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How does algorithmic stablecoin Gyroscope solve the composability risk of metasstablecoin

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Gyroscope protocol and the comparison of common metastablecoin.

How Algorithmic Stable Coin Gyroscope Solves the Combinability Risk of Meta Stable Coin

Original source: Babbitt

In this series of articles, we will explain the Gyroscope protocolStable currencyComparison of the design with other stablecoin projects.

This article is about Meta-Stablecoin comparison, while the following parts 2 and 3 are about algorithmic stablecoins, managed stablecoins, and leveraged stablecoins.

Meta-stablecoin is a stablecoin made up of a basket of other stablecoins.

The idea is that a stablecoin basket can spread the risk of an individual stablecoin, and that's true to some extent, but it's exposed to a new type of risk, what we call composability risk, or problems in one system can affect other systems.

✅= OK, at = in doubt, at = insufficient, at = danger

The risk of composability of the stablecoin

A basket form of a stablecoin that takes a liquidity provider (LP) position in an automated market maker (AMM). Because these pools of money are decentralizedexchange(DEX), where basket weights change in the form of tokens based on trading demand. Therefore, in addition to the potential stablecoin risks, the stablecoin also bears the LP risks inherent in AMM.

For example, yUSD is yearN according to yCRVCurveA stablecoin issued by a position in an AMM poolUSDT, Dai,USDCAnd the TUSD component. If one of the stablecoins had a problem in the basket, the YCRV pool would evolve to hold only the failing stablecoins, so the value of YUSD would also go to zero. In addition, the YCRV pool stores assets toAaveandCompoundTherefore, if either of these systems fails, the value of YUSD will be in question.

YUSD composability risk, the failure of any component in the layer will cause the metastecoin to be affected

By choosing this approach, the YUSD stablecoin faces significant composability risks, which can amplify problems in any single component. It's fair to say that the Curve is pool by taking this risk at a profit, but for ordinary users, the risk may not be aware of, similar situation applies to mStable, but its risk control to be slightly better, Aave, Compound, or any one of the three stable currency problems, will lead to mStable failure. In addition, the failure of a single stablecoin can cause the value of the MSTables to drop by 33%.

Gyroscope stratifies composability risks so that a failure of a single vault does not lead to cascading effects

Gyroscope addresses this problem by layering composability risks while maintaining capital efficiency by dividing reserves into lower vaults and carefully managing risks in such a way that there is little overlap between the vaults. Thus, the failure of a single vault has no effect on the remaining vaults, and if one fails, the Gyroscope system will anchor the coordination mechanism (described in detail here) to keep the stables at $1. Gyroscope reserves can also be recovered by the yield on the remaining vaults after a vault fails.

A basket of stablecoins can also have static weights in the form of tokens, much like an exchange-traded fund (ETF), which is how the Reserve protocol stablecoin works. However, unlike the Gyroscope, this mechanism cannot sustain the anchored exchange rate if the Reserve protocol basket component fails.

Governance Extractable Value (GEV)

A common issue faced by all decentralized stablecoins is whether governance is sound, which has given rise to a new term: governance retrievable value (DEV). In today'sDeFiIn systems, managers can often get better returns by compromising agreements, for example, by introducing questionable types of collateral in search of short-term profits, or even by taking blatant and malicious actions to steal users' money. Defi is riskier than traditional corporate governance, which is supported by the legal system, because the people who run many Defi projects are virtually anonymous.

Today, a common GEV mitigation is to add a time delay before the governance action takes effect. The purpose of this is to give the user time to withdraw funds from the protocol before malicious changes are made. But in terms of protection, this is usually not enough for two reasons: First, many DEFI systems (such as DAI) do not have a mechanism to exit liquidity, as DAI can only redeem by creating its vaults. Second, time delays tend to be short and users don't track them oftenIntelligent contractDetails of the habit, which leads to user funds still can not be effectively guaranteed.

In the current stablecoin system, there is no GEV protection for YUSD,yearnManaged by multiple managers, these managers can change the vaults' strategies at will, making it possible for malicious collateral theft. In addition, Yearn's governance is time-free, MSTable is slightly better, with a one-week delay, while the Reserve system has not yet entered the full governance stage. That said, the GEV problem in these systems is still a cause for concern.

Gyroscopes, on the other hand, are governed by checks and balances, such as GyroDollarThe holder has the right to reject the proposal during the time delay. If enough users fall in line to protest against malicious governance, they can block such governance proposals.

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