[PCP] Support MAI on Seamless

Project and Asset Integrations
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Simple Summary

This proposal aims to add MAI as a borrow-only asset on Seamless. MAI is a stablecoin that is backed by ETH derivatives via collateralized debt positions (CDPs) as well as USDC via a Peg Stability Module (PSM). MAI on Base is fully contained and has no exposure to QiDao’s deployments on other chains.

Important links

Abstract

This proposal seeks to add MAI only as a borrow asset, and not as a collateral asset. This means that it would only be allowed to be borrowed against already-approved assets on Seamless.

Motivation

Base is currently the most profitable chain for QiDao. It also represents over 90% of its current expenditures. As such, our community has placed a great deal of focus on developing its offerings on Base. Now that MAI is very liquid and stable on Base, we would like to expand our collaborations with native projects.

Seamless is an OG project on Base and is very active in community building on the chain. As such, we believe that it’s the best lending market to collaborate with on integrations.

MAI’s minting mechanism has been live for over 3 years, with a stellar smart contract security record. It currently offers several yield opportunities, which users can access by either leveraging volatile assets or minting 1:1 via the PSM. This should serve as an important pull factor for users on Seamless to borrow MAI.

Uses

Having MAI on Seamless will allow users to farm MAI yield opportunities without having exposure to MAI. This can be done by borrowing MAI with other stablecoins as collateral, something that cannot be done already at QiDao.

Support from QiDao

QiDao is able to incentivize MAI deposits at any amount using the following calculation. This ensures that QiDao’s incentives remain profitable and scalable. These rewards can be given in perpetuity since they are part of QiDao’s sustainable business model.

Max. incentives APR from QiDao = current MAI interest charge * (1 - utilization rate of MAI on Seamless)

Specification

Overview

The protocol change involves adding MAI token to Seamless markets, with an LTV of 0%.

MAI contract address: 0xbf1aeA8670D2528E08334083616dD9C5F3B087aE

Rationale

MAI is one of the most active native stablecoins on Base, and the only native CDP stablecoin. By adding MAI to Seamless markets, Seamless will gain not only an extremely active user base but also a dedicated team that is actively building on Base.

From a liquidity point of view, it is to Seamless’s benefit to add as many safe stablecoins into their borrow asset basket as possible. This will continually lower the cost of borrowing on Seamless. It will also attract numerous new communities into Seamless, all without exposing users to stablecoin depegs.

Technical Specification

The only technical requirement is that MAI debt be priced at $1.00 per MAI. This is by far the safest way of denoting debt for stablecoins (not collateral pricing). This is because pricing MAI at $1.00 protects all parties that are not long on MAI. Regardless of any changes in the price of MAI, there is no effect on borrowers of MAI, or parties within the Seamless ecosystem that are not exposed to MAI.

If the price of MAI is above $1.00, then the borrowers can permissionlessly mint MAI with USDC at a fixed 1:1 rate. If the price of MAI is below $1.00, the borrowers can realize a gain by repaying their debt at a discount. These are the dynamics that are used on all major CDP lending platforms like MakerDAO, Liquity, QiDao, and others.

Risk Analysis

MAI has processed over $2bn in loans over its 3 year lifespan. It has seen no smart contract exploits, or malicious activity from its governance & Guardian bodies. Its instant mintability at a 1:1 rate with USDC facilitates any size of liquidations. This means that MAI debt is as easy to liquidate as USDC debt. The only notable risk with MAI is chain risk. Given that MAI is completely isolated to Base, it shares 100% of this chain risk with Seamless. As such, this does not present an additional consideration.

QiDao has been audited three times by Bramah (2021), Cloakwire (2022), and Hacken (2022). It is currently about to begin a fourth audit for new code deployed - this time by OpenZepplin.

It must be noted that the risk of bad is extremely limited. This is because no parties, other than those depositing MAI on Seamless, are exposed to any changes in MAI’s peg. This is thanks to QiDao’s PSM contract allowing for constant minting of MAI at 1:1 rates with USDC. This makes MAI debt almost as easy to liquidate as USDC debt.

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Welcome to the Seamless community discourse @Benjamin918 ! Look forward to the community discussion on this one

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Hi @Benjamin918, thank you for your proposal!

While Im supportive of adding as much stablecoins as possible to the protocol, I have some questions and concerns with regard to MAI.

  1. What is the total liquidity on BASE?
  2. Your website says that the total TVL is $26 165 501,754. Does it somehow affect security of the protocol?
  3. For the last year the MAI price has been constantly below 1$, reaching its low in November 2023 of 0.75$. That could bring some doubts with regard to the stability of MAI and expediency of using it as a stablecoin on Seamless. It is obvious that risk parameters could not be identical to USDC for example.
    In this regard I would really appreciate risk analysis by @chaoslabs. If Im not mistaken they already provided analysis of MAI in 2023 for AAVE.
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Thank you for posting @Benjamin918 !

MAI is extremely liquid for the most part with near-zero counter party risk (from my understanding).

Would be great if you could provide an example of the proposed incentive mechanism: Max. incentives APR from QiDao = current MAI interest charge * (1 - utilization rate of MAI on Seamless). Just so the community has a firm understanding of its behavior.

Perpetual incentives sounds nice but the question is: (1) Will this stimulate further inflows to Seamless; (2) will this affect overall retention of (es)SEAM holders, Supply/Borrow participants, etc.;(3)increase protocol TVL. How can we establish a synergy between the QiDAO and Seamless communities through this initiative?

Maybe a few of those points are out of scope, but still worth pondering IMO.

Perhaps a SEAM/MAI farm as a follow-up proposal?

  1. users borrow MAI from Seamless’s MAI market

  2. user provides liquidity to the SEAM/MAI LP → obtains LPT

  3. user takes LPT and stakes position within the SEAM/MAI Geyser

  4. User reaps rewards of SEAM + MAI incentives

I believe the latter suggestion may deserve closer exploration - why?

Given Seamless’s adoption of Ampleforth’s Geyser model for its Staking Farm, MAI incentivies will not be immediately sold off as position-holders accumulate rewards. In the event of withdrawing a position, the user now renounces: (1) the reward multiplier they’ve attained up to that point; (2) eligibility of future rewards until they (re)stake the entire LPT back into the farm. In turn, assuming more users provide liquidity through this pair, MAI’s adoption rate should increase both as a borrowed-asset and overall utilized stable token.

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Very exciting and interesting new area of exploration for Seamless @Benjamin918 ! I think this is a great area for Seamless to expand into, just a few quick qs below:

Thinking about some strange edge cases, as a hypothetical: in the case MAI or qidao catastrophically collapses, because MAI is hardcoded to $1 would there be some harm to someone (you’ve done a good job outlining it seems only those who are long MAI are impacted)?

So for example MAI somehow collapses, the borrower could repay the MAI back (since the system thinks MAI = $1), and simply reclaim their collateral back (non MAI collateral). This leaves the suppliers of MAI (lenders) holding the bag on the <$1 MAI - therefore I suppose your comment on only those being long MAI having exposure to MAI in this instance (it would not impact bad debt or any other aspects of the wider Seamless ecosystem).

Is that the right way to be thinking about this?

Additionally thinking of a few other cases:

  1. Collateral backing the borrow of MAI decreases in value while MAI decreases in value, the user might be unfairly liquidated since MAI value is hardcoded to a higher number - though in practice this shouldn’t happen as you described the MAI mechanism would keep it close to $1 but maybe in an extreme scenario of volatility this might happen? And in that case the person harmed is the borrower of MAI?
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Quite interesting. It would be the first of its kind on Seamless to be borrow only. I can appreciate the co-incentives to this market to increase adoption and borrowing of this asset + gaining access to yield farming opps with MAI without ever truly ‘holding it’ since plans to repay the borrow. Support

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Nice proposal to add MAI as a borrow, by leveraging MAI’s on Base.
Seamless can attract a wider users community growth. This is a strategic and beneficial move for both, as for me, we might need to calculate the spread for liquidation(the last days happening with CRV better to be sure)

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Hey ser, thanks for taking a look at the proposal!

  1. MAI currently has $7.6M in liquidity pool TVL on Aerodrome. Additionally, there is $2.4M USDC on Base that can be obtained by MAI holders at 1:1 rate by redeeming on our PSM page.

  2. The TVL is not connected to the security of the protocol.

  3. MAI has always stayed within $1.00 on Base. It temporarily traded below $1.00 on a few chains due to the Fantom official bridge exploit last summer. MAI was the largest stablecoin on Fantom. Since MAI on Base does not accept any collateral assets bridged by third party bridged (not the L2 bridge), this scenario cannot occur on Base. The reason MAI can be compared to USDC on Base is that most MAI tokens on Base have been minted by the Peg Stability Module, which allows users to mint and redeem MAI with native USDC.

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Hey ser, thank you for the feedback!

Example of MAI market on Seamless

  • TVL: $1M
  • Borrowed: $700k
  • APR that QiDao can give in rewards to MAI depositors: 3% (in stablecoins)

To answer your other questions:

  1. it will definitely stimulate inflows into Seamless as it will provide more borrow assets. in all of lending in crypto, the most difficult side of networks is to bootstrap counter-side liquidity for leverage. As such, providing more of this kind of liquidity to Seamless is the best benefit that any listing can bring to Seamless.
  2. Higher usage of Seamless means higher fees for SEAM holders. This should benefit them with increase returns, depending on how distributions occur.
  3. This should definitely increase TVL

I think that a SEAM/MAI LP would be amazing. In fact, MAI could provide voting incentives for this on Aerodrome or direct emissions on other DEXs via the following calculation:

Voting incentives that QiDao can provide to SEAM/MAI = MAI TVL on LP * 10%

Please let me know if this answers your questions sufficiently :pray:

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Hey ser, thank you for checking out the proposal!

Your review of how MAI’s peg does not present bad debt risks is correct. Only those already exposed to MAI remain exposed.

To answer the other question: those that are borrowing stablecoins on lending markets against volatile tokens are typically looking to leverage their exposure or finance themselves while keeping their upward exposure on the collateral asset. In both scenarios, the trade being made is long volatile token, and short the dollar. As such, users borrowing MAI on Seamless should expect to experience a similar experience as with borrowing USDC. The only different is that they could see an added benefit if MAI depegs downwards (since they can repay at a profit).

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Liquidations should occur extremely efficiently, as users can instantly mint MAI with USDC on Base. As such, MAI debt is as easy to liquidate as USDC debt.

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