I propose to increase credit line to Yield Basis to 1B crvUSD (supporting maximum of 0.5B TVL there). Nevertheless, this credit line should only be utilized by Yield Basis not all at once, by pieces.
How will Yield Basis use this credit line
Increase allowed TVL by $1-2M increments in order to finish migration from Yield Basis pools V1 to Yield Basis pools V2;
(Turn on the fee switch);
After liquidity in Curve crvUSD pools goes up - start utilizing pieces of this credit line (in $50M increments) on Yield Basis side.
Stablecoin pools with crvUSD started appearing in the top by volume on Curve really often, making crvUSD #3 stablecoin by volume one Ethereum today (after USDT and USDC). Continuing this trend would increase revenues from crvUSD exchanges for Curve DAO.
Leverage and deleverage in crvUSD mint markets
YB BTC pools are now used when routing in mint markets on Curve. This already allows to leverage and deleverage BTC wrappers in size up to $5M with price impacts much lower than before.
Vote incentives on Votemarket and Votium
veCRV and vlCVX holders get increased vote incentive revenues since YB distribution for crvUSD pools is up.
I’m happy to see crvUSD taking a large share of BTC volume on Ethereum and achieving deeper liquidity. However, this comes at the cost of stability in other key metrics — namely the crvUSD peg and mint-market rates. Together with LlamaRisk, we’re preparing a brief fix to publish shortly, followed by the development of a smoother monetary policy.
Given this, I want to raise a concern that increasing the YB credit line should wait until these current issues are resolved and the system has stabilized.
We support Roman in favour of not rushing this proposal. So far, YieldBasis has been observed to be associated with an increase in crvUSD rate volatility and mild peg instability. Peg stability has so far not been critically impacted, however, a clear pattern is emerging. As credit lines expand, volumes scale with them.
With a 1B crvUSD credit line (noting that Michael is proposing that YB will increase caps gradually), we should expect a material jump in rebalancing flows and market volumes, and the current TVL across pegkeeper pools may not be sufficient to absorb that without amplifying volatility.
Joe from Pangea has published some preliminary data showing that volatility in pegkeeper pools increased after YB deployment. We are already working together with Pangea on a deeper analysis of the expected impact of this proposal and the conditions under which a 1B line could be safely supported.
Separately, we are finalizing updates to the mint-market interest rate models, which will be published on Monday. These changes are designed to have immediate improvements in rate behaviour under current conditions. It makes sense to let these improvements land and monitor their effect before increasing systemic leverage by raising YB’s credit line further.
Overall, our view is that we should stabilize the current environment, integrate the upcoming rate-model refinements, and complete the joint review with Pangea before committing to a 1B expansion. This ensures the ecosystem grows safely rather than reactively.
We published research showing an increase in the aggregate deviation across crvUSD pools for the period after the launch of YieldBasis, when compared to the equal period of time before.
Whilst there are many factors that could contribute to peg instability, such as increased market volatility, our previous research has shown structural flows between YieldBasis and crvUSD pools which can impact peg stability if liquidity is insufficient to handle this volume, or if flows are unidirectional for prolonged periods due to one-sided BTC price action.
This phenomenon is also recognised in a previous proposal from Mich, which aimed at scaling crvUSD to enable safely raising the YieldBasis cap. However, our research has shown that whilst incentives did temporarily increase liquidity, this has not proven sticky.
We believe that further analysis is needed before proceeding with the cap raise to better understand the causes of peg instability, the relationship to Curve borrowing rates, and the effect of incentives in scaling liquidity. We will be working with LlamaRisk to conduct this analysis and suggest improvements to ensure caps can be raised safely, without negative impacts on crvUSD or Curve borrow markets.
For all reasons listed above and with already a major position on liquidity on wrapBTC
I think that it would be more interesting to raise crvUSD limit to launch ETH/crvUSD and stETH/crvUSD markets on Yield basis ? with only “few millions” crvUSD (rather than several hundred millions crvUSD for BTC)
Curve / Yield Basis is already the major DEX for tBTC cb BTC
