Proposal: Swapping USDT to USDC in JLP for Boosted Yield

Jupiter Products Perpetuals
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Summary

Gauntlet proposes reallocating from USDT to USDC in Jupiter Liquidity Pools (JLP) to take advantage of USDC incentives offering 3% APY on any USDT TVL swapped to USDC in the JLP pool.

Based on current Total Value Locked (TVL), $63.8m of swapped USDT could yield up to $1.914m annually for JLP holders, generating at least an extra 0.29% APY based on current TVL numbers.

Additional rewards for further USDC growth will be provided to JLP holders after the JLP weight reallocating is completed.

Proposal Details

  1. Jupiter to share this additional revenue with JLP holders.
  2. Risk Assessment: This stablecoin transition maintains the current risk profile, as USDC is a leading stablecoin used as collateral by multiple prominent perpetual exchanges. USDC can also be seamlessly bridged to other chains leveraging Circle’s CCTP protocol.
  3. Implementation Strategy: Gauntlet recommends a gradual weight change approach - first reducing the USDT weight to 5% in the JLP in the first month, then to 0% in the second month while increasing the USDC weight.
  4. USDC incentives will be paid out monthly for 6 months, with the ability to extend the program to 12 months.

Next Steps

Gauntlet welcomes community questions. We encourage all JLP holders and community members to participate in the discussion. If the proposal looks good to the Jupiter community, we will work with core Jupiter contributors to implement the gradual weight change strategy.

Disclaimer: While Gauntlet fully affirms that our analysis and recommendations are based on independent considerations of what would deliver the best possible risk-adjusted performance for all of our vaults; as a matter of company policy, we must disclose that Gauntlet may have a material financial interest in the increased adoption of USDC by DeFi participants and protocols.

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Pros:

  1. Increased APY for Holders: By reallocating from USDT to USDC, JLP holders could benefit from an additional 3% APY on swapped USDT, potentially generating up to $1.914 million annually, which increases overall returns.

  2. Stablecoin Risk Profile Maintained: USDC is a well-established stablecoin with widespread use as collateral in major exchanges, ensuring that the risk profile remains stable even after the reallocation.

  3. Long-term Incentives: The proposal includes monthly USDC incentives for 6 to 12 months, providing ongoing benefits to JLP holders and encouraging sustained participation in the pool.

  4. Gradual Implementation: The proposed strategy for gradually reducing USDT weight and increasing USDC weight minimizes market disruption and allows for smoother transition.

  5. Community Involvement: Gauntlet encourages community engagement and feedback, promoting transparency and collaborative decision-making in the process.

Cons:

  1. Potential Conflict of Interest: Gauntlet discloses a potential financial interest in the increased adoption of USDC, which might raise concerns about the objectivity of the recommendation.

  2. Dependency on USDC: The proposal increases reliance on USDC, which could be seen as a risk if there are future regulatory or market issues affecting USDC.

  3. Reduced Diversification: Shifting from USDT to USDC reduces the diversification of stablecoin holdings in the JLP, potentially increasing exposure to risks associated with a single stablecoin.

  4. Implementation Complexity: The gradual reallocation strategy might require careful management and could introduce operational complexities during the transition period.

  5. Opportunity Cost: While the reallocation offers additional APY, it also means moving away from USDT, which could have other advantages or benefits that might be lost in the process.

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Great observation and findings. When reading this my mind just popped 2 questions.

  1. Why having $USDT and $USDC and not having only one stable ($USDC). Is it only in order to prevent an unforeseen de-peg?

  2. It would be great to evaluate how much of the whole pool volume is actually being used in average with the idea, lets say that the pool always uses 50-60% of the stable. If taking these figures, why not put 10-20% of the stable in a DeFi protocol to get additional APY with a contract written that it can be pulled back at any time (based on liquidity needs) + the most important thing here is that the funds should have an insurance. Maybe it sounds too complex or it could potentially cause supply shock for trading, but just thinking what are the options in here to bring additional value to the pool. :bulb:

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Initially, the core contributors of Jupiter wanted to provide diversity in stablecoins by adding two leading ones to the JLP pool.

Needless to say, stablecoin utilization is low, and the team has some ideas on how to improve it without decreasing the total stablecoin weight in the JLP, as that would increase the volatility of the token for JLP holders. One idea is to use some USDC liquidity in DeFi and essentially allow users to borrow it from the pool.

USDT Ut:

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image899×423 29.4 KB

USDC Ut:
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That is exactly the same direction i was thinking. Great to see that ideas are being in consideration. And wow, looks like there is a lot of untapped liquitity (based on provided charts). I think with time this will be increasing for sure as more traders are onboarded.

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From an investment perspective, this is a great idea and definitely something they should do.

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