Hi all,
some of us Celo and Mento community members were lately chatting more about how we could strengthen diversification of the stablecoin basket of the reserve. I personally believe that USDT and EURT (both provided by Tether) could be a good addition and would love to get actionable on that. Please find more background on the exact proposal below.
Background and Proposal Details
The Mento Reserve represents a diversified portfolio of on-chain assets crucial for supporting the Mento Protocol’s ability to adjust the supply of Mento stable assets according to user demand. From community discussions, there seems to be consensus to further enhance the Reserve’s diversification. CGP #150, recently approved, endorsed diversifying into low-risk, reward-generating protocols. Consequently, the Reserve has already integrated staked ETH (Lido), stEUR (Angle Protocol), and sDAI (Spark Protocol) into its mix. Building upon the directives of CGP #150, the Reserve now aims for a 1:1 backing of cUSD and cBRL in USDC and sDAI (at a 50/50 weighting), as well as a 1:1 backing of cEUR in EUROC and stEUR (at a 75/25 weighting).
Ever since CGP 62, the main priority of the Mento Reserve has been to keep a 100% backing in other stablecoins (USDC and DAI initially, plus the later additions of EUROC and stEUR via CGP 127 and CGP 150 respectively.
I propose expanding the diversification of this stablecoin basket further by incorporating USDT and EURT into the mix. Specifically, I suggest adjusting the Reserve mandate to back cUSD and cREAL 1:1 in USDC, sDAI, and USDT (equally weighted at ⅓ each), while backing cEUR and eXOF 1:1 in EUROC, stEUR, and EURT (also equally weighted at ⅓ each). The CELO, BTC and ETH allocation of the Reserve, considered mostly backup-collateral at this point, shall remain passive unless it needs to be touched to regain a 1:1 backing in stablecoins or unless instructed otherwise via on-chain governance.
Since Tether’s USDT and EURT are not currently native to Celo, the Mento Reserve would hold them on Ethereum. Should Tether deploy native versions of USDT and EURT on Celo in the future, these would be utilized and Mento broker pairs against them could potentially be created.
Risks
Every asset bears risks. For USDC, USDT, EUROC and EURT the predominant risk is credit risk. At this point Tether is audited by BDO Global, which is confirming that the Tether reserves overcollateralize outstanding stable tokens (see Tether Reserves and Audits for more details). Tether has also recently decreased collateral risk: 90% of the collateral are now held in cash and cash equivalents. I therefore believe that Tether has a beneficial risk profile and that diversifying the stablecoin basket further through the addition of Tether stablecoins, can decrease the overall risk of the reserve portfolio.
Please let me know what you think about this suggestion!
Best
Roman
