GIP-118: Should sDAI be replaced by sUSDS in the bridge?

Governance GIPs
1

GIP-118: Should sDAI be replaced by sUSDS in the bridge?

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0 voters 
GIP: 118
title: Should sDAI be replaced by sUSDS in the bridge?
author: Philippe Schommers <philippe@gnosis.io>
status: Draft
type: Meta
created: 2024-12-09
duration: ~1 month
funding: none

Executive Summary

Since MakerDAO became Sky and started issuing their USDS stablecoin, they have also introduced the Sky Savings Rate (SSR), which is now typically 1% higher than the DAI Savings Rate (DSR). This proposal aims to replace the current sDAI in the bridge on Ethereum’s side with sUSDS in order to increase the yield for the Gnosis sDAI. The native Gnosis Chain token would remain xDAI.

Introduction

Gnosis Chain has used xDAI, which is DAI bridged from mainnet, as its native token since inception. However, with the recent changes by MakerDAO / Sky, and their push for USDS instead of DAI, it has become clear that we need to stay current with the broader ecosystem in order to remain relevant and get access to the best yield.

Proposed Changes

The bridge would require an upgrade, that would include:

  • Swapping all the sDAI currently held by the bridge to sUSDS
  • Adding support for depositing USDS instead in addition to DAI
    • DAI would get swapped 1:1 for USDS and then sUSDS in the bridge
  • Replacing the currency for withdrawal from DAI to USDS on Ethereum

As an alternative, we could also introduce an option to automatically swap back to DAI instead of USDS, although this might incur a fee later down the line.

Impact and Benefits

The main benefit is that we would get higher yield (typically 1% more) on the stablecoins in our bridge. Currently, the SSR is at 12.5%, while the DSR is at 11.5%.

The main impacts are:

  • We would be trusting USDS, which has a blacklist function, instead of DAI, which is more neutral. However, one could argue that the trust assumptions are similar, as the same company ultimately manages the underlying assets. It would also be an extremely bad precedent for them to blacklist a bridge.
  • Users that bridged DAI into Gnosis would now be forced to withdraw USDS. This could also potentially impact smart contracts, that could rely on the bridge to provide them with DAI instead of USDS, which could result in them breaking. A thorough analysis will be conducted beforehand to make sure that no smart contract currently relies on this.

Implementation Plan

  1. Make sure that no smart contract relies on getting DAI from the bridge rather than a different token (in this case USDS)
  2. Implement and test a bridge upgrade that covers the proposed changes
  3. Submit the upgrade to the bridge signers

Risks and Challenges

The main challenge is to make sure that the community agrees on this change, which is why we’re gauging interest with this GIP.

Obviously, there’s always a risk in deploying and upgrading smart contracts, but our team is experienced and has successfully implemented many such upgrades. All changes will of course be audited and tested thoroughly on Chiado.

Team / Organization

This would mostly be taken care of by the bridge team.

Conclusion

We believe that it is time to leave DAI behind in favor of USDS, which is now being pushed by Sky, in order to benefit from the higher yield on sUSDS in comparison to sDAI.

Gnosis Snapshot

Phase 2 Proposals: Please ignore this section, and leave as is. It is used for Phase 3 proposals.
Phase 3 Proposals: Add a link to the corresponding Gnosis Snapshot poll you’ve created.

3 Likes
2

How would this change affect sDAI holders on Gnosis Chain?

3

What would this mean for accounts and smart contract that hold sDAI on gnosis?
I imagine user action would be required and potentially breaking contracts that rely on sDAI if gnosis bridge drops support of sDAI

4

How would / does this change align with the overall vision of Gnosis Chain in regards to how it will likely need to evolve in light of Maker’s move to Sky?

5

Technically speaking, nothing changes. The token would remain the same, and nothing would have to be done by Gnosis sDAI holders. The only thing that changes is that it would get a higher yield.

6

On Gnosis Chain’s side nothing changes. That being said, if on Ethereum’s side you’re relying on the bridge to give you DAI (instead of USDS or any other token), then that could be an issue.

1 Like
7

This would totally complete the transition out of MakerDAO to Sky. On Gnosis Chain, the native token would still be called “xDAI”, but it would be backed by sUSDS and thus USDS underneath.

The naming on Gnosis Chain’s side could potentially be changed as well, but it doesn’t really matter in the grand scheme of things. The change would be fairly complicated, as it’s hardcoded in many libraries, tools and websites, but wouldn’t change anything technically speaking. It’s basically just a UI change.

8

Why not let the bridge as it is and build a second one for USDS > xUSDS leaving a choice to use either one.
Not sure how much more work this means for maintenance and ofc it might result in fragmentation of liquidity, but building it should be even easier compared to the modification of the existing bridge cause it would be nearly the same code that’s already there.

1 Like
9

I wouldn’t necessarily say that it’s easier. Two things:

  1. It would require maintaining two different architectures, smart contracts, and validators. Even if this were to happen, we would still have to touch very low level AuRa contracts to allow for two different contracts to mint xDAI. If we wanted to allow this, it would happen as an upgrade to the existing bridge with its existing validator set.

  2. What do you get on Gnosis Chain’s side? Would the native token be a backed by a mix of both DAI and USDS, or are you suggesting that we create a second fee token? And which one would you get if you bridge out? If we give users the choice, that would potentially result in arbitrage opportunities or liquidity issues.

We’re actually working on another proposal that would potentially make it possible to back the native token with a multitude of different stablecoins. It does however involve a lot more work and a few more months to fully spec out. We’ll post it here in due time.

That being said, what we can actually do is allow people to deposit both DAI and USDS for simplicity sake, but under the hood both of them would automatically get swapped to sUSDS. In this case, the withdrawn token would still always be USDS.

1 Like
10

ok, yes, I got it wrong. Missed the fact that this alone wouldn’t allow to use xUSDS as a payment token on GC. And having two payment tokens, even if feasible, might also confuse ppl.

Personally I am fine with the sDAI yield and would prefer to not touch the system right now.

11

What would happen to sDAI on AAVE as currently on Gnosis there is no sUSDS aave market
Will it change sDAI to sUSDS?

12

It wouldn’t change anything on AAVE or on Gnosis Chain at all. It’s just on Ethereum’s side in the bridge. The only thing it impacts for users is that when / if they bridge out from Gnosis Chain to Ethereum, they end up with USDS whereas now they get DAI.

But on Gnosis Chain you’d still have the native token called xDAI, except that with this proposal it would be backed by sUSDS rather than sDAI.

13

Do you have any concrete objections, or what is this preference based on?

14

Main reason: Although, as you said, it is highly unlikely that Maker will blacklist the bridge (or be forced to do so), I feel uncomfortable with the idea that this is even possible and this does not outweigh the additional yield (but that is of course my personal preference).

edit: additionally it sounds weird to me to have xDAI backed by sUSDS, in this case I would prefer to rename it xUSDS;-)

15

I’m personally in favour of this proposal. I would like to point out a few things:

  • Sky has a partners program, which makes us eligible to get an additional 40 bps of yield. This would enlarge the APY spread to 140 bps (not just 100).
  • I think it’s important, since we are upgrading the contract, to create a function to easily swap back to DAI if we need to. USDS and DAI are interchangeable. If something were to happen in Sky governance that would make USDS significantly riskier than DAI, then we would be just one tx away from swapping back to DAI.
  • Finally, we should allow users to choose whether to withdraw to USDS or DAI, although this can probably be implemented at the UI level.
3 Likes