Integrate yUSD on Euler Yield Market

Euler DAO
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Integrate yUSD on Euler Yield Market

Summary

This proposal seeks approval to integrate yUSD as a collateral and borrow asset on Euler Yield market. YieldFi’s flagship product, yUSD, is a fully on-chain stablecoin yield index that strategically allocates assets across blue-chip DeFi protocols while maintaining full transparency and liquidity. With a current APY of 10-20% (12.63% currently), yUSD offers Euler users access to competitive stable yields in a market where basis trade returns have declined significantly.

Motivation and Opportunity

About yUSD

yUSD is a liquid yield index token that represents a share in YieldFi’s stablecoin vault. The vault deploys capital across diversified, blue-chip DeFi protocols to generate sustainable yield while maintaining 100% on-chain transparency and liquidity. Key features include:

  • Superior Yields: Current 7-day APY of 12.62%, significantly outperforming most stablecoin yield products in the current market
  • Institutional-Grade Security: Custody solution with institutional safety at par with likes of MEV and Re7
  • Blue-Chip Protocol Exposure: Capital deployed exclusively in established DeFi protocols with proven track records
  • 100% Transparency: On-chain proof of reserves and proof of yield verification
  • Daily Yield Distribution: Returns are settled daily to the vault, with real-time price reflection
  • No Lock-up Period: Users can redeem their yUSD at any time with a standard cooling period
  • Points multiplier: Euler LPs get highest YieldFi points multiplier on yUSD pools at Euler Markets

Integration Benefits for Euler

  • Yield Market Revitalization: As basis trade yields have diminished, yUSD’s competitive returns can help rejuvenate demand for Euler’s Yield market
  • TVL Growth: Current yUSD TVL is ~$11M across all chains, with significant growth potential through Euler integration
  • Cross-Protocol Synergies: YieldFi is committed to implementing the highest YieldCrumbs multiplier for Euler, making it the prime venue for yUSD
  • Leverage Opportunities: Euler’s in-house DEX aggregator can enable users to mint yUSD on leverage, potentially driving substantial TVL growth
  • DeFi Composability: Strong existing integrations with major DeFi protocols (Curve, Balancer, Napier) with $3.3M in total DEX liquidity

Risks

Smart Contract Risk

  • YieldFi’s smart contracts have been audited by multiple Tier 1 audit firms including Halborn, Spearbit/Cantina, and SmartState
  • Assets are never left idle in smart contracts, significantly reducing exposure to smart contract vulnerabilities
  • Institutional custody solution with best practices at par with MEV and Re7
  • Audit reports available at: Audits | YieldFi

Oracle Risk

  • yUSD utilizes a time-weighted average price oracle derived from deep liquidity pools on major DEXs
  • Price feed updates occur daily to accurately reflect yield accrual
  • Chainlink price feeds are used for underlying assets
  • All price feeds are constantly monitored with automated alerts for any significant deviations

Liquidity Risk

  • $3.3M in total DEX liquidity across multiple platforms
  • 8-day cooling period for redemptions provides stability during market stress
  • YieldFi maintains diversified yield sources to ensure sustainable returns
  • Permissionless liquidation mechanism ensures smooth operation and eliminates bad debt risk
  • Reserves policy ensures sufficient liquidity for normal operations and stress scenarios

Risk Parameters

Loan-to-Values (LTVs)

  • LTV for borrowing stablecoins - 0.95
  • LTV for borrowing yield-bearing stablecoin assets - 0.90
  • LTV for borrowing ETH/BTC denominated assets - 0.80
  • LTV for borrowing yUSD with stablecoins - 0.95
  • LTV for borrowing yUSD with yield-bearing stablecoin assets - 0.90
  • LTV for borrowing yUSD with ETH/BTC denominated assets - 0.80

Supply & Borrow Caps

  • Initial supply cap: 4,000,000 yUSD
  • Initial borrow cap: 2,000,000 yUSD

Interest Rates

  • Current APY: ~12%
  • Max Utilisation Rate: 50%

These parameters are approximate and will be adjusted based on feedback from Risk Service Providers.

Implementation

Unless any concerns are raised or the DAO would like more time for consideration of this proposal, the yUSD market on Euler Yield will be implemented by the Euler Foundation.

Governance

Given Euler’s optimistic governance framework, no formal on or off-chain voting is required for this proposal to pass. However, we encourage the Euler DAO and community members to provide feedback, share suggestions, and voice their opinions on this initiative.

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Hey @ravixkr, thank you for your proposal! I’ll share my opinion a little bit, but start from Gauntlet and Objective (our risk providers). Yield.fi is very young project and its sustainability raises questions from me. Euler Yield is the flagship market from Euler DAO, its sustainability needs more proven assets.
The best vision for yUSD growth is to create a separate market on Euler. Incentives in points are very helpful in growth, check out the Resolv vaults that have achieved good results in a few months.

Thanks!

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Thank you @ravixkr for the submission. After careful consideration, Objective Labs will not support this integration proposal.

We believe that the integration of yUSD presently carries an unfavorable ratio of risk to opportunity for the Euler Yield market. We believe that the primary contributor to risk is centralization and overpowered roles. The yUSD token can be directly minted and burned by a team-controlled multisig without timelock. Furthermore, the token can be upgraded by the same multisig without timelock. These findings were obtained in a risk assessment report by Pessimistic Security and confirmed ndependent research by Objective Labs.

The YieldFi team acknowledged these concerns in private communication and shared a comprehensive plan to mitigate them, placing a tentative timeline in mid-April. We are looking forward to YieldFi’s upcoming changes and are open to reconsidering its integration once the project is more established.

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Gauntlet does not support listing yUSD on Euler Yield at this time.

While the product design and integrations show potential, the current centralization risks, particularly around minting, burning, and upgrade authority, are material. We encourage the YieldFi team to continue their progress, and we’d be happy to revisit this integration once structural risks are addressed and on-chain traction improves.

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