[BIP-22] Rebalance bSTBL

Abstract

bSTBL will work better as collateral for baoUSD if its underlying assets are pegged to the dollar because its value will be more predictable.

If approved this proposal would replace RAI with sUSD in bSTBL, meaning the composition will be equal parts sUSD, DAI and USDC.

Motivation

The Bao community constantly monitors the underlying assets in bSTBL and wider stablecoin market for suitability as a token in the bSTBL basket.

RAI fluctuates in price relative to the dollar which makes it a higher risk asset to use as collateral. Over the last few weeks the market price of RAI has fluctuated between approximately $3.14 and $2.85 and will likely continue this behavior. These price movements represent a 9% change in value, and a 3% change in value for the bSTBL basket.

The price movements are not due to a problem with its design, it is programmed to change in price depending on market conditions, but that can present friction in a number of ways for bSTBL:

  • Collateral factors need to be lower to maintain a similar risk level. This means less capital efficiency and more opportunity for other protocols to offer a more attractive ways to borrow stablecoins.
  • bSTBL value is less predictable so baoUSD arbitrageurs will have an additional risk factor to take into account if using bSTBL as collateral and other users cannot as easily predict returns on their positions.

These issues can be resolved by replacing RAI with a dollar pegged stablecoin. sUSD is being proposed as the replacement because it is dollar-pegged as well as being decentralized, has sufficient liquidity, a history of performing as designed in all market conditions and has yield opportunities on supported platforms.

Implementation

Mulitisig will withdraw bSTBL RAI from AAVE, swap for sUSD and deposit into a supported lending platform to earn yield.

1 Like

Will this have any impact on Polly? Specifically, the Farms. Iā€™m assuming it will be beneficial to the yield.

This is for BAO on mainnet.