Offboard expired PTs, FDUSD, wUSDM, wUSDL from Euler Yield

Euler DAO Markets
1

Summary

This proposal seeks to offboard PT-USD0++-30JAN2025, PT-USD0++-27MAR2025, PT-sUSDE-27MAR2025, PT-USDe-27MAR2025, FDUSD, wUSDM, and wUSDL from Euler Yield. Based on fundamental and economic indicators, the assets do not meet the high standards mandated by the market. Removing these vaults would reduce the total risk exposure of Euler Yield (especially tail risk events), making it a more attractive venue for stablecoin yield strategies at a lower risk premium.

This proposal is part of a wider reevaluation of Euler DAO-governed markets.

Background

Euler Yield is Euler DAO’s stablecoin-focused market on Ethereum. It is the third-biggest market on Euler with $165M total deposits. The market consists of 27 vaults, 13 of which hold less than $100k in deposits combined.

The vaults discussed in this proposal were added to Euler Yield at an earlier stage of the protocol as part of a strategy to onboard riskier assets with select partners aiming to develop a competitive edge. Now that Euler Yield, together with Euler v2, has established itself, these assets present asymmetric risk relative to business opportunity.

Motivation

Euler Yield’s mandate is to be “[a] market tailored to borrowing stablecoins against tokenised yield strategies”. After monitoring the performance of vaults that make up this market, we have concluded that FDUSD, wUSDM, and wUSDL do not live up to the standards of quality, health, and demand necessary for Euler Yield. Furthermore, we seek to delist four expired Pendle PTs (PT-USD0++-30JAN2025, PT-USD0++-27MAR2025, PT-sUSDE-27MAR2025, PT-USDe-27MAR2025) with January and March 2025 maturities have stopped accruing yield and entered “exit-only” mode, to avoid small tail risks, and reduce operational burden.

FDUSD

First Digital USD (FDUSD) was initially added to Euler Yield to enhance the market’s vanilla stablecoin offering. Attempts to bootstrap the vault through rEUL incentives were unfruitful, retaining no long-term TVL. FDUSD’s holder distribution reveals that 96% of the supply is attributable to either Binance or related entities/custodians, raising questions about the organic potential of the stablecoin on Ethereum. FDUSD recently sustained a depeg event after solvency concerns were raised by Justin Sun; though the allegations are hard to confirm, the price action of FDUSD highlights the asset’s instability. poses more risk than value, making it unsuitable for Euler Yield’s risk profile. Minutes after this event, Gauntlet carried out an emergency action to set supply and borrow caps of FDUSD to 0. Following this event, we see no way forward other than to recommend the full delisting of FDUSD on Euler Yield.

wUSDM

Mountain Protocol’s TVL currently stands at $50.3M and has remained stagnant for the past 12 months. TVL on Ethereum has contracted to $28.3M. Total supply of the yield-accruing wrapper wUSDM on Ethereum is 1.5M (~$1.6M), more than 60% of which is held by the Manta bridge, indicating low demand for collateralization in DeFi. In addition to weak fundamentals, convert* functions in the wUSDM contract were recently found to be vulnerable to CREAM-style donation attacks. Two months ago Venus Protocol’s zkSync instance suffered $716k bad debt due to ERC4626 exchange rate manipulation in wUSDM (official post-mortem). Shortly after this event, wUSDM’s use as collateral in Euler Yield was disabled.

wUSDL

Lift Dollar (USDL)‘s total supply sits at $78.7M of which $62.6M (79.5%) is held in the yield-accruing wrapper, wUSDL. All wUSDL (99.92%) sits on Morpho through Steakhouse’s Coinshift USDL vault. The activity around this vault indicates B2B distribution with individual LPs acting as borrowers. Inquiries into the potential role of Euler to facilitate this flow have been unfruitful. Nevertheless, we note that wUSDL’s current configuration inside Euler Yield focuses on stablecoin yield strategies, while wUSDL’s on Morpho is used to generate safe surplus yield as it is lent against blue-chip BTC and ETH collateral. Owing to the 100% B2B distribution of wUSDL and the incompatibility of Euler Yield with current wUSDL LPs’ mandates, we believe delisting it is the right move to reduce tail risk exposure of the market.

Expired PTs

Euler Yield currently houses four expired Pendle PTs: PT-USD0++-30JAN2025, PT-USD0++-27MAR2025, PT-sUSDE-27MAR2025, and PT-USDe-27MAR2025, with maturities in January and March 2025. These PTs have ceased accruing yield and entered “exit-only” mode, allowing 1:1 redemption for their underlying stablecoin assets (e.g., USD0++, sUSDE, USDe). Retaining these expired PTs in Euler Yield vaults introduces slight but avoidable risks, including potential smart contract vulnerabilities in Pendle or redemption delays tied to underlying protocols like Ethena. These risks, though minimal, contribute to an asymmetric risk profile incompatible with Euler Yield’s mandate for high-quality, low-risk stablecoin yield strategies. Offboarding these vaults will reduce tail risk exposure and enhance capital efficiency by encouraging prompt redemption or rollover of the PTs. Concurrently, we propose establishing a stricter PT delisting schedule, contingent on the integration of Pendle’s rollover functionality into the Euler frontend, to prevent future accumulation of expired assets.

Offboarding Process

We recommend an offboarding process tailored to each asset at the discretion of Gauntlet.

Author

Objective Labs is a service provider for Euler Labs tasked with product development, risk management, and incentive optimization. Objective Labs is Euler-aligned.

1 Like
2

Gauntlet has reviewed Objective Labs’ proposal to delist FDUSD, wUSDM, wUSDL, and expired PTs from Euler Yield. We are aligned with all of these removals, given:

  • FDUSD is an effectively frozen state with zero lingering supply and borrow. Its depeg event below 95 cents does not inspire confidence in its safety as an asset in this particularly low risk market.
  • wUSDM is vulnerable to ERC4626 exchange rate attacks, as referenced by Objective Labs. It never achieved more than 6% supply cap utilization with a 5M cap, and usage fell to nearly zero before it was disabled as collateral following the Venus attack.
  • wUSDL never achieved more than 12% supply cap utilization with a 5M cap, and usage fell to nearly zero before it was also disabled as collateral following the Venus attack. As a matter of risk, delisting low usage assets also helps to lower operational burden, especially given Euler’s pairwise LTV mechanism.
  • In addition to low smart contract risks, accumulating expired PT vaults leads to increased operational overhead for risk managers.

FDUSD, wUSDM, wUSDL, PT-USD0+±30JAN2025, and PT-USD0+±27MAR2025 have no present usage as collateral and have no borrows. PT-sUSDE-27MAR2025 has one small collateral position of ~$20, alongside ~$195 of other assets to borrow ~$75 of sUSDe at a health factor of over 2.5. PT-USDe-27MAR2025 has two collateral positions, one for ~$22.3K against ~$16.8K of USDe, and one for ~$1010 against ~$193 of sUSDS.In accordance with the delisting process discussed in this post, we recommend:

  • Set borrow cap to zero.
    • Supply cap can not be set to zero due to over-swaps that happen to repay borrows and handle debt accrual between execution time and transaction inclusion time, which we discussed with Euler Labs and Objective Labs. (In this case there are presently zero borrows of delisted assets, but some assets are liable to being borrowed during the timelock period).
  • Set all pairwise borrow LTVs with delisted assets to zero where they are not already.
  • For delisted assets as collateral:
    • FDUSD, wUSDM, and wUSDL have no borrows against them and are not usable as collateral, so their LLTV against debt assets can be set to zero with no deramp period.
    • The PTs can have their LLTVs against debt assets set to zero with a 30 day deramp period.
  • For delisted assets as debt:
    • PTs already are not borrowable and have zero LLTVs as debt.
    • FDUSD is not borrowed and is not borrowable, so its LLTV as debt can be set to zero with no deramp period.
    • wUSDM and wUSDL can have their LLTVs as debt set to zero with a 30 day deramp period.