First off, welcome to the first public update from the Risk Management Committee to the Qi Dao community. We’ve been working hard over the past several months getting the processes in place to help the team and community make more informed decisions on what collaterals can make for good candidates to back MAI, our beloved stablecoin. We know that transparency is of utmost importance to the community, and we hope these updates will help ease some fears from some of you during the current bear market.
While we’ll explain the methodology used in a subsequent post, we want to assure the community that the safety of the MAI peg is our number one priority. Look for an article offering an in-depth look at what factors are used when analyzing new and existing collaterals over the next few days.
While we are in constant communication, discussing risk parameters, debt ceilings, and the onboarding of new assets via chat, we had our first official call discussing these factors a couple of days ago and wanted to inform the community with regards to some of the recommendations that have been made to the team.
The following vaults collaterals were suggested for deprecation due to various market factors:
While the AAAVE vaults on Fantom were never large enough to account for any meaningful potential revenue, keeping these vaults around no longer makes sense. One of the key factors we look for when assessing collaterals, is the ability for liquidators to be able to swap that token for stablecoins with little to no slippage. As of the time of this writing, slippage for only 18 AAVE (about $1325) stands at 10.02%, above our max threshold of 10%.
Additionally, the Aave community has vote to freeze Fantom markets as of September 2022, meaning users on Fantom no longer have access to deposits on the AMM (see https://governance.aave.com/t/arc-aave-v3-fantom-freeze-reserves/9166/14).
Additionally, Sushi has taken a hit on Fantom as well with overall Fantom TVL dropping drastically over the past several months and the FTM token itself losing 94% of its value over the past twelve months.
DEX volume has dropped from $5m/day in January 2022, to under $35k/day as of the time of this writing. SUSHI liquidity remains mostly in a SUSHI/FTM LP with roughly $45k TVL, but only generating about $1.5k/day in volume.
Total MAI debt in SUSHI (Fantom) vaults is at an all time low at just 0.0041% of total backed MAI, while Fantom vaults overall account for 14.5% of total backed MAI.
Harmony’s overall market cap has taken a tumble since the Horizon Bridge hack this past summer (https://medium.com/harmony-one/harmonys-horizon-bridge-hack-1e8d283b6d66) which has resulted on Harmony’s ecosystem to enter a downward spiral. Harmony’s largest DEX, DefiKingdom, no longer operates on Harmony, choosing instead to migrate its efforts towards Avalanche, and ViperSwap, the DEX offering the largest liquidity for MAI on chain, has shut down its front end to users.
As a result of the hack, Qi Dao already deprecated both the WETH and WBTC vaults to prevent any bad debt from accruing as a result of the exploit, while ONE vaults have remained live. This vault currently only accounts for 0.037% of the total backed MAI with under $10k MAI currently being borrowed. As Multichain, our bridging partner for MAI, no longer allows bridging of MAI into or out of Harmony, it is our recommendation that this vault be deprecated.
Ethereum vaults on Moonriver never took off in popularity and only account for 0.001% of total backed MAI. The team has already made some decisions on deprecating these vaults and the current debt ceiling is set to zero.
The WBTC vaults on Metis have been very popular, but due to insufficient liquidity for the token on Metis, the team has not increased debt ceilings on the vaults in quite some time. Recently, it came to light that the WBTC contract on Metis was essentially a wrapped version through Relay Chain, and the team is working on moving the vault contract to accept m.WBTC, an official version of the token which is currently being incentivized on Hermes (https://hermes.maiadao.io/#/add/0x433E43047B95cB83517abd7c9978Bdf7005E9938/0xDeadDeAddeAddEAddeadDEaDDEAdDeaDDeAD0000/false).
Liquidity is low, with only about $15k in value locked in this LP at the time of this writing, and due to market conditions, it is the opinion of this committee that while WBTC vaults will remain an option on Metis, the debt ceiling available on the new vaults will remain low for the foreseeable future. WBTC Metis vaults currently account for 0.31% of total backed MAI.
Also part of the discussion were both DODO (BNB) and FXS (Polygon) vaults. Both suffer from similar issues including extremely poor liquidity, exacerbated by the fact that trades are really only available on limited, controlled platforms (PancakeSwap and Fraxshare respectively accounting for the majority of liquidity).
With only 0.003% of MAI backed by DODO and 0.1% of MAI backed by FXS, they do not pose a great risk of generating bad debt, though it is the recommendation of the committee that no debt raises be made for either vault, and that further deprecation options be considered within the next few weeks.
In better news, MAI continues to decrease its reliance on a single chain to strengthen its backing with Polygon, Fantom, Optimism, Metis, and Ethereum accounting for over 92% of total MAI backing, mostly coming from collateral locked in WBTC and ETH vaults.
That concludes the first installment of the Risk Management Update. If you have comments or suggestions on what kind of information you’d like to see in future updates, feel free to join the official Qi Dao Discord channel, or tweet at us directly, @qidaorisk.
Until next time…qimps together, strong.