scSDAI

Blockchain: Ethereum

Overview

scSDAI is a strategy closely mirroring scUSDC, with the key difference being the use of sDAI as the deposit token.

Mechanism

Here's how the scSDAI strategy operates in a streamlined manner:

1. Initial Deposit: Users deposit sDAI into the scSDAI vault and are issued an equivalent amount of scSDAI shares.

2. Loan Creation: The strategy engages one or multiple lending markets (currently just SparkLend), utilizing sDAI to secure a loan in ETH.

3. Yield Generation: The borrowed ETH is allocated to the scETH strategy, thereby generating yield through leveraged Ethereum staking.

4. Yield Conversion & Compounding: The yield generated in ETH is converted back to sDAI. The process is then iteratively repeated, leveraging steps 2 and 3, to compound interest.

Portfolio Rebalancing

To maintain a healthy Loan-to-Value (LTV) ratio, the strategy employs a process known as "rebalancing." This is triggered when:

• The LTV deviates by 5% or more from the target.

• Additional new deposits are made into the strategy.

• The yield crosses a predetermined threshold.

Gas Efficiency

We prioritize gas efficiency at every step:

• Deposits: Minimal gas is required as it only involves minting scSDAI shares.

• Withdrawals: To minimize withdrawal gas costs, an amount equivalent to 1% of the total assets managed by the strategy is readily available for immediate withdrawals. Exceeding this limit may incur additional gas costs.

Risk Mitigation

Smart Contract Risk

Despite undergoing rigorous testing and audits by Trail of Bits, it's important to acknowledge the residual risk associated with smart contract vulnerabilities.

Liquidation Risk

Borrowing ETH against sDAI carries a liquidation risk, especially in volatile market conditions. To mitigate this, our backend system offers 24/7 monitoring that triggers an immediate rebalancing process if the LTV increases by 5%, thereby adjusting the loan amounts to align with target LTV values.

Invest wisely and leverage the power of scSDAI to optimize your yield generation in a secure and efficient manner.

Audits

scSDAI’s contract code is based on the fully audited scUSDC contract (Audited by Trail of Bits). However, some modifications were not part of the original audit, including:

1. Replacing USDC with sDAI as the underlying token and updating the associated price oracles.

2. Adjusting swap routes to support sDAI-to-ETH and ETH-to-sDAI swaps instead of USDC-to-ETH swaps.