Thread by @calchulus

this is incredibly powerful - it means that if we create a parallel economy in defi, we can do so and power our own spending, in a controlled manner, rather than outrageous borrowing done by sovereign states like the US.

https://twitter.com/thetechn0cratic/status/1371256982112452610

Disclaimer: hold no Alchemix, but @scupytrooples is up to something very interesting and lots of finance folks who understand the time value of money think this is very interesting.

It is also interesting to think though, whether it makes more sense if this is done on the individual level, or at the system level. I liken this to using up all the rebates your credit card gives you to spend

Rarely do individual humans actually remember to try to maximise or optimise their points and their credit limit to get yield. but what if an automated system handled the risk parameters for this?

The most efficient approach for a system is probably like what @fraxfinance employs - using USDC to back a fractional chunk of its total FRAX supply, and then deploying a network-transparent proportion of that into yield products like @compoundfinance @AaveAave @iearnfinance

FRAX is 87% backed by USDC, meaning that at 100M Circulating, 87M USDC is held in its contracts.
Currently, half of it is deployed into yield earning products, conservatively to test out the model first.

If yields on depositing into yield bearing products let's say are 30% APY, and there is a network utilisation ratio of 50%, then that means FRAX's USDC portfolio books a 15% APY gain. 0.875 backed *1.15 = 1.0005

That means that FRAX actually becomes fully collateralised every year at its current collateralisation ratio of 87% if you think that equilibrium yields on cUSDC, aUSDC yUSDC, or whatever yield, etc. can be ~30%.

This is where governance is important - the governors of FXS shares should be pushing hard on finding the highest interest-bearing instruments that are safe. Perhaps a collaboration with @AlphaFinanceLab @CreamdotFinance iron bank could be higher yield, or more in @iearnfinance

Just like what @AndreCronjeTech first mentioned why he built iearn in the @FTX_Official podcast w/ @jackshaftoes, stablecoin yield is amazing but really annoying to manage manually. Automatic solutions can save the headache of millions

In the long run, I expect this to test DAOs and governance to try to outperform the individual management of said credit against the collaterals, and I hope that both approaches drive higher utilisation, higher velocity, and hire utilisation of assets in the defi world.

Very similar to the active vs. passive/ Efficient Market Hypothesis types of arguments we see in the centralised world, I expect there to be good competition from both sides, but for myself, i'm lazy & want to focus on other stuff, so i'd rather have the same system be automated

sorry forgot to add a disclaimer: I have vested FXS shares