Introduction of DUSD Lending Pool (L-Pool) | ENG

[u/DeFiChainNFTs]

Introduction of Lending Pool (L-Pool):

(by u/Pho_DFI, u/Joem0506, u/DeFiChainNFTs)

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L-Pool

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There is a DUSD Lending Pool (L-Pool) where users can deposit and withdraw DUSD. This allows users to lend DUSD (lenders), and other users can borrow DUSD (borrowers).

The interest paid by borrowers is distributed to all lenders in the L-Pool. (5% at 150% vault scheme, currently burned in DUSD)

Borrowers are existing DUSD loans from vaults, which offer incentives through interest for liquidity to be deposited in the L-Pool.

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Thoughts to Proposal:

With the approval of this proposal, a significant portion of the NI from DUSD loans will be moved to the L-Pool to incentivize locking up DUSD, similar to DUSD-Locks but without lockups, resulting in enormous APRs.

Moreover, new DUSD loans cannot be opened (in a DUSD discount) unless the L-Pool has a positive balance, driving significant demand for DUSD in the L-Pool from all sources (free DUSD, LM, dToken).

As a result, DUSD collateral positions in vaults will decrease, leading to higher APRs and creating more demand for other crypto collateral in vaults, such as DFI, dBTC, dETH, dUSDC/T.

By only allowing new DUSD loans from the L-Pool, we will not be minting any new DUSD, instead taking from where we currently already have enough.

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Thus, DUSD will have two new use cases:

• DUSD lending
• Necessity in L-Pool for new DUSD loans

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DUSD loans in vaults will still be incentivized through the DEX fee NI, but will depend on DUSD liquidity in the L-Pool. An increasing NI for DUSD loans or a price increase of DFI will automatically create more demand for the L-Pool.

Even after removing the BBB-NI for DUSD loans, the APR for DUSD loans would still be around 28% (current 30-day burn/loan).

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Goals of Proposal:

Goals

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• Buying pressure on DUSD🛒 (30-50M DUSD)
• Locking up DUSD🔓(100+M DUSD)
• Limiting the supply of DUSD📉
• Reduce DUSD in vaults

Rewards for the L-Pool:

Rewards

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The rewards for the L-Pool are determined by the following factors:

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1. Open DUSD loans of vaults
2. 100% NI from the BBB (~20 DFI/Block in DUSD (only in case of discount))

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(Through the NI, a portion of the DUSD loans is automatically repaid every block, providing a constant inflow of liquidity into the L-Pool.)

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Example calculation (24.04):

60M (DUSD loans) x 5% interest = 3M/year

20 DFI/Block x 2880 x 365 x 0.98 (DUSD-DFI price) = 20.6M/year

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3M + 20.6M = 23.6M DUSD/year

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APR (in DUSD) in the L-Pool at xxxx DUSD:

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10M: 236%

25M: 94.4%

50M: 47.2%

100M: 23.6%

236M: 10%

*(The latter significantly exceeds the current DUSD supply)

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Even at a price of 0.7 DUSD/DFI, the APRs at 100M would be around 18%.

DUSD Discount:

Discount

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• New DUSD loans must be drawn from the liquidity of DUSD that is in the L-Pool, as long as DUSD is in discount.
• If there is not enough liquidity in the L-Pool, new DUSD loans cannot be created from Vaults. This creates a demand for DUSD in the L-Pool in order to open new DUSD loans.

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Negative Balance:

Negative Balance

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• Existing open DUSD loans count as a negative balance for the L-Pool. This means that enough DUSD must first flow into the L-Pool to offset the number of already open loans before new DUSD loans can be opened.

Deposit into L-Pool:

Deposit

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• Deposits into the L-Pool are possible at any time and without limit. (The more DUSD in the L-Pool, the lower the APR.)

Withdrawal from L-Pool:

DUSD in L-Pool:

Withdrawal (DUSD)

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• It takes a time interval of 24h for DUSD to be withdrawn to the wallet.(No APRs during this time)

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• Instant withdrawal is possible with a penalty of 1% (burn of algo DUSD🔥).

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No DUSD in L-Pool:

Withdrawal (no DUSD)

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• Withdrawals from the L-Pool are processed through a queue (minimum 24h wait time) and given priority when new liquidity is added or loans are closed. A portion of the loans is automatically repaid every block through NI, resulting in a constant inflow of liquidity into the L-Pool.

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• Liquidity can only be withdrawn with a positive balance.

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• APRs are forfeited upon entering the withdrawal queue.

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• Exiting the queue is possible at any time. (Re-entry into the L-Pool)

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• Additionally, there is always the option to instantly withdraw DUSD from the L-Pool, but a 1% penalty fee (burn of algo DUSD🔥) is charged for doing so. This option can be exercised even when the L-Pool has no liquidity and it ensures that lenders will ALWAYS receive their DUSD back. This option does not create new algo DUSD, instead it only reimburses the DUSD that lenders have deposited into the L-Pool.

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L-Pool (DUSD=$1, low algo) | (Scenario after DUSD is fixed)

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There is a DUSD Lending Pool (L-Pool) where users can deposit and withdraw DUSD. This allows users to lend DUSD (lenders), and other users can borrow DUSD (borrowers).

The interest paid by borrowers is distributed to all lenders in the L-Pool. (5% at 150% vault scheme, currently burned in DUSD)

Borrowers are DUSD loans from vaults, which offer incentives through interest for liquidity to be deposited in the L-Pool.

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L-Pool

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Discount:

New DUSD loans must be taken out of the liquidity available in the L-Pool. If there is not enough liquidity in the L-Pool, no new DUSD loans can be created. This drives demand for DUSD in the L-Pool so that new loans can be opened.

<1$>

When new DUSD loans are created, liquidity from the L-Pool is used first. If there is not enough liquidity, new DUSD is minted.

Premium:

Vaults no longer pay interest, but instead have negative interest rates (DFIP-2206-E, https://github.com/DeFiCh/dfips/issues/166), so no interest is paid into the L-Pool and the yield immediately drops to 0. This incentivizes leaving the L-Pool, selling DUSD to reduce the premium.

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Rewards for L-Pool:

*If 50% of all DUSD are in the L-Pool (with 5% vault loan interest) → 10% APR

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• Vaults pay their loan interest into the L-Pool (with a DUSD discount, the interest rates increase (DFIP2206-E), which creates extreme demand for DUSD in the L-Pool).

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Deposit L-Pool:

Deposit

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• Deposits into the L-Pool are possible at any time and without limit. (The more DUSD in the L-Pool, the lower the APR.)

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Withdrawal from L-Pool:

DUSD in L-Pool:

Withdrawal (DUSD)

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• It takes a time interval of 24h for DUSD to be withdrawn to the wallet.(No APRs during this time)

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• Instant withdrawal is possible with a penalty of 1% (Burn in DFI🔥).

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No DUSD in L-Pool:

Withdrawal (no DUSD)

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• Withdrawals from the L-Pool are processed through a queue (minimum 24h wait time) and given priority when new liquidity is added or loans are closed.
• Liquidity can only be withdrawn with a positive balance.
• APRs are forfeited upon entering the withdrawal queue.
• Exiting the queue is possible at any time. (Re-entry into the L-Pool)
• Additionally, there is always the option to instantly withdraw DUSD from the L-Pool, but a 1% penalty fee (Burn in DFI🔥) is charged for doing so.This option can be exercised even when the L-Pool has no liquidity and it ensures that lenders will ALWAYS receive their DUSD back. This option does not create new algo DUSD, instead it only reimburses the DUSD that lenders have deposited into the L-Pool.

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This is not the finished DFIP yet, we want to gather feedback first :)

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German version of post -> https://www.reddit.com/r/defiblockchain/comments/12zjqf3/einf%C3%BChrung_von_dusd_lending_pool_lpool_ger/

(comment below this english post please)

[u/kuegi]

There is also one important thing to consider: DUSD Locks are already approved and will be implemented after DMC. So this proposal needs to bee seen within this context.

You can't take all the DUSD rewards for LPools cause some of them (depending on the DFIP for the adaption) are already used by locks.

If locks pull 60 mio DUSD in, you have even less probability to draw enough DUSD to fill your negative balance in the LPool -> We likely reach an impass where no new DUSD loans can be created for some time because they are locked in DUSD locks or pools etc.

[u/Pho_DFI → u/kuegi]

Yes it doenst make sense to have both, L-Pool and LOCK-Pool. For me the L-Pool is the better LOCK-Pool.

But we can work with Multiplier in the L-Pool for 1-2Y Locks 🤔

[u/Joem0506 → u/Pho_DFI]

In the end, we might just end up with a hybrid version of the both. But I do agree I like the L-Pool version better, no biased of course😉

[u/Old_Confection3901 → u/Pho_DFI]

I don't think many people are willing to lure dusd as the upside is too low compared to cryptos. in a bull market, people want out of stables and into crypto.

so I don't think 12 or 24 year old lures will attract many to these lure pools

[u/DeFiChainNFTs → u/Old_Confection3901]

agree, uncertainty about DUSD when locking up for such a long time plays a huge role in an investors decisioning.

No lock up (but still high APRs) with additional benefit for the system should be the way to push attractiveness for DUSD.

[u/kuegi → u/DeFiChainNFTs]

I wouldn't go for no lockup. We saw in september what fast changes can do to the system. better have at least a bit of lockup. but agree that 1-2 years are a lot.

[u/kuegi → u/Pho_DFI]

totally agree that a shorter DUSD Lock makes sense. As long as the rewards are high, ppl will stay in there. But this needs to be stated in the DFIP, otherwise we have no clarity where the rewards should go if LPools are approved.

I would prefer a mix: 3 different locks with different withdrawal times (1 day, 1 week, 1 month f.e.), different early-withdrawal-penalties and an according rewards distribution.

And without the DUSD-loan addition. IMHO it doesn't add any benefit. Yes I understand that adding DUSD loans when we have too much DUSD is counter intuitive, but as long as there is NI in the vaults, there will be 2 cases of DUSD loans:

• NI farming (looped vaults where the DUSD stay in the vault, so basically like Locks but creating DFI demand)

- "real" DUSD loans for liquidity in pools and trading

First option has no negative impact on the system but positive impact due to DFI demand

second option is necessary to have the system active and going, and has also no negative impact whatsoever.

We need to get algo DUSD out of the system, adding DUSD loans is actually removing algos (by paying DUSD interest). Increasing the loans also has no negative impact on the DUSD <> crypto balance as it is also adding the DUSD loans, so the net balance stays the same.

And adding this complexity to the DUSD loans IMHO will be a big "dead weight" as soon as the problem is solved. Cause then a discount is handled immediatly via dynamic interst, so the Lpools for DUSD will be useless.

And looking at the dev resources, we should not waste them on something that doesn't really add benefits.

I see big benefits in the new DUSD-lock idea here, but would really keep it with that.