[RFC] Promote BUSD to Collateral Tier

[eIP] Euler Improvement Proposals RFC
1

Title: Promote BUSD to Collateral Tier
Author: Seini
Related Discussions: [N/A]
Submission Date: 04 December 2022

Simple Summary

This RFC is created to get your opinion about moving BUSD to a collateral tier.

Motivation

Since its inception, BUSD has steadily gained more and more market share, to the point where it is now the third most issued stablecoin, just behind USDT and USDC.
BUSD is a stablecoin founded by Paxos and Binance, it is highly regulated and has never shown any weakness in its life.

Implementation

Given its strict regulation and history of no debacles or fraud, I propose to promote BUSD to a collateral level with the same interest rate and parameters as USDC.

Conclusion

The BUSD ranks extremely well in terms of market liquidity, redemption mechanism and confidence among institutional players.
Adding it as collateral to Euler finance is likely to trigger many inflows and will benefit Euler and its users.

Vote

The options are as follows:

**YES** - Promote BUSD to collateral Tier.
**NO** - Do not promote BUSD to collateral Tier.
3 Likes
2

Thank you for the proposal @Seini

DaoStewards would like to supplement your proposal with our analysis

Author(s): jengajojo for Bankless DAOstewards

Simple Summary

This is an RFC to temperature-check the idea of Binance USD (BUSD) as a collateral asset. A potential eIP would also include increasing borrow factors and decreasing reserve factors.

The proposed parameters are a collateral factor (CF) of 0.9, borrow factor (BF) of 0.9 and reserve factor (RF) of 0.05.

Motivation

BUSD is the third largest stable coin in DeFi by market cap and currently boasts a Mcap of $18B on Ethereum Mainnet. Since its inception in 2019, the stablecoin has never gone more than +/- 0.03$ off the peg and remains backed 1:1 by proof-of-reserves. With a 7D volume of almost $100M, with this proposal, we would like to bring the stability and liquidity of the BUSD stablecoin to the Euler Finance ecosystem. We think this will enable the creation of new markets and allow the protocol to further deepen its stable liquidity and collect more fees from the resulting usage.

Specification

** What is the link between the eIP author and the asset? **

None. The proposers are active core contributors to BanklessDAO.

** Provide a brief description of the asset **

BUSD is a stablecoin backed 1:1 with USD from crypto exchange Binance launched with partnership with Paxos.

** How is the asset primarily used? **

BUSD is used as a trading pair & holding asset

** Explain why the IP would benefit Euler’s ecosystem.**

BUSD is the third largest stablecoin with a reliable record of keeping its peg. Binance issues monthly reports with proof of reserves. Including this asset in the Euler ecosystem will bring liquidity and diversification of stables collateral to the Euler ecosystem.

** Where does the asset trade? **

BUSD primarily trades inside the Binance exchange but has significant liquidity on DeFi dexes with over $30M TVL on Ethereum Mainnet and almost $100M in 7D trading volume onchain.

What are the volumes and market capitalisation?

Market capitalisation is $22 billion, with almost $100 million traded in the last 7D

What is the liquidity like in the Uniswap V3 liquidity pool versus ETH?

The 1% BUSD/ETH Uniswap V3 pool currently sits at a TVL of $140k

What security/auditing reports have been done?

This report issued by the New York State Department of Financial Services (NYDFS) has pre-approved BUSD for its virtual currency licensees to custody and list for trading.

Risk Assessment by DAOstewards

Centralisation

BUSD is a custodial solution, which makes it score lower from a decentralisation point of view. Nevertheless, Paxos the issuer of BUSD is a reputable institutional solution with years of track record, which mitigates risks. Due to the centralised nature the issuer can mint or burn an arbitrary number of tokens. But this risk is mitigated due to the Regulatory compliance of Paxos trust Company. Paxos also issues monthly reports through an external accounting firm.

Distribution of Tokens: Top 10 holders hold 92% of the total supply but many of the holders are Exchanges like Binance (60%) and cross chain bridges.

Risk score : Euler Risk methodology : 0.4

: DAOstewards risk metrics 3

Volatility

BUSD is a stablecoin. Due to the relatively stable nature of BUSD no volatility score is assigned.

Events of Depegging Mar 13, 2020 $0.8861 to $1.04

Risk score : Euler Risk methodology : 0.9

: DAOstewards risk metrics 1

Liquidity

BUSD is the third largest stablecoin on DeFi with 22B in market cap. A significant amount of BUSD is locked in the Binance Smartchain ecosystem.

Risk score : Euler Risk methodology : 0.9

: DAOstewards risk metrics 1

Smart Contract Risk

WBUSD uses proof-of-reserve 1, which allows transparency over the custodial funds.

Oracle Grading

Due to the relative low volume on ETH/BUSD trading pair in Uniswap v3 TWAP is not the ideal Oracle, We propose the the use of Chainlink price feed adhering to the changes introduced by eIP 30

Conclusion

While scoring lower on decentralisation, BUSD ranks very high on other factors. We, therefore, recommend implementing the proposed eIP.

References

Project - What Is BUSD? | Binance Academy
Whitepaper - Binance USD (BUSD) - Paxos
Chainlink price feed : BUSD / USD | Chainlink
Github / source code - busd-contract/README.md at master · paxosglobal/busd-contract · GitHub
Ethereum contract - 0x4Fabb145d64652a948d72533023f6E7A623C7C53
Reserve reports- Binance USD (BUSD) Transparency Reports - Paxos
Twitter - https://twitter.com/PaxosGlobal / https://twitter.com/binance

Should BUSD be promoted to Collateral Tier

  • Yay! let’s do this
  • Nay! This proposal needs further restructuring

0 voters

2 Likes
3

Nice analysis ahah, I recognize that mine is quite simple.
Why not set the RF to 0.23 and the BF to 0.94 like the USDC?

4

Please correct me if I am wrong, but according to Snapshot the RF for USDC, DAI and USDT is currently 0.02

1 Like
5

This proposal hasn’t passed .
Following an advice from Seraphim, I simply propose to calculate the same model for the BUSD as for the DAI:
CF: 0.85
RF: 0.23
BF: 0.88

6

Hey @Seini Reserve factor is the amount that is reserve from the intrest paid by the borrower. Say RF is 0.2 about 20% of the interest paid will be sent to an extra pool and 80% go to lenders.

Since BUSD is a relative new pool and has low liquidty on ETH/BUSD uni pool we need to encourage more TVL in Euler. And incentivize people to add BUSD as collateral.

This parameter can be adjusted up or down is seems necessary after a trial run

7

Thank you all for this great analysis. Amending this with a low RF would indeed attract liquidity. At what time do you suggest we consider raising it? Is there a specific marker to meet?

Fully support the Chainlink part.

1 Like
8

So you would put it at 0.02? I’m fine with that.

1 Like
9

Is BUSD that much in use in Ethereum DeFi?
it make sense to add it if you are a Dapp on BSC. But we are on Ethereum so that’s why I’m wondering that. Personally, I can’t name on top of my head a Dapp that uses BUSD.

10

Even if it is not yet widely used on Ethereum we have to give the possibility to lend it.
And then we have to think long term, who knows one day maybe it will be very used and already integrated in Euler which will participate maybe even to make it grow on Ethereum.

1 Like
11

Stable Lab supports promoting BUSD to collateral tier. BUSD has shown to be very stable and it is consistently audited to show proof of reserves. With 161,366 holders and the third largest stablecoin market cap at over $22 Billion, BUSD is one of the most used stable coins and is growing in popularity.

Considering competitors like Aave and Compound do not allow BUSD as a collateral asset this could present a large commercial opportunity for Euler. We support the low RF to encourage BUSD deposits but think 0.05 is more reasonable as this is what the USDT RF is and there is no other collateral asset on Euler with a RF lower than this.

We strongly support using a Chainlink oracle as the uniswap liquidity is relatively low with not a great distribution of liquidity across full range.

Our only concern is the highly centralized nature of BUSD with the top 4 holders holding over 90% of BUSD and most of its volume being on a centralized exchange. Due to this, we believe the asset should be carefully monitored and reviewed in a few months, but it would be a good addition to the collateral tier for the time being.

2 Likes
12

Hello everyone! Initially I was quite supportive to this proposal, and probably still am in the longer term. However, with all the FUD currently circulating in the sphere around Binance in general and small depeg of BUSD, I would prefer to postpone concrete steps on this proposal till the situation is resolved.

1 Like
13

@Raslambek we are closely watching the situation and have decided to not to hurry with the proposal for the time being.

2 Likes
14

I think the chance of BUSD depegging is almost impossible (though never say never). I have a lot of faith in Paxos (though of course nothing is bulletproof) for being the first company to earn a bitlicense in NY. These clear attestations also ease my mind. Liquidity is relatively good also. I think while we should still be cautious (as we are), continuing with this proposal doesn’t feel unreasonable either.

1 Like
15

BUSD losing peg IMO is one best Arb opportunities, as probably the only Paxos trust that has stables which are backed by 1:1 liquid assets. Even USDC has riskier assets than BUSD.

Our idea was to check their nov Attestation and report to see if there are significant changes in the types of collateral ratio and/or 1:1 peg.

16

@Matt_StableLab from my understanding, paxos’ balance sheet is never audited. What we have mentioned in our proposal (and your hyperlink) are self-reports and attestations of those reports. The significant difference between an Attestation and an audit is the auditor goes through all of the financial records and drives their conclusion. An Attestation is an external party saying the info provided to them is correct.
Risk of an Attestation is an entity could only show they want the world to see,

17

wen vote on snapshot ?

18

Nothing is impossible :slightly_smiling_face:

The chainlink oracle is a good shout but I still have liquidity concerns for a collateral tier asset. $30M BUSD TVL on Ethereum vs. $700M+ of USDC on Uniswap alone…

1 Like
19

Thanks for bringing this up. We Were waiting for the Reserve Accounts Report from November,

if there is enough support to move this to an eIP nets do that soon

20

I personally think it’s not 100% clear if deposits will come. None of the funds I’ve spoken to have much BUSD on their balance sheet. I would defo propose a supply cap if ppl really want to list BUSD as collateral, but imo it’s a bit too early for that.

Would be good to first get some feedback from large BUSD holders whether they would actually use Euler.