Summary
This proposal aims to integrate the DOLA/deUSD Liquidity Pool Token (LPT) from Curve Finance as a collateral option on FiRM, Inverse Finance’s fixed-rate lending protocol. The DOLA/deUSD LP offers unique advantages due to its stable composition and points or “potions” program, providing a unique opportunity for capital efficient lending by offering stable liquidity positions that include DOLA as collateral. We plan to deploy two distinct markets; one that adheres to the convex strategy and a market which, utilizing the same underlying LPT, aligns with Yearn’s autocompound strategy. This proposal pertains to the Yearn-aligned deUSD/DOLA LP market on FiRM.
Background
deUSD is a yield-bearing, ETH-hedged stablecoin developed by Elixir Labs, partially backed by stETH and T-Bills through MakerDAO’s USDS. Its delta-neutral design and Over Collateralization Fund (OCF) seek to maintain a robust $1 peg even in adverse funding conditions. When paired with DOLA in a Yearn vault, the resulting LP benefits from both incentives and Yearn’s auto-compounding strategies, delivering a low-volatility, yield-bearing position.
By leveraging the DOLA/deUSD LP as collateral, FiRM offers its users the opportunity to capitalize on stable liquidity positions while bolstering our ecosystem’s efficiency and DOLA liquidity depth. Providing stable liquidity positions that include DOLA as collateral allows for cost-efficient lending on behalf of Inverse Finance. Typically, borrowers sell DOLA to buy other assets, impacting DOLA liquidity. Conversely, a borrower collateralizing with a DOLA LP position is likely to add the other stablecoin/s to the liquidity pool initially to obtain the LPT. They may then loop the borrowed DOLA into the LP position repeatedly to increase their reward, benefiting DOLA liquidity as it does not remove other stablecoins. This results in a 150% improvement in lending capital efficiency, as only 1 DOLA needs to be contracted by our AMM Feds for each DOLA added to the liquidity position, compared to 2.5 DOLAs for each DOLA sold.
Risk Assessment
Complete Risk Assessment – deUSD Collaterals on FiRM
Key points from the assessment include:
- Governance: Elixir Labs currently manages deUSD minting under a delegated proof-of-stake (DPoS) framework. While the protocol aims for decentralized governance by transitioning upgrade controls and treasury parameters to ELX token holders, whitelisted “authorized participants” currently retain exclusive mint/redeem permissions. Until permissionless minting is fully implemented, governance decisions rest partly with Elixir Labs’ multisig structures, meaning users must trust the team’s operational integrity and future roadmap commitments.
- Security: Elixir’s main deUSD and staking (sdeUSD) contracts have been audited by Trail of Bits and Quantstamp, with no significant unresolved issues. Nevertheless, partial reliance on off-exchange storage (OES) for hedging activities introduce potential attack vectors. Ongoing Immunefi bug bounty programs aim to reinforce the protocol’s security, but users should remain aware of custodial dependencies.
- Regulatory Risks: As a synthetic stablecoin mixing delta-neutral crypto strategies and T-Bill–backed collateral, deUSD may face scrutiny in jurisdictions regulating stablecoins or asset tokenization. Additionally, the reliance on off-exchange custodians (e.g., Fireblocks) introduces potential compliance obligations that could evolve rapidly. Regulatory actions targeting stablecoin issuance, derivatives trading, or RWA tokenization could impede deUSD’s minting/redemption processes or hamper cross-border liquidity.
- Collateral & Liquidity: deUSD’s on-chain liquidity is primarily sourced from Curve pools and partnerships (e.g., DOLA–deUSD LP), but large positions often rely on off-chain whitelisting to mint or redeem without slippage. Sufficient market depth and transparent OCF metrics are critical to maintaining stable liquidity profiles.
- Competitive Edge: deUSD distinguishes itself through its blend of delta-neutral crypto yields and real-world T-Bill integration, offering an alternative to purely crypto-backed stablecoins. Securitize-based RWAs (e.g., BlackRock BUIDL) bring further institutional exposure.
- Oracle & Price Feeds: FiRM will implement a pessimistic LP token oracle for accurate valuation of the DOLA/deUSD LP. This process uses Chainlink price feeds for deUSD and the virtual price from the Curve pool’s smart contract and ensures a conservative and reliable estimate of the LP token’s USD value. Real-time monitoring will further support price accuracy and integrity.
- Liquidation Mechanisms: The liquidation factor and incentive are optimized to encourage active liquidator participation. Arbitrage opportunities with other DOLA or deUSD LPs will ensure that large liquidations do not lead to a liquidation cascade. The liquidation process will pull vault tokens, convert them to LP tokens, and then allow liquidators to realize value through balanced withdrawals, ensuring efficient liquidation routes.
Continuous monitoring of the DOLA/deUSD LP’s performance, yields, and liquidity conditions will be maintained by the RWG. Should any material changes or newly identified risks emerge, parameter adjustments or additional mitigations will be proposed via governance.
On-Chain Actions
- Add DOLA/deUSD LP Yearn Market to DBR Contract
- Set borrowController of Market to FiRM BorrowController
- Set Market Supply Ceiling to 10,000,000 DOLA
- Set Daily Limit in BorrowController to 2,000,000 DOLA
- Set Collateral Factor to 90%
- Set Liquidation Factor to 100%
- Set Liquidation Incentive to 5%
- Approve DOLA/deUSD LP Yearn Market on the DBR Helper
- Set Minimum Debt Amount in BorrowController to 3,000 DOLA
- Set stalenessThreshold for DOLA/deUSD Yearn LP market to 86460 (24 hours)
- Set FiRM Oracle Price Feed for DOLA/deUSD Yearn LP to the deployed custom tokenPriceFeed contract
- Add DOLA/deUSD LP Yearn Market to ALE
- Add DOLA/deUSD LP Yearn Market to CurveDolaLPHelper