Authors: Allez Labs, Morpho Association, Yearn
Abstract
After reviewing community feedback from the Pilani Feature Request Thread the authors propose this Pre-PIP to initiate discussion on gradually deploying the DAI, USDC & USDT reserves of the Polygon PoS Portal Bridge into curated liquidity pools to kickstart a new Ecosystem Incentives program to grow the DeFi ecosystems of Polygon PoS and the AggLayer at large.
The Pre-PIP Authors propose combining their industry leading technology and expertise to assist the Polygon Community in establishing this program: Morpho Vaults and Markets serving as the underlying liquidity protocol, Allez Labs serving as the curator/risk manager of the system, USTB from Superstate, sUSDS from Maker, and stUSD from Angle serving as high quality RWA and DeFi yield bearing collaterals, and Yearn as the reward program manager.
Motivation
The PoS Bridge currently holds ~$1.3B of stablecoins, which makes it one of the largest, but also idle, holders of stablecoins onchain. At the current benchmark lending rate for the 3 major stables this is an opportunity cost of around ~$70M annually. During the most recent request for features, one of the top recurring requests was putting the bridge reserves into canonical or conservative yield strategies that would unlock a lot of growth for Polygon PoS. The authors believe that DeFi as a whole has matured whereby assets held in the Polygon PoS bridge can be used productively and securely to incentivize additional activity on Polygon PoS and within the AggLayer.
Details
This Pre-PIP proposes a very gradual deployment of bridge liquidity for USDC, USDT and DAI into a corresponding ERC-4626 vault. Each asset in the program will be activated by its own independent PIP expanding on these details.
For each asset, the authors propose a high level description of the vault’s strategy as follows:
DAI:
All vault reserves will be held in Maker’s sUSDS, the canonical yield bearing wrapper for the Maker ecosystem.
USDC & USDT:
Morpho Vaults will be used as the canonical source of yield for USDC and USDT given the absence of native yield-bearing wrappers. They’ll act as core yield sources for the bridge collateral curated by Allez Labs. All decisions that increase risk (increasing market caps & adding new markets) will be behind a 72-hour time lock. Polygon Protocol Council will retain a veto (via the guardian role). The initial proposed Morpho Markets will include (but will not be limited to) Superstate’s USTB, Maker’s sUSDS, and Angle’s stUSD. Allez will conduct risk analysis on these assets and publish their recommendations both on the forum and present to PPGC as part of the final PIP submission. The final PIP will also approve a process by which Allez will manage the markets and engage with the Polygon Community.
The proposed Ecosystem Incentive Program will be managed by Yearn. Yearn will create a Polygon Ecosystem Vault for each approved asset. These vaults will be incentivized using the rewards earned from the bridge assets deployed in the liquidity protocol. The deposits in the vaults will be deployed across Polygon PoS and AggLayer DeFi, growing the ecosystem. The details of this program will be further detailed in its own independent PIP.
All yield generated by the above will be directed to a new Polygon Ecosystem Incentives program managed by Yearn. Yearn will create 3 Polygon Ecosystem Vaults (for USDC, USDT and DAI) whose deposits will be deployed across Polygon PoS and AggLayer DeFi. The yield earned from the Morpho Markets and sUSDS strategy will be used to reward depositors of these new Polygon Ecosystem Yearn Vaults.
The above changes will be debated by the community via the forum and PPGC consensus making process. Formal PIPs will follow with details of a proposed specification, along with each respective asset type to be used.
Backwards Compatibility
The goal is for there to be no major backwards compatibility concerns as all Bridge APIs are unchanged. The amount of gas used by certain bridging calls may increase as part of executing the new logic. In the exceptional case where liquidity is not readily available, a withdrawal will be filled with the ERC-4626 vault token which can be redeemed directly for the underlying assets as liquidity is made available.
References
- ERC-4626 https://eips.ethereum.org/EIPS/eip-4626
- sUSDS (https://developers.sky.money/modules/susds-savings-usds)
- Morpho Vaults (https://docs.morpho.org/morpho-vaults/overview)
- Morpho Markets (https://docs.morpho.org/morpho/overview)
- Superstate (https://superstate.co/about)
- Superstate USTB (https://superstate.co/ustb)
- Angle stUSD (https://docs.angle.money/savings/savings)
- Yearn yVaults (https://docs.yearn.fi/getting-started/products/yvaults/overview)
- Allez Labs (https://allez.xyz/about)
Copyright
All copyrights and related rights in this work are waived under CC0 1.0 Universal.