[BIP-5] Approve nStable Polly nest

This proposal is to approve the new nest “nStable” discussed in the concept section

About

The Polly stable nest is divided into key stable tokens. We believe in a true decentralized and non pegged against fiat stables, and also that a nest composed of stable tokens should provide a secure and good yield for their holder.

The Stable nest reaches a good balance by spreading the risk of fiat pegged stables while earning a decent yield.

Objective

To provide exposure to a diversified basket of stable coins with a focus on yield and decentralization. By spreading risk over a number of coins, you reduce the impact of problems any of the coins face. By focusing on decentralized stables, you also reduce exposure to regulatory risk and do not rely on central issuers to continually act as they should.

The nest will start with a mixture of centrally issued and decentralized stable coins and deposit them in a variety of protocols to earn yield on them, swapping strategies regularly to maximize the yield earned.

Currently, single sided yield options on polygon are limited for coins like FRAX and MAI. In order to provide a greater yield farming return USDC and USDT, which are centrally issued, will be included. Over time, we expect the weightings of these coins to be reduced in favor of decentralized alternatives once they are sufficiently mature and have yield strategies that are suitable for a stables nest on polygon.

Project Inclusion Criteria

For a project to be included in the Polly Stable Index, it must fit the below criteria in order to reduce the risk of the index and fit the desires of the community.

  • Be a Stable token project available on the Ethereum blockchain or Polygon.
  • Be in liquid markets and being used in different lending protocols
  • The protocol must be running for 6 months before qualifying to be included in the index
  • In the event of a safety incident, the team must have addressed the problem responsibly and promptly, providing users of the protocol a reliable solution and document a detailed, transparent breakdown of the incident.
  • Must be sufficiently decentralized and/or collateralized

Nest Composition

The composition of this nest is a fair balance between decentralized stable tokens and collateralized pegged stables heavily used in lending protocols

  • RAI - 40%
  • DAI - 30%
  • USDC - 15%
  • USDT - 15%

Yield Strategy

It is possible for the underlying tokens to follow strategies that will earn yield, maximizing value for nest holders, who benefit from this productivity without having to perform any actions themselves. These strategies will be changed over time to take advantage of new opportunities or to maximize the yield earned. Strategies already available include lending and staking, with more advanced strategies planned to be developed in the future.

We will rely primarily on Kashi markets, which at the moment are giving the best yields for stables, but are also monitoring the yields offered on Cream and AAVE.

Fees

Fees for the index will be used for a combination of burning the governance token, adding to the treasury as well as a unique reflexive payment to current index holders as a way to incentivize long term holders. This will be achieved by distributing ⅓ of exit fees to anyone currently holding the index token. The fees are broken down as follows:

Entry fee 0.5%: used to burn Polly tokens
Annual streaming fee 1%: accumulated by the treasury
Exit fee 1%: 0.66% accumulated by the treasury, 0.33% distributed to current index holders

Index Maintenance

The Index is maintained quarterly in two phases

Determination Phase

The determination phase takes place during the final 2 weeks of the quarter. During this phase the changes needed for the next reconstitution are determined. Strategies and allocation % will be revisited in order to reach the balance between decentralization and having the most optimal yet secure yield possible for those stables. Proposed changes will be published on the governance forum for 1 week then a governance vote will run for the community to approve changes.

Reconstitution Phase

In the two weeks following a successful vote, the index components will be adjusted as per the instructions published during the final 2 weeks of the quarter.

Emergency Maintenance

The multisig holders are authorized by the community to re-balance indexes outside the usual schedule during moments that they collectively deem to be critical emergencies. This clause will allow for quick re-balancing in the event of a protocol or index being in danger of failing.

An example of when this would be utilized would be if a stable coin begins losing its peg/ becoming insolvent, or a protocol suffers an exploit that is not dealt with sufficiently. These scenarios may be time sensitive and require immediate resolution. Thus the team may decide to act without warning and explain their actions in a governance forum post afterwards, or if there is deemed to be time, an emergency governance vote will be posted.

This is intended as a safety mechanism only, to prevent loss of funds for our users and as such would be a power exclusively exercised under extreme circumstances.

Farms

The following pool will be added to the liquidity farming pools

RAI/ETH - 2000
nStable - 3000
nStable/ETH - 7000

7 Likes

Why not UST? That’s my favorite decentralized stablecoin…

Agree. Like UST as a decentralized stable. Excluded due to farming/lending options on Poly or otherwise?

How is this different from Curve stable pools? Will the yields outperform them or ist this just to bring more TVL to the protocol?

1 Like

Unless anyone else brings something else to light I agree for this to be passed onto snapshot for us to finalize bringing it in. If yields are possible for UST then possibly replace USDT with it.

As much as we would like to bring more decentralized stable coins into the nest right now, having a yield attached to it is also important. Otherwise, we should simply hold the stable token and not the nest.

Currently we support yield strategies from Cream, AAVE and Kashi, but the three doesn’t have any lending pool for UST.

This is why we stated this in the proposal :
In order to provide a greater yield farming return USDC and USDT, which are centrally issued, will be included. Over time, we expect the weightings of these coins to be reduced in favor of decentralized alternatives once they are sufficiently mature and have yield strategies that are suitable for a stables nest on polygon.

1 Like

Definitely understandable then, that’s what I figured.

So I just noticed this, was there any particular reason we dont have a Polly/nSTABLE pool? we have two pairs with ETH I think we could afford to drop either one and add nSTABLE/Polly or just add another pool that is nSTABLE/Polly with it having the highest weight for the most risk. Also I’m not sure I like a completely non native pool having such a high weight. If we do keep RAI/ETH we should reduce it significantly possibly to 500 or 1000 max.

The purpose behind RAI/ETH pool is that we use ETH to buy tokens on sushiswap. If we don’t create and incentives a RAI/ETH pool, we will go through a strange route in the AMM router that could do many hops.

Because nStable use 40% of RAI, we think we should incentives more this pool to attract more TVL so we don’t unbalance “too much” a stable coin.

As for Polly/nStable, I personally think it is not necessary to add one because it’s not a natural trading pair. But we had discussion where in a few weeks we would want to revisit the weights of all the pools while doing a survey of the TVL of all the underlying tokens necessary for the nests.

At that moment, there were discussions to create a polly staking pool.

1 Like

Okay, thats completely understandable… Its true RAI didnt have great liquidity at the start and we had to use other AMM besides sushiswap to bring in more liquidity and bridge a bunch here. So I for sure see where you are coming from here, it helps with the use of nSTABLES.

As for this I think its just important to make Polly used as much as possible as it is the governance token and should be the center of the franchise/also I want to pair my farmed polly with more nests haha and besides we made a farm pool for nDEFI/POLLY.

Also I’m curious what the method is for redistributing the fee to index holders.

The thinking behind the farms was that we did not want to dilute further rewards for any other pools by adding an additional Polly pool now the overall rewards have dropped a bit. Only one pool is needed for getting a listing for it on coingecko or trading, so any more dont really add anything to the project other than a way to farm with Polly.

The method for redistributing the 0.33% part of exit fees is to simply send back that much less to the wallet redeeming. Because the redeem process burns nSTABL tokens, it means each remaining nSTABL tokens represents more underlying asets.

1 Like