What is eUSD and How does eUSD Work?
eUSD
Understanding Rebase LSTs
Rebase LSTs are a type of Liquid Staking Token (LST) where the holder's token balance increases as staking rewards accumulate. Examples include Lido's stETH and Stakewise's sETH2. Using Lido's stETH as an example, Ethereum holders stake their ETH via the Lido protocol and receive stETH in return, representing their staked ETH value. As staking rewards accrue, the stETH balance increases proportionately, a process known as rebasing.
Minting eUSD with Rebase LSTs
Lybra Protocol allows users to mint eUSD, an interest-bearing stablecoin, by using ETH or rebase LSTs as collateral. eUSD is unique, as holders earn a base interest of 8% by simply holding the stablecoin.
Lybra's V1 version supported only stETH as collateral. However, with Lybra V2, users can collateralize various LSTs like Rocket Pool's rETH, Binance's WBETH, Swell's swETH (Pending DAO Voting), and more, to mint eUSD and/or peUSD.
The minting process for Rebase LSTs consists of five stages:
Deposit: Users deposit stETH or any supported Rebase LSTs.
Mint: With a collateral ratio above 150%, users can mint eUSD against their collateral assets with no minting cost.
Hold & Earn: eUSD holders earn daily rebase yield with a base APY of ~8%. Holders can then either provide eUSD/3CRV liquidity and continue earning daily rebase yield or convert eUSD to peUSD on the mainnet or on supported L2's (Arbitrum) whilst still receiving the accrued rebase yield upon conversion back.
Repay: Users repay their eUSD debt with eUSD.
Withdraw: Users can withdraw their collateral at any point, provided their Collateral Ratio remains above the safe CR of at least 150%.
During the Hold & Earn phase, eUSD holders can convert eUSD into peUSD at a 1:1 ratio, preserving their yield on the underlying eUSD. This allows users to earn interest on their stablecoin holdings and simultaneously deploy them in yield-bearing applications across various DeFi protocols.
The conversion of eUSD to peUSD is subject to a quantity limit, the maximum amount that can be converted is set to be 50% of the eUSD circulation at the beginning, which can be adjusted by Lybra DAO Vote.
Interest Generation for eUSD Holders with Rebase LSTs as Collateral
Lybra Protocol allows eUSD holders to earn interest just by holding, marking it as the first interest-bearing stablecoin. Here's how the process works:
Rebase LST Accumulates Rebase Yield: Suppose a user, Bob, uses stETH as collateral to mint eUSD. Bob's stETH will continue to accumulate rebase yield in the form of additional stETH.
Protocol Or Redeemer Buys Yield: On the Lybra protocol, users known as Redeemers use eUSD to buy the rebase yields from Bob's stETH collateral. If no Redeemer purchases it, the protocol itself will buy Bob's rebase yield using the protocols own eUSD holdings.
eUSD Transferred To User As Interest: Bob will receive a portion of the total eUSD proceeds from rebase yields as interest, calculated based on factors such as his LSTs APR, the total eUSD in circulation for that LST pool, the pool's Collateral Ratio, and the total current eUSD supply.
This process allows Bob to generate interest automatically on his eUSD holdings for as long as he holds it. The introduction of peUSD ensures he continues to earn interest even whilst he spends it.
The Benefits of Using Rebase LSTs as Collateral To Mint eUSD
Interest Continues To Accumulate When eUSD Converted To peUSD: By converting their eUSD to peUSD at a 1:1 ratio, eUSD holders who used Rebase LST as collateral can start spending their holdings while continuing to earn interest. This yield can be redeemed as soon as it is converted back to eUSD.
Interest Paid As eUSD: Using Rebase LSTs as collateral allows Lybra protocol to automatically buy the rebase yields with eUSD, ensuring the eUSD is always earning interest. However, with Non-Rebase LSTs, no eUSD interest is paid, but the Non-Rebase LSTs themselves accumulate value via a separate mechanism.
Example:
Assuming aETH, bETH, cETH are Rebasing LSTs
eUSD Rebase & Yield Distribution
Alice deposits 10 aETH, Bob deposits 20 bETH, and Cathy deposits 30 cETH
Alice mints 1,000 eUSD, Bob mints 2,000 eUSD, and Cathy mints 3,000 eUSD
eUSD Circulation = 6,000
In Lybra Contract, the following has been written,
Alice has 10 SHARES of eUSD
Bob has 20 SHARES of eUSD
Cathy has 30 SHARES of eUSD
eUSD total SHARE = 60
Assuming aETH, bETH, cETH rebases daily during 8PM-12PM UTC
Rebase and Redistribution
aETH rebase yield = 0.03 aETH, bETH rebase yield = 0.04 bETH, cETH rebase yield = 0.03 cETH
Cathy spends 1,000 eUSD to buy the rebased
(0.03 aETH + 0.04 bETH + 0.03 cETH)In other words, Cathy spends 10 Shares of eUSD to buy the daily rebased LST yield
Cathy’s 10 Shares are burnt afterwards
eUSD total Share = 50
Alice, Bob, and Cathy’s collateral assets remain the same
Alice’s holding eUSD rebases from 1,000 to 1,200, Bob’s holding eUSD rebases from 2,000 to 2,400
Current Protocol Collateral Asset Value remains the same
Current eUSD in Circulation remains the same
eUSD APR Calculation
Various Rebasing LSTs with different APR are used as collateral asset to mint eUSD, thus, eUSD APR is calculated on the basis of a formula that takes into account factors including the APR of each LST, the total eUSD in circulation for each LST pool, the pool’s Collateral Ratio and the total current supply of eUSD.
LST Rebase Yield - Dutch Auction
When the collateral in the rebasing vault increases, the additional assets can be purchased using eUSD by redeemers. The consumed eUSD will then become interest for all eUSD holders and protocol dividends.
In Lybra V2, considering that users would be reluctant to purchase at a rate of 1 USD if eUSD has a premium, we are introducing a Dutch Auction Mechanism.
Based on the rebase timing, a 1% buying discount is applied every 30 minutes from that point, capping at a maximum discount of 47%. This strategy motivates users to pick an optimal timing for acquiring the increased collateral.
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