V1 Wind Down Part 1. STBL Complexity Reduction and Wind Down


Executed December 31st, 2022

At its inception, STBL offered an innovative alternative stable coin formulation built directly on the Algofi V1 lending platform. As the community and liquidity grew a number of mechanisms were put in place to help STBL maintain its peg. With the launch of the V2 lending protocol and STBL2, a new framework is needed to A) mitigate the community effort needed to maintain STBL and B) ensure that as STBL continues to draw down it does so gracefully.

The actions proposed here comprise the first step towards transitioning the Algofi V1 lending protocol to a steady state, freeing up the community and core team to focus their efforts completely on the V2 protocol.


Item (1) will be acted on immediately. Items (2) and (3) will be acted on simultaneously pending the completion of technical work to enable (3).

  1. Change the STBL interest rate modulation formula to a 3% hike or reduction executed MONTHLY based on the average STBL price in the week leading up to the end of the month.
    ** After (2) and (3) have been executed, if AMM liquidity falls under 100k for a period of 1 week the rate will be set to a constant 12.5%, updatable by DAO vote only.

  2. Sunset both the STBL / USDC LP Staking Contract and the STBL Staking Contract. These will cease to pay out STBL and be converted to “remove only” staking contracts visible on the V2 “Farm” tab.

  3. Implement a 1-to-1 STBL/USDC swapping contract seeded with the STBL interest currently in the STBL reserves. This allows for a pricing cushion as STBL liquidity continues to draw down.
    ** Supplies of STBL and USDC will be constrained by the STBL reserves and any USDC used by users to buy that STBL
    *** Any residual reserves will be reclaimable to the DAO treasury at a point in time when the DAO has determined STBL has fully unwound

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Imagine the timeline of this proposal:

(1) takes effect, business as usual with STBL holder’s capital locked in a depegged STBL which is mostly fine because they’re being compensated with earned interest on the debt they’re holding.

(3) takes effect, simultaneously activating (2). The 1-to-1 swap launches with a whole bunch of STBL but (what appears to be) zero USDC. Meaning this 1-to-1 swap is only useful when people begin buying STBL. While liquidity remains in the depegged STBL-USDC pool nobody in their right mind will buy from the 1-to-1. Furthermore the only meaningful buy pressure for STBL will be from the single account that represents 92% of the total STBL debt, either when the account looks to exit or liquidators look to liquidate this account.

This means no one will be exiting STBL using the 1-to-1 swap for potentially a very long time. (The 92% whale is ~800 days away from liquidation at current rates and prices). All STBL holders now have their capital locked up and with the activation of (2) they will not receive any compensation for their position. Meanwhile, the interest earned in STBL will all be fed back into the AlgoFi treasury.

In this timeline STBL holders lose, STBL borrowers lose but AlgoFi is the only entity that comes out ahead. Hopefully I’m misunderstanding, but this sounds like an atrocious proposal.

Proposed change: Remove (2), holders will be correctly compensated for their illiquid STBL or at least more able to justify selling at a loss on the STBL-USDC pool.

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I also don’t agree with sunsetting the STBL staking contract.
That contract is attractive only if STBL is depegged and it pays a higher interest rate than holding USDC so its only purpose is to reward STBL holders while they are unable to exit without a loss.
Rather than sunsetting it immediately I would put in a long-term sunsetting deadline, e.g. one year or alternatively establish a rule that it will be sunset only once STBL is above 0.99 for at least a month

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For those with proposed alterations. The proposal can not be altered once voting has begun (for obvious reasons) but if you have amendments you’d like to put forward in a separate proposal that is always an option. (assuming this proposal passes in the first place)

For a bit of color, items 2 and 3 are not going to happen immediately if this passes. 3 involves smart contract and front end work which will be competing for core team resources, so if there is a movement from the community to put forward an amendment proposal there will be time for that.

  • also note this proposal and discussion thread around it have been live on the forum for quite a while now in proposal staging and temp check, curious if anyone has ideas how we can best drive community engagement earlier in the process
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My suggestion to drive engagement earlier is to put a link in the Govern page on the main website to link to the Proposal Staging forum page. This will make people more aware of it and make them visit it more often.
As for myself I’ve put now an alert on the Proposal Staging forum !

There is a link to the forum at least, the chat bubbles icon. Perhaps its not prominent enough.

In the meantime can we adhere to the current rules? The STBL borrow rate should be increasing by 0.25% per day but there are many days where it does not, like the last few days.
Either we respect the stated rules or we declare new rules; failing to apply the rules is terrible optics that damages the credibility of the team !

The AMM liquidity has been under 100k for over a week, shouldn’t the borrow rate increase to 12.5% ?

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the total AMM liquidity is over 100k $ according to v1 analytics. the nanoswap is under 100 k, but i think the wording implied total liquidity must be under 100k?

I think you are right, I simply assumed the USDC / STBL AMM but I guess it’s the overall AMM liquidity

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