[Gauntlet] - USDT0 Recommendations
Summary
Gauntlet recommends onboarding USDT0 as collateral in Moonwell’s Core lending markets on Optimism. This decision follows a thorough assessment of key risk factors, including liquidity conditions, peg stability, and the asset’s overall fit within the protocol’s risk framework.
Risk Parameter Recommendations
| Parameters | Values |
|---|---|
| CF | 83% |
| Supply Cap | 1M USDT0 |
| Borrow Cap | 900K USDT0 |
| Protocol Seize Share | 30% |
IR Recommendations
| IR Parameters | Recommended |
|---|---|
| Base | 0 |
| Kink | 0.9 |
| Multiplier | 0.0515 |
| Jump Multiplier | 9 |
| Reserve Factor | 0.1 |
Supporting Data
Redemption
USDT0 inherits USDT’s liquidity profile and systemic stability. Typical bridge risks are mitigated through direct burn-and-mint processes. Redeeming USDT0 — the process of transferring it back to the Ethereum mainnet to receive USDT — involves minimal fees and usually completes rapidly.
Portal: Transfer
DEX Liquidity & Swap Slippage
On Optimism, liquidity for USDT0 stays relatively thin. Swapping ~800K USDT0 to USDT via DEX would incur 25-30% slippage. This can cause high slippage when swapping USDT0 for native USDT in DEX pools, even if canonical USDT remains stable.
USDT0 has ~$4M liquidity pool on Optimism.
| pool_name | pool_type | pool_url | pool_tvl_usd | volume_24h_usd |
|---|---|---|---|---|
| USD0 / USDT 0.01% | velodrome-finance-slipstream | Link | $4.48M | $939.73K |
| USD0 / WETH 0.05% | velodrome-finance-slipstream | Link | $216.13K | $602.46K |
Risks of USDT0 and USDT Depegging
USDT0 relies on LayerZero’s infrastructure. If there is a messaging failure, hack, or compromise, it could delay or disrupt redemption between USDT0 and native USDT.
Although USDT0 isn’t a traditional liquidity bridge, it still involves trust assumptions about the OFT system and smart contract integrity. If USDT0 mint/burn logic fails or is attacked, it could cause mispricing.
During times of high stress (e.g., mass exodus), the redemption path (burn USDT0 to get USDT) could become congested, delayed, or more costly (higher gas fees), worsening peg instability temporarily.
If USDT depegs, USDT0 will depeg too. USDT briefly depegged during periods like the FTX collapse (Nov 2022) and Terra crash (May 2022), though it re-stabilized within hours or days. Concerns about USDT’s centralized backing and liquidity under extreme stress remain valid risks.
Supply & Borrow Cap Specifications
Taking into account the current USDT supply and borrow demand on Optimism and the DEX liquidity, we recommend setting the initial supply cap for USDT0 at 1M and the borrow cap at 900K.
IR Parameter Specifications
IR Curves
| Utilization | Borrow APR | Supply APR |
|---|---|---|
| 0 | 0% | 0% |
| kink | 4.63% | 3.75% |
| 100 | 94.63% | 85.17% |
We recommend an IR curve with a borrow APR of 4.63% at kink, aligning with USDT IR curve settings.