Sommelier Finance Incentives for Real YieldUSD on Nitron Proposal
This forum post is to discuss liquidity incentives on the Real YieldUSD receipt token on Nitron, a Cosmos money market.
The goal of this proposal is to allow a one-time transfer of 100,000 SOMM from the community pool to Nitron’s Real YieldUSD receipt token lending market. These funds will be used to incentivize participation in the Real YieldUSD Cellar and further increase its utility. Since launching on January 25th, Real YieldUSD has quickly grown to ~$14M in TVM and this incentive will help to ensure that it continues to attract significantly more capital.
What is Nitron:
Nitron is the name of Demex’s lending and borrowing money market. It works like AAVE and supports a wide range of networks and assets, including Ethereum, where YieldUSD lives. It also has a public liquidation platform, which allows anyone to perform permissionless liquidations on undercollateralized loans via the UI. Nitron exists on Carbon Network, a DeFi-focused L1 Cosmos Network built with Cosmos SDK and is IBC-enabled. The team behind Carbon Network is called Switcheo, a doxxed Singapore Web3 development studio founded in 2018.
This incentive will encourage cellar depositors on the Ethereum mainnet to deposit their YieldUSD receipt token as collateral on Nitron. Deposits will be done via Carbon’s bridge and deposit UI. Depositing YieldUSD receipt onto Nitron allows it to be used as borrowing power and unlock additional capital. This will provide increased utility to YieldUSD and borrowing other assets against YieldUSD will create more ‘stickiness’ to depositors as a user will have to return their loan before being able to withdraw their tokens.
This can also increase existing YieldUSD deposits. Existing Yield USD depositors who have not bonded their receipt token can further borrow USDC against their Yield USD receipt token to deposit into the Yield USD cellar, in order to receive leveraged Real Yield USD returns.
Additionally, there can also be a RealYieldUSD-USD spot amplified LP pool and spot market on Demex, an orderbook DEX. An amplified LP pool is similar to a concentrated pool which works well for stablecoin swaps. This LP pool can be further incentivized by Carbon if necessary to promote liquidity provision.
This will increase the accessibility of RealYield USD to Cosmos by offering an alternative way to obtain RealYieldUSD for Keplr users who do not have Metamask, or Metamask users who are priced out by the high Ethereum gas fees, ultimately helping to bring RealYieldUSD to Cosmos and increasing its awareness in the Cosmos community.
Real Yield USD receipt Collateral Money Market Parameters:
Oracle: The price oracle will reference the vault’s share token price by calling the previewRedeem function of the Yield USD Cellar contract to get the value of 1 share in USDC: 0x97e6E0a40a3D02F12d1cEC30ebfbAE04e37C119E#readContract
Loan-to-value (LTV): 65%
Liquidation threshold: 69%
Liquidation penalty: 20%
Optimal utilization: 0% (Yield USD will not be borrowable)
Target borrow rate: 0% (Yield USD will not be borrowable)
Supply cap: 3,000,000 QTY (about $3m+, can be raised anytime)
Borrow cap: 0 (Yield USD will not be borrowable)
The incentive amount is estimated to attract a TVL of around $3 million YieldUSD which gives an incentive APR of about 10%. With a yield APR of 6% on YieldUSD, this gives a total APR of 16% on USD which is competitive in the current stablecoin yield farming landscape.
At 65% LTV, if a user deposits $100k of YieldUSD, they can borrow $65k of USDC at around 2% APR, to buy more YieldUSD on Sommelier on Ethereum, to send to Nitron and deposit, and repeating this 4 times would generate an estimated yield of around 40% APY on the $100k YieldUSD deposit.
This program will distribute the authorized amount of tokens over a period of 30 days, starting at the time when the existing program ends.
The total amount of tokens for the proposed program represents about 0.1% of the tokens in the community pool. The full amount will be used to implement and fund the external incentives on Nitron.
The SOMM incentive will be distributed to the dev team to be deployed pro rata to users on Carbon Network who deposit YieldUSD receipt token in Nitron’s lending contract via Carbon’s external incentive feature on its Collateralized Debt Position (CDP) module.
This proposal, if accepted, will spend 100,000 SOMM from the community pool in order to fund the external incentive module on Nitron according to the parameters of this proposal.
In the future, Sommelier may want to launch similar programs with the dev team with different parameters - any future program is outside of the scope of this governance action and will require a new proposal.
This proposal, if accepted, will spend 100,000 SOMM from the community fund to dev team address at
0x0020C5222A24e4a96b720C06B803fB8D34ADc0Af on Ethereum mainnet, to be distributed as incentives for Real Yield USD lending market on Nitron.
Links consolidated here: Reference Links Sommelier Finance Incentives on Nitron - Google Docs