We hereby propose that Flux Finance adds support for Tether (USDT) as a lendable asset only. Tether is the most popular stablecoin with a market capitalization of over $68 billion, representing a large market of investors who may be looking for a low risk, liquid, on-chain yield offering like Flux Finance. If our proposal passes, investors would be able to lend and borrow USDT over-collateralized against US Treasuries exposure (OUSG).
We also suggest setting the collateral factor for all stablecoins supported at Flux to 0%, including USDT, USDC, and DAI, making OUSG (Ondo Short-Term U.S. Government Bond Fund) the only acceptable collateral. This will ensure that lenders of a particular stablecoin don’t take on indirect risk from other stablecoins supported at Flux. The main reason to post stablecoins as collateral is to short cryptoassets and other stablecoins—use cases already well serviced by existing lending protocols like Compound, Aave, and Euler. We believe Flux should remain differentiated in facilitating lending against real world assets in order to bridge yield from treasuries and other low-risk traditional assets to the on-chain economy.
We recommend the following market parameters:
- Interest rate curve that follows the one used on DAI and USDC:
- 0% utilization → 0% APY
- 90% utilization (kink) → Overnight Benchmark Funding Rate (OBFR) - 50 bps
- 100% utilization → OBFR + 300bps
- Borrow Cap: No cap
- Collateral Factor (LTV): 0%
- Reserve Factor: 0%
Mandatory parameters with no impact given the 0% collateral factor
- ProtocolSeizeShare: 1.75% (Compound V2 uses 2.8%)
- Liquidation Incentive: 5% (Compound V2 uses 8%)
DAI and USDC
- Collateral factor (LTV): 0%
We look forward to engaging with the community on this proposal.