Add sDOLA/reUSD Convex LP Market to FiRM

[cryptoharry]

Proposal to Add sDOLA/reUSD Convex LP Market to FiRM

Summary

This proposal seeks to introduce the sDOLA/reUSD Liquidity Pool Token (LPT) from Curve Finance as a collateral option on FiRM, Inverse Finance’s fixed-rate lending protocol. The sDOLA/reUSD LP offers a new avenue for capital-efficient lending by pairing sDOLA with reUSD — a stablecoin backed by lending vault tokens from FraxLend and Curve Lend. The Convex-aligned LP also supports boosted rewards, contributing to deeper liquidity and stronger peg resilience for both assets.

By enabling collateralization of the sDOLA/reUSD LP on FiRM, borrowers gain access to a loopable, yield-bearing, and stablecoin-denominated asset that is already integrated into the Convex ecosystem. This proposal pertains specifically to the Convex-aligned version of the LP.

Background

reUSD is a novel stablecoin issued by the Resupply protocol — a SubDAO of Convex Finance and Yearn Finance — and launched in March 2025. It is collateralized by yield-bearing vault tokens representing deposits into Curve Lend (via crvUSD) and FraxLend (via frxUSD). Borrowers on Resupply can loop yield opportunities up to 20x leverage, while the protocol distributes RSUP incentives and collects fees via redemptions and borrowing.

The sDOLA/reUSD Curve pool, while currently in its early stages, is positioned as a strategic avenue to expand DOLA liquidity. The Convex-aligned LP receives incentives via Votium and VoteMarket, and its composition promotes on-chain, yield-generating DOLA pairings without direct sell pressure. This deepens DOLA liquidity and reinforces FiRM’s mission to offer capital-efficient, fixed-rate borrowing for long-tail stablecoin ecosystems.

Market Business Case

The addition of the sDOLA/reUSD market presents a highly synergistic opportunity for both Inverse Finance DAO and Resupply DAO. Resupply DAO supports the market through incentive funding, having already contributed ~$50K over the first two weeks to drive liquidity via CRV incentives. Meanwhile, Inverse Finance DAO enhances the pool’s appeal by offering competitive yield through sDOLA and enabling scalable growth via the FiRM integration, allowing LP looping strategies.

This collaboration delivers significant mutual benefits. For Resupply DAO, the combination of the FiRM integration and sDOLA’s market-leading yield makes their incentive spend highly efficient in deepening reUSD liquidity and driving demand. For Inverse Finance DAO, the partnership is expected to generate substantial new borrowing demand on FiRM, increase debt levels and DBR usage, onboard new users, and further embed sDOLA in the DeFi ecosystem.

Beyond the immediate market benefits, this initiative strengthens the long-standing and productive relationship between Inverse, Convex, and Yearn, reinforcing alignment and shared value across these influential communities.

[edo]

Risk Assessment

Full Risk Assessment – reUSD on FiRM

reUSD introduces novel architecture and composability in the stablecoin landscape, but its limited operational history and layered dependency model require a cautious approach. Below is a summary of key risk dimensions considered by the Risk Working Group:

• Governance & Operational Transparency: Resupply is governed by a 3-of-4 Gnosis Safe multisig shared between Convex and Yearn contributors. While this structure provides reputable stewardship, it also centralizes control over critical protocol functions such as minting parameters, fee structures, and emission schedules. The governance token RSUP is heavily concentrated in a single vesting address (>95% of supply), limiting community governance in the short term. Although the protocol discloses all deployed contracts and admin roles, there is no formal documentation outlining parameter-setting methodology or public incident response processes.
• Smart Contract & Bridge Risk: reUSD is deployed as a LayerZero OFT (Omnichain Fungible Token), introducing cross-chain message-passing risks including spoofed messages, failed relay logic, or bridge downtime. While the Ethereum mainnet deployment is not upgradable, future LayerZero deployments may be upgradeable and controlled by the oApp owner, adding complexity to the trust assumptions. The Resupply protocol also relies on collateral deposited into external lending markets (Curve Lend and FraxLend), inheriting any risks or misconfigurations present in those platforms. Additionally, Resupply markets involve up to 20 configurable parameters per deployment, increasing surface area for potential errors or governance missteps.
• Peg Stability: reUSD is currently trading at approximately $0.99, a 100 bps deviation from its intended $1 peg. The protocol implements a 1% redemption fee (0.5% to borrowers, 0.5% to protocol), which creates a natural peg floor. Redemption requires available collateral in Curve Lend or FraxLend vaults, which may not be accessible during stress conditions or high utilization. While this design aligns well with a stablecoin backed by other yield-bearing stablecoins, it introduces potential illiquidity during redemption events.
• Security & Audit Coverage: Resupply has undergone two audits — by yAudit and ChainSecurity — both of which uncovered and led to the resolution of several critical and high-severity vulnerabilities. Remaining findings were either fixed, marked as informational, or had their risk explicitly accepted. The team also operates a self-hosted bug bounty program with reward tiers up to $250,000 depending on severity. However, the absence of fuzzing or invariant testing recommendations (still pending) and the lack of public stress testing raise concerns for early-stage integrators.
• Collateral & Liquidity Profile: As of April 2025, reUSD holds ~$68M in Curve-based liquidity across pools, with the reUSD/scrvUSD pool representing ~74% of the total. The sDOLA/reUSD pool is newly deployed and currently under-incentivized, but expected to grow under Convex’s voting incentive infrastructure. 38.87% of all reUSD is held in the Insurance Pool, providing meaningful capacity to absorb protocol shortfalls or liquidations. However, reUSD lacks CEX listings and is wholly dependent on on-chain liquidity for redemption, lending, and peg stability.
• Oracle & Valuation Methodology: The price feed for sDOLA/reUSD LP will utilize a BridgeAssetFeed designed to conservatively value LP tokens. This approach draws on: Chainlink’s crvUSD/USD feed; The Curve reUSD/scrvUSD pool’s oracle for reUSD; sDOLA’s fixed $1 value; and Curve’s virtual price for the LP token. The lowest of the two asset prices is used to multiply the LP virtual price, yielding a pessimistic USD valuation that protects against overestimation during market dislocations. Price feed updates occur daily, with a 24h staleness threshold.
• Liquidation Mechanics: Liquidations for the sDOLA/reUSD LP are supported via FiRM’s automated routing, enabling either balanced or single-asset withdrawals from Curve. However, Convex’s reward distribution mechanics add substantial gas overhead (~800,000 gas per liquidation), which could disincentivize liquidators during network congestion. Additionally, Resupply only allows full liquidations — partial liquidations are not supported — meaning entire positions must be unwound, potentially increasing volatility during cascading liquidation events.

Parameter Recommendations

The parameters recommended below represent the RWG’s professional judgment regarding appropriate risk controls for this asset based on the information available. These recommendations should be considered independent technical guidance rather than an endorsement of the market’s integration. The decision to proceed with implementation remains with Inverse Finance governance and those championing this growth initiative.

Based on all the risk factors identified, the following parameter recommendations would be appropriate for the sDOLA/reUSD Convex LP market:

Parameter	Recommended Value	Rationale
Supply Ceiling	10,000,000 DOLA	Conservative ceiling given the new protocol and current depeg situation
Daily Borrow Limit	1,000,000 DOLA	Reduced from standard 2M to allow for gradual scaling with monitoring
Collateral Factor	89%	Balances accessibility with safety margin by accounting for reUSD’s persistent trading at $0.99 while providing an additional buffer for liquidations in a new, untested market
Liquidation Factor	100%	Standard liquidation threshold for LP tokens
Liquidation Incentive	5%	Standard incentive for stable-stable LPs
Minimum Debt Amount	3,000 DOLA	Standard

The most significant risk to consider with reUSD is smart contract risk. The primary concerns are potential bugs in Resupply’s code that could disable the redemption mechanism, or vulnerabilities in FraxLend or CurveLend that might allow unbacked lending receipt tokens to be minted. Such scenarios could cause a flash crash in reUSD’s value, potentially overwhelming liquidation processes. However, FiRM’s implementation of live market price feeds helps mitigate these risks by ensuring accurate valuation even during market stress. Additionally, Resupply’s insurance fund provides an extra layer of protection against protocol-specific issues.

[C2tP]

Replying here to add some more context..

@edo

Resupply is governed by a 3-of-4 Gnosis Safe multisig shared between Convex and Yearn contributors

Ownership will be transferred to staked RSUP within a few days.

@edo

While this design aligns well with a stablecoin backed by other yield-bearing stablecoins, it introduces potential illiquidity during redemption events

While this highly unlikely situation would require all pairs to be in a near maxed out state, redemptions may also redeem the lending vault tokens themselves and not just the underlying. Thus redemptions can still be made.

@edo

However, reUSD lacks CEX listings and is wholly dependent on on-chain liquidity for redemption, lending, and peg stability.

Seems completely irrelevant?

@edo

Additionally, Resupply only allows full liquidations — partial liquidations are not supported — meaning entire positions must be unwound, potentially increasing volatility during cascading liquidation events.

This section seems aimed at Firm’s liquidation mechanics, thus not sure what the mention of resupply’s here implies. There’s no cascading liquidation events as our liquidations are burnt from the insurance pool and collateral given in return to the insurance pool. There’s no asset being sold that would cascade into further liquidations.

Above all else, I think it’s important to emphasize what Harry said above on the business case.
Even before launch we’ve been in contact with Harry and have made plans to do collaborations and work together. We started with adding sdola lending markets and now have a liquidity pool using sdola and will incentivize growth there. Inverse Finance has a great chance to grow it’s Firm tvl with a platform and partners that have been and will continue to work together.

We have also talked about more collaboration ideas for down the road that will be mutually beneficial. So would be great to see this first step executed.

@cryptoharry

Beyond the immediate market benefits, this initiative strengthens the long-standing and productive relationship between Inverse, Convex, and Yearn, reinforcing alignment and shared value across these influential communities.

[edo]

Appreciate the additional context that helps paint a clearer picture. Regarding governance: Although we were aware this was always part of the roadmap, it’s good to know the ownership will transfer to staked RSUP soon. This addresses one of our governance concerns.

The strategic relationship point is well-taken. Part of our role is ensuring that collaborations are implemented with appropriate risk controls, which is exactly what we’ve aimed to do with the recommended parameters.

It’s also worth noting that DAOs have varying standards for governance processes. At Inverse Finance, we maintain a tightly aligned on-chain governance model, where transparency around multisigs and permissions is considered a key internal risk factor. We evaluate all dependencies through that lens.