NERITE x UNI: Pilot Program

Requests for Comment
1

TLDR:

To enhance the optionality and utility of the $UNI token, AlphaGrowth, stewards of the Uniswap Growth Program Trial, have been distilling opportunities throughout the DeFi ecosystem.

For this specific opportunity, we have collaborated with Nerite, a Liquity V2 style CDP protocol on Arbitrum. Today, we’re presenting the opportunity for the DAO to list $UNI as collateral on Nerite and use Nerite in our treasury management strategies.

This initiative aims to unlock new use cases for $UNI holders, enabling them to further utilize their tokens as collateral for borrowing.

USDN Stablecoin:

Nerite issues the USDN stablecoin, backed in part by $UNI.

USDN is the ideal stablecoin for use in treasury management because:

  1. Redemptions. 1 USDN is always redeemable for $1.00 of collateral, and Liquity has been rated as the safest stablecoin system by Bluechip.
  2. Streaming. USDN is streamable over time to any address through a native superfluid integration. That means grants, salaries, strategies, vesting, and any payments can be made linearly as milestones are met. It is the only natively streamable stablecoin.
  3. Yield Bearing. USDN earns sustainable yield from multiple sources while maintaining decentralization.

Nerite Protocol Overview:

Nerite is a “friendly” sanctioned fork of Liquity V2, and takes inspiration from Maker, Open Dollar, and other CDP protocols that have come before.

Nerite CDPs accepts multiple collateral types. Due to governance minimization, the protocol is immutable and new collaterals can not be added in the future, increasing security.

Yield for USDN comes from borrowers, as well as Protocol Owned Liquidations, which bolster Stability Pool staking returns. For most lending protocols, liquidation value is captured by MEV bots or others. Nerite directs that value toward USDN Liquity Pool stakers.

Yield is supported as well through the use of tranched redemptions, which allow for a discovery process for borrow rates: redemptions occur from whichever position on the protocol is the lowest yield. Tranched redemptions constantly incentivize arbitrage, which re-inforces the USDN peg, and increases demand for borrow rates.

Benefits to Uniswap DAO:

The Pilot Program would whitelist UNI as collateral, seed an initial UNI position within Nerite on behalf of the Uniswap DAO Treasury, then borrow and stake USDN.

The benefits are as follows:

  1. USDN can be staked to earn a projected ~14% yield, before incentives.
  2. Uniswap DAO will also earn a boosted position in the Nerite Governance token.
  3. UNI holders will have the benefit of being a listed collateral on an immutable, and newly designed CDP protocol on Arbitrum.
  4. Once UNI is listed, we will be able to build structured products, making it easier for UNI holders to earn yield through composable strategies built on top of Nerite.
  5. The Uniswap DAO will also be able to use Nerite as a method to hedge treasury holdings in the future.

This Pilot Program represents a step toward putting Uniswap DAO Treasury assets to work, while supporting slow, and steady DeFi innovation on Arbitrum.

Call To Action:

The Nerite Pilot Program offers the Uniswap DAO strategic opportunities to initiate treasury strategies on Nerite by considering one of the following conservative deposit options:

  1. Deposit $5M, Borrow and Stake $1M USDN.
  2. Deposit $10M, Borrow and Stake $2M USDN.
  3. Deposit $15M, Borrow and Stake $3M USDN.

We believe this to be a great opportunity for Nerite as well as for Uniswap DAO and her token holders, and, in order to make the most of this opportunity, we’d recommend listing $UNI as a day 1 collateral.

We are eager to hear feedback from the DAO.

Reference:

Nerite was founded by Joseph Schiarizzi [@cupojoseph], a contributor to OpenSea, Open Dollar, Ethereum, Gitcoin, ConsenSys, HAI, Liquity, and others. Joseph is a known as a relentless educator and innovator for DeFi.

Joseph never sold his UNI Airdrop, and you can learn more about his work here:

Learn more about Nerite here:

The following is a helpful video in explaining Tranched Redemptions:

3

These are quite big amounts for a protocol that’s not live and believe it would be beneficial to wait till the protocol has more to show and stablize.

In addition,

so this effectively means 14% yield on USDN minted which would be based on 1-3 M USDN, which would mean 140k USD to 420k USD per year assuming it actually works as intended, which unsure whether the benefit will outweight the cost.

1 Like
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Hello! As @Doo_StableLab mentioned, why asking to the uniswap dao to bootstrap the tvl and so onboard all the risk of a protocol that currently is not live?

Also, to clarify: when you say that usdn can be “staked”, do you mean it would be provided as liquidity in the stability pool to buy back the assets liquidated at a disconunt, and this would generate the 14%? If that is the case, is not risk free yield or yield based on emissions, but you onboard the risk of having to liquidate on your own the assets. And I am thinking out loud here in term of how the dao would be able to manage that.
(note: i might be confusing the versions of liquity, or even just mixing other lending protocols, if so please let me know, we got too many nowadays)

2 Likes
5

Thank you for submitting this proposal.

Based on our expertise in on-chain asset management, we would like to highlight a few considerations for the community’s evaluation:

  • standalone proposals to deposit treasury funds in individual protocols appear counterproductive without a broader, cohesive strategy;
  • clearer elaboration of the growth strategy and role of this proposal in that strategy is needed to properly evaluate the opportunity and its impact for the DAO (e.g. definition of an investment policy that defines the general investment goals and objectives of the DAO);
  • expecting delegates to possess the specialized expertise required to assess the risk level of protocols is impractical and may expose the treasury to unnecessary vulnerabilities. A more structured risk evaluation process is recommended.

We hope these considerations provide additional context to guide the community’s evaluation of this proposal.

4 Likes
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We agree with the comments made by fellow delegates, specifically the points highlighted by @karpatkey.

We are not comfortable with the DAO treasury being used to bootstrap new protocols when there is no clear need from the DAO’s perspective. Furthermore, such treasury allocations should be considered holistically with other alternatives and goals in mind.

2 Likes
7

While this proposal introduces an interesting pilot program, it lacks a clear connection to the Uniswap DAO’s overarching strategic goals. Specifically it would be helpful to articulate how this proposal fits into a broader treasury management strategy or long-term growth vision for the DAO. Without this context, it may be challenging for the community to assess the broader impact on the DAOs sustainability and financial health.

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It sounds like there’s arb op in borrowing fiat and lending at “14%” … however this sounds more appros to a pitch to LP or investor… I remind people of the definition of a public good

The main criteria that distinguish a public good are that it must be non-rivalrous and non-excludable. Non-rivalrous means that the goods do not dwindle in supply as more people consume them. Non-excludability means that the good is available to all citizens.

classic example being a lighthoudays. se as you can’t shut off light on non-stormy. Even if Treasury wanted to construct a portfolio, it would probably be left to investment managers who can correctly evaluate the financial risks.

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Hi, we have some questions.

The objective of the proposal as it relates to benefits for the treasury is unclear to us.

Is the purpose of taking on debt solely to generate income for the treasury through the stablecoin, as outlined in the section ‘Benefits to Uniswap DAO’?

Or is it also intended to achieve the objectives described in the section ‘USDN Stablecoin:… 2. Streaming. USDN is streamable over time to any address through a native superfluid integration. That means grants, salaries, strategies, vesting, and any payments can be made linearly as milestones are met. It is the only natively streamable stablecoin.’?

We would also like to highlight some points:

Uniswap, being a leading multi-chain agnostic DEX, should not show any preference over a chain, and in any case, the only preference if it exists should be Ethereum, because of its connection to the protocol.

Regarding some points of ‘USDN Stablecoin’:

Regardless of how relevant Bluechip may be as a qualifier, the concept of ‘safest stablecoin system’ for a stablecoin is broad and may only refer to its decentralisation; without going further, a stablecoin must be stable, and Liquidity-LUSD is not always stable. Also, the USDN stablecoin mentioned in the proposal is a different asset from Liquidity-LUSD (which is mentioned in the classification), with the same design but different collateral and different liquidity, so there is no relationship with the security of the USDN asset and the Liquidity-LUSD mentioned.

What do you mean by this?

What do you mean by ‘security’ and what are its implications in this context?

  • Could you please detail the methodology used to calculate the volume of liquidations of a protocol that has not yet been implemented?
  • The proposal indicates an expected return for the protocol of 14%: the composition of this return is: 1) what the protocol itself would pay to borrow (there is no profit here, it would be netted) and 2) what the protocol generates in liquidations. To estimate the return, we need to know the volume of liquidations that the protocol will generate and the amount of assets that will make up the stability fund. Can you tell us how you get or estimate this information?

Finally, it is important to understand that the liquidity of a stablecoin is necessary to maintain its function and this asset has not yet been deployed. Uniswap needs size for any initiative, an illiquid stablecoin limits its use, and the size that can potentially support a stablecoin like the one you mention is irrelevant for Uniswap, and the cost of implementation can potentially be much higher than the potential benefit, which we understand will be 0 until settlements begin.

We support initiatives to use UNI tokens, both for treasury and for the holder, but do not find objective grounds for the proposal. We are happy to help with the analysis of such initiatives that are more closely related to the need for both the DAO and the token.

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As mentioned by @Doo_StableLab , this yields $140k to $420k / yr for $5m to $15m deposited. Looks more like a marketing play to bring utility to UNI rather than an income source for Uniswap DAO.

You should get UNI listed on Nerite for people to borrow against their own UNI holdings.

If they’re still saying they want UNI seeded liquidity as a gesture of good faith for a partnership, then to me that would come from a “protocol-owned liquidity” allocation, which I’m not clear if Uniswap DAO currently has.

11

We are also skeptical about this proposal for the following reasons.

  • As many have already mentioned, the projected 14% yield applies to the USDN, not to the deposited UNI tokens. Considering the collateralization ratio, this yield does not seem particularly high enough.
  • As a protocol that has not yet been battle-tested, it seems somewhat risky to allocate the proposed amount of UNI to this initiative. A more conservative approach may be warranted if we are to move this forward.
  • The proposal should be discussed in the context of a broader treasury management strategy and in comparison to other opportunities for utilizing UNI tokens. This aligns with what @karpatkey shared.