scUSDS
For investing in scUSDS, we recommend a minimum investment time of at least a few weeks. Otherwise, the user may realize small losses when redeeming.
This is because of the costs associated with investing and the fact we use an oracle to estimate the current worth of the vault assets.
This is because we want to offer instant withdrawals and be 100% liquid.
scUSDS is a strategy closely mirroring scUSDC, with the key difference being the use of USDS as the deposit token.
Overview
scUSDS is a sophisticated yield-generating strategy that is following the ERC4626 standard. Leveraging the power of Ethereum staking, this strategy aims to deliver consistent yield in USDS. To achieve this, scUSDS collaborates with another Sandclock strategy, scETH, while also utilizing a diverse range of lending markets.
Mechanism
Here's how the scUSDS strategy operates in a streamlined manner:
Initial Deposit: Users deposit USDS into the scUSDS vault and are issued an equivalent amount of scUSDS shares.
Loan Creation: The strategy engages one or multiple lending markets, utilizing the USDS deposits to secure a loan in ETH.
Yield Generation: The borrowed ETH is allocated to the scETH strategy, thereby generating yield through leveraged Ethereum staking.
Yield Conversion & Compounding: The yield generated in ETH is converted back to USDS. 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.
Asset Allocation
Our proprietary "allocation algorithm" ensures optimal asset allocation by dynamically interacting with multiple lending markets to secure the most favorable loan rates for USDS/ETH loans. This dynamic approach allows the strategy to take loans from various markets concurrently, not limiting it to a single source. Should the algorithm detect suboptimal rates, it initiates a "reallocation" process. Inefficient loans are swiftly settled using flash loans, and the collateral is moved to a lending market offering superior rates.
Gas Efficiency
We prioritize gas efficiency at every step:
Deposits: Minimal gas is required as it only involves minting scUSDS 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 USDS 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 scUSDS to optimize your yield generation in a secure and efficient manner.
Audits
scUSDS’ 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:
Replacing USDC with USDS as the underlying token and updating the associated price oracles.
Adjusting swap routes to support USDS-to-ETH and ETH-to-USDS swaps instead of USDC-to-ETH swaps.
SKY Rewards
As long as there are SKY rewards for staking USDS, they will be converted and included in the yield.
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