should the price slip below 0.97 on Euler.
Our team has been active in the crypto space since 2017 and we manage several hundred million Usd in various strategies in the crypto ecosystem.
The motivation behind this proposal is to make it attractive to bring substantial USDT TVL liquidity to Euler Finance and to popularise Tether within DeFi. Being one of the primary minters and redeemers of USDT, we have a deep understanding of risks involved in Tether through extensive due diligence and believe the tradeoff favours this proposal.
Tether is a $70 billion market cap stablecoin with an extremely efficient redemption mechanism capable of handling hundreds of millions in volumes every day. This is why it’s extensively used by reputable trading houses and funds.
This proposal would make Euler the first major DeFi lending protocol to allow USDT as collateral and hence give the firms mentioned above an opportunity to tap into what Euler has to offer using their Tether balance sheet. As a result, this will create competitive lending APYs for USDT as traditional finance firms have consistently shown an appetite to short USDT.
Also while the debate on USDC vs USDT is far from being resolved and counts many supporters on both sides, we believe the market to be the best judge. Being widely traded and trusted by large CeFi institutional players, allowing USDT’s collateral status and risk parameter to match USDC’s would harmonise risk factors between CeFi and DeFi and lead to more competition on the stablecoin front.
I propose the following: promote USDT to the collateral tier. Increase of USDT collateral factor to 0.90 like USDC. Increase of USDT borrow factor to 0.94. Enable cross borrowing. Reduce reserve factor to 0.01.
We also commit to backstopping USDT liquidations on Euler Finance should the price slip below 0.97. Due to Euler’s liquidation architecture, we’d be able to liquidate users at 0.97 and keep eUSDT on our balance sheet.
While Tether has faced scrutiny from regulators and pundits in the past, it has made great progress in terms of transparency and efficiency. For example, it has recently released a Proof of Reserves report done by BDO (top 5 auditing firm):
Additionally, it has settled with the NY attorney general on favourable terms that do not encumber Tether as a business while committing to reporting their activity to the NY attorney general on a quarterly basis.
In terms of the market mechanism, USDT is second to none. Its redemption mechanism is able to handle hundreds of millions and volumes every day even during the toughest market environments (such as May this year). This is something that we know of from our own experience, which is why we believe the Tether “FUD” is unsubstantiated.
Not only is the redemption mechanism working smoothly, USDT is also one of the most liquid assets off and on-chain and a DeFi liquidation cascade would very unlikely lead to bad debt for the protocol.
|Contract||Method||Token||Token Name||Token Address||Updates|
|governance||setAssetConfig||USDT||Tether||0xdac17f958d2ee523a2206206994597c13d831ec7||borrowIsolated:true, collateralFactor:0.9, borrowFactor:0.94|
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USDT ranks extremely high in terms of market liquidity, redemption mechanism, and trust amongst institutional players. Adding it as collateral to Euler finance will likely unleash lots of inflows and would be beneficial to Euler and its users.