Update the yDAI vault strategy to utilize Aave


Update the yDAI vault strategy to utilize Aave


Should this proposal be implemented, the yDAI vault will deposit DAI into Aave to collect interest and protect collateral, and will take out a loan of TUSD to supply to Curve to harvest yields.


Honestly, because @banteg asked for a strategy to be developed in discord :wink:

Currently the DAI vault utilizes Curve, which places the collateral at risk in case of a DAI crunch. By utilizing a loan-based strategy, the DAI principal can be safely stored in Aave. This can be used as collateral to take out other stablecoin loans to deploy elsewhere to achieve yield. Also, as long as the DAI interest rate is higher than the other stablecoin loan rate, this strategy is inherently profitable.


Should this proposal be enacted, the strategy would be updated so that the DAI principal would be placed into Aave for use as collateral against another stablecoin loan. Historically, the lowest interest rate stablecoin has been TUSD. This TUSD would then be deposited into Curve’s Y pool to harvest both CRV tokens and swap fees. CRV tokens would be used at first for @banteg’s Boosties, and then would be sold for DAI and compounded.

The main benefit of this strategy is that DAI is historically in significantly higher demand than other stablecoins, especially TUSD. By placing our DAI inside Aave, we can be assured that whenever we wish to withdraw it that it will still be there. In the instance of a DAI crunch, this interest rate would also skyrocket, providing significantly boosted yields for the vault during this liquidity crisis.

This vault would actively work to ensure that the health rate is above 1.5. As DAI has a LTV value of 75% as collateral, this means that approximately 50% of the DAI value could be withdrawn as TUSD. Given the current rates, this strategy would yield approximately 22% APY.

Rough schematic, will update later:

For: Use the above strategy for the yDAI vault.

Against: No change.


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Maybe a good thing to consider if current strategy isn’t using most of the DAI in vault, but I’m not sure if this will outperform current strategy since the loan-to-value ratio for DAI is 75%.


This is to replace that current strategy. @banteg asked in Discord for new strats, so I worked this up.

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Yeah I sadly think this would inherently have lower returns than just depositing the DAI into yCRV– the only benefit is lower risk of liquidity crunch.

Oh, absolutely. I agree 100%. This strategy would by its nature have lower returns, as we’d only be able to deploy a fraction of the deposited collateral into working capital. When starting this strategy my main concern was how to allow end users to be certain their DAI would be secure in case of DAI losing its peg; returns were a secondary consideration.

One just needs to look at the fraction of DAI in the yCRV pool to see how much more in demand this token is. In a worst case scenario, DAI has reached $1.22 in the past. A simple CRV deposit would not be able to guarantee depositors could reclaim their principal in the case of another crunch. I’m not sure there’s a solution out there that could guarantee DAI liquidity with notably high returns. I can continue to search/think though.