Whitelisting of USDM algorithmic stablecoin within Moonwell Protocol

Proposals
1

USDM (1)
USDM (1)1920×1080 128 KB

Title: Whitelisting of USDM algorithmic stablecoin within Moonwell Lending Protocol on the Base chain.
Author(s): TJ & Yair from Meridian Finance
Submission Date: 08/09/2023

Summary
Integration of USDM stablecoin for collateral and borrowing on Moonwell Lending Protocol. This addition will provide a native over-collateralized stablecoin option for lenders and borrowers within the Base ecosystem.

Overview:

Meridian Mint is a decentralized, non-custodial, governance-free borrowing protocol that enables users to obtain interest-free loans against ETH collateral. Loans are paid in USDM, which is a USD-pegged stablecoin. Meridian adopts an over-collateralized lending architecture that maintains a minimum collateral ratio of 110% which is algorithmically validated and assured by a Stability Pool to maintain the pegged value of USDM. As a direct fork of the highly successful Liquity protocol, Meridian shares the exact same smart contract code base. All contracts are fully verified and can be reviewed here on sourcify.

USDM offers lucrative features & advantages, that make it a highly appealing choice for both users and protocols looking to integrate:

  • Zero interest rate — Borrowers can hold USDM for as long as they wish. As there is no interest to pay there is no need to worry about constantly accruing debt
  • Efficient use of capital — By using a blue-chip asset such as ETH users only need to maintain a minimum collateral ratio of 110% providing more efficient usage of deposited ETH.
  • Governance-free — all operations are algorithmic and fully automated, and protocol parameters are set at the time of contract deployment
  • Directly redeemable — USDM can be redeemed at face value for the underlying collateral at any time
  • Fully decentralized — The Meridian base contracts can be accessed by multiple third parties. This allows for different frontend operators and ensures that the protocol remains resistant to censorship

Full USDM Technical documentation and risk assessment can be found here: https://docs.meridianfinance.net/resources/technical-and-security/usdm-technical-overview

Motivation
The team behind Meridian, previously ran OmniDex, the largest exchange and lending service on Telos EVM. OmniDex was directly impacted by the failure of the Multichain Bridge collapse, which made the team acutely aware of the hazards of supporting only bridged assets. Our experience at OmniDex motivated us to create USDM—a genuinely decentralized stablecoin that addresses the pitfalls and vulnerabilities of wrapped bridged stablecoins.

We now want to proliferate the adoption of USDM within the Base ecosystem to ensure the network does not become overly reliant on either bridged or centralized stablecoins. We believe as developers in this space we have the ability to guide the industry toward a decentralized future, as it was originally intended. Small decisions made today have the potential to have great effects into the future. Meridian’s robust infrastructure has been rigorously tested and with the support and adoption from other leading Base projects, we believe it can significantly aid the shift towards genuine decentralization on Base.

~ Growth

USDM saw impressive growth in the last month. The image below illustrates the amount of ETH deposited to Meridian in order to mint USDM. Each USDM token is currently 170% collateralized by ETH.

Use the following link to see a live version of the graph:
https://defillama.com/chart/protocol/meridian-finance?denomination=ETH&include_borrowed_in_tvl=true&theme=dark

Implementation
Add USDM stablecoin as a supported asset (whitelisting) for both lending and borrowing within the Moonwell protocol.
USDM Contract Address: 0x5e06eA564efcB3158a85dBF0B9E017cb003ff56f

Meridian Finance is committed to ensuring the USDM token is always overcollateralized. Thus ensuring its hard price floor of $1 at all times. (This commitment is guaranteed algorithmically via the design of the protocol)

Meridian Finance is dedicated to promoting awareness and adoption of Moonwell within our community, ensuring that the newly introduced pool on Moonwell is actively used.

Meridian supports adopting the WELL token as a treasury asset. 5% of USDM platform fees will be used to purchase the token.

Voting
Yay:

Whitelist USDM for lending and borrowing on Moonwell.

  • Moonwell benefits from decentralized stablecoin option
  • Meridian Mint holds 5% of treasury assets in WELL token

Nay: Do not whitelist USDM for lending and borrowing on Moonwell.

1 Like
2

Hey @onlyMeridian and welcome to the Moonwell Gov Forum!

Honestly, it’s likely a little premature to create a new market for USDM on Moonwell, merely judging by the $70k ecosystem liquidity and lack of a Chainlink price feed.

As this is my first time hearing about USDM & Meridian Finance, I did have a few follow-up questions for you:

  1. Will you be able to provide all of the requested information found in the “Moonwell Asset Listing Framework”?

  2. Can you elaborate on the Stability Pool that assures the pegged value of USDM?

  3. What are the security measures in place to protect against smart contract vulnerabilities? Have any external audits been conducted?

  4. How does USDM handle extreme market volatility, considering it’s over-collateralized by ETH?

  5. What are the contingency plans if the USDM token fails to maintain its hard price floor of $1?

  6. Can you provide more details on how the 5% of USDM platform fees will be used to purchase the WELL token / how the Meridian treasury functions?

  7. How do you envision the integration of USDM benefiting the Moonwell community?

  8. How do you plan to further engage with the Moonwell community? Where can community members go to learn more about Meridian and USDM?

  9. Is the token contract upgradable?

  10. Is there a Github repository for the underlying token contracts?

2 Likes
3

Hey @onlyMeridian Team,

Welcome! As mentioned by @majin , please provide the requested info within the Moonwell Asset Listing Framework. Gauntlet has a few other preliminary questions about USDM as well:

  • Does an oracle price feed for USDM currently exist on BASE?
  • There is currently 70k USDM circulating, with 76% of USDM within the Meridian Protocol’s Stability Pool. Are there any incentivization or partnership roadmaps to increase usage and liquidity for USDM in other protocols?
  • Where are the most extensive liquidity sources for USDM? Is USDM currently listed on any decentralized exchanges?
1 Like
4

Hey, @majin
Thanks for your messages. Hopefully the following points will address each of your concerns.

  1. Will you be able to provide all of the requested information found in the “[Moonwell Asset Listing Framework 4]?

Indeed, we currently rely on the DIA oracle as our chosen price feed provider. You can access further details regarding this aspect in our documentation.

  1. Can you elaborate on the Stability Pool that assures the pegged value of USDM?

The Stability Pool is the first line of defense in maintaining system solvency. It achieves this by acting as the source of liquidity to repay debt from liquidated Troves—ensuring that the total USDM supply always remains backed by collateral.

When any Trove is liquidated, an amount of USDM corresponding to the remaining debt of the Trove is burned from the Stability Pool’s balance to repay its debt. In exchange, the entire collateral from the Trove is transferred to the Stability Pool.

The Stability Pool is funded by users transferring USDM into it (called Stability Providers). Over time Stability Providers lose a pro-rata share of their USDM deposits while gaining a pro-rata share of the liquidated collateral. However, because Troves are likely to be liquidated at just below 110% collateral ratios, it is expected that Stability Providers will receive a greater dollar value of collateral relative to the debt they pay off.

  1. What are the security measures in place to protect against smart contract vulnerabilities? Have any external audits been conducted?

Meridian is a direct fork of the immensely successful Liquity protocol, and it utilizes the same smart contract code base. Liquity has undergone extensive testing over the years, enduring extreme market volatility and unforeseen black swan events.

  1. How does USDM handle extreme market volatility, considering it’s over-collateralized by ETH?

The capacity to exchange USDM for ETH at a one-to-one ratio (i.e., 1 USDM for $1 worth of ETH) and the minimum collateral ratio set at 110% establish both a lower price limit and an upper price limit through arbitrage opportunities. These mechanisms, known as “hard peg mechanisms,” since they are based on direct processes.

USDM also benefits from less direct mechanisms for USD parity — called “soft peg mechanisms”. One of these mechanisms is parity as a Schelling point. Since Meridian treats USDM as being equal to USD, parity between the two is an implied equilibrium state of the protocol.

Another of these mechanisms is the borrowing fee on new debts. As redemptions increase (implying USDM is below $1), so too does the baseRate — making borrowing less attractive which keeps new USDM from hitting the market and driving the price below $1.

  1. What are the contingency plans if the USDM token fails to maintain its hard price floor of $1?

Recovery Mode kicks in when the Total Collateral Ratio (TCR) of the system falls below 150%. Recovery mode is one of the mechanisms that is designed to protect the integrity of Meridian, maintain adequate liquidity and hold the USD peg for USDM.

During Recovery Mode, Troves with a collateral ratio below 150% can be liquidated.

Moreover, the system blocks borrower transactions that would further decrease the TCR. New USDM may only be issued by adjusting existing Troves in a way that improves their collateral ratio, or by opening a new Trove with a collateral ratio>=150%. In general, if an existing Trove’s adjustment reduces its collateral ratio, the transaction is only executed if the resulting TCR is above 150%.

  1. Can you provide more details on how the 5% of USDM platform fees will be used to purchase the WELL token / how the Meridian treasury functions?

Every time a user opens a Trove to ‘mint’ USDM, a 0.5% fee is deducted as a platform fee. Similarly, when users redeem their USDM back to ETH, there is a fee associated with the transaction.

As stated, 5% of the total platform fees will be allocated to the purchase of $WELL tokens directly from the open market. This strategic move will create additional buying pressure for $WELL tokens. These tokens will subsequently be utilized for participation in votes within the Moonwell ecosystem, as we envision ourselves playing an important role in this emerging ecosystem.

Furthermore, we plan to collaborate closely with the Moonwell team to explore various other applications and uses for these tokens, fostering a mutually beneficial partnership for all involved parties.

  1. How do you envision the integration of USDM benefiting the Moonwell community?

Our team was motivated to build the stablecoin after experiencing firsthand the fallout of Multichain Bridge which caused our own lending platform (OmniLend) to have to close shop. The goal for Meridian’s USDM stablecoin is to help other lending platforms reduce their exposure to centralized or bridged assets that carry their own risk.

  1. How do you plan to further engage with the Moonwell community?

Where can community members go to learn more about Meridian and USDM?

Our documentation hub is consistently maintained and offers extensive information covering all aspects of Meridian’s related products. You can access the documentation at this link: https://docs.meridianfinance.net.

In addition, our team is highly engaged and responsive on both our Telegram and Discord channels, making them excellent platforms for any inquiries or questions you may have.

  1. Is the token contract upgradable?

All contracts are fully immutable and non upgradable. There are no privileged access keys.

  1. Is there a GitHub repository for the underlying token contracts?

Yes. Meridian Finance · GitHub

1 Like
5

Hi Gauntlet,

To answer your question,

  1. Yes, the DIA price feed is already deployed and integrated with Meridian’s USDM stablecoin on Base.
  2. Our roadmap can be found here: https://www.meridianfinance.net/roadmap/.
    We are currently reaching out to new protocols for integration which will help increase the network effect and adoption of USDM on the Base network.
  3. We currently have liquidity on our in house trading platform which provides zero-slippage swaps and leverage trading options for USDM. We also have a USDM-USDC liquidity pool on UniswapV3.
    Meridian
1 Like
6

@Gauntlet @majin We would like to share with you that we were hosted on DIA Oracle AMA today, I think it’s super informative and packed with insights about what we aim to build.

With that, we would like to hear more about what ‘hard’ requirements do you have for listing new assets, like USDM?

1 Like
7

While the Liquity codebase and protocol have been well battle tested, we think that this might be a bit early for USDM given its current liquidity and liquidity centralization.

You mention that there is a DIA oracle, but the documentation only seems to show the one that is used by the protocol to track ETH:USD, is there one for the USDM token currently live, and if so, could you please link it?

While it seems early, we are open to collaborate with you guys for onboarding and risk parameters when the DAO deems fit.

1 Like
8

As with Liquity the protocol uses a redemption mechanism that enables 1 USDM to be redeemed directly for $1 worth of ETH collateral at any point in time, thus ensuring the tokens peg to $1. The exact mechanics behind this can be found here: Redemptions & USDM Price Stability - Meridian. The ETH:USD price feed is used to determind the amount of ETH received for each redemption, along with liquidation thresholds.

Anyway, we like what you are doing with your project and hopefully we wll be able to collaborate at some point in the near/mid future once the liquidity for USDM is greater

1 Like