Gearbox DAO

Aim:

This proposal aims to mitigate risk of centralisation posed by the structure of USDC and also improve the degree of decentralisation of the treasury assets with LUSD. This is to be done by allocating part of the treasury USDC to LUSD.

Background:

Currently, the treasury holds 3.615M USDC. While USDC is a well-established and widely used stablecoin, its value is backed by a centralised custodian system, which introduces potential counterparty risk through banking systems. As the DeFi landscape continues to evolve, it is important for Gearbox DAO to explore safe alternative stablecoin options that align with the ethos of decentralisation. And LUSD offers exactly that.

About LUSD:

LUSD by Liquity is an algorithmic stablecoin designed to maintain its peg to the US dollar. It achieves this through collateralized debt positions (CDPs). Unlike USDC, which relies on centralised custodians and traditional banking systems, LUSD is backed by ETH as collateral. Depositors can borrow up to a collateralization ratio of 110. The position is liquidated once the ratio falls below.

LUSD in operation has been able to maintain peg throughout and usually has had a premium to its price. The following article outlines its working and peg mechanism: https://www.liquity.org/blog/the-premium-of-resiliency. From a safety PoV, LUSD is a safe decentralised stable to diversify into.

Proposal:

The proposed diversification of Gearbox DAO’s treasury from USDC to LUSD presents an opportunity to reduce treasury risk and embrace decentralisation. The option that has the highest votes post reaching quorum will be the one implemented by the DAO.