Why APR Kolibri Savings Rate and Youves Saving Pool Are 5% Different
This December, the Kolibri community approved KIP-010, a proposal on launching Kolibri Savings Rate. kUSD holders block them in the pool to earn 10.75% per annum. The users of another stablecoin uUSD by youves can also block their coins but this time at 15.3% per annum. Why so different, then?
In this post, we’ll explain how Kolibri Savings Rate and Youves Saving Pool work, where they get funds for payouts, and why their profitability rates are so different.
What Is Kolibri Savings Rate
A user deposits kUSD in the Kolibri Savings Rate contract and gets KSR tokens representing his or her share in the common pool, pretty much like LP tokens in decentralised exchanges.
With each deposit/withdrawal of kUSD, the Kolibri Savings Rate smart contract takes kUSD from Kolibri’s stabilisation fund. The amount of kUSD in the Kolibri Savings Rate grows faster than the amount of KSR owned by all users, which ensures 10.75% per annum in kUSD upon the redemption of KSR.
Kolibri Savings Rate does it too: it’s 14,614 KSR vs 14,619 kUSD in the contract
Where Does Kolibri Savings Rate Get the Money
Algorithmic stablecoins like kUSD are usually collateralised by native tokens of their respective blockchains like tez, ETH, etc. Users open ovens (vaults), place their collateral there, and thus issue stablecoins. If the ratio of the collateral cost to the respective stablecoins gets below a certain value, other users can liquidate it by redeeming the stablecoins and taking collateral. Usually, this value is 200%, so as long as the collateral is twice as expensive as the issued stablecoins, the oven remains operational.
Still, crypto is quite volatile, so the collateralisation token’s price may drop 50% or even more below the original level. In that case, the collateral will cost less than the issued tokens, therefore, other users will find it unprofitable to liquidate such an oven. If there are too many ovens like that, the stablecoin will lose all customer loyalty and fail.
To avoid such a sad outcome, the Kolibri devs have launched a stabilisation fund, which is the last resort of liquidation. Oven owners pay a stabilisation fee so that in the case of price plummeting the fund would liquidate unprofitable ovens and save the day. The fee is 21.5% per annum in kUSD, of which 90% go to the stabilisation fund, and 10% to the developers’ fund.
The Kolibri Savings Rate contract calculates how much funds it lacks to reach 10.75% per annum each time a deposit or withdrawal is made and takes the required sum from the fund. If any bugs or vulnerabilities are discovered, the devs may halt the profit accruing and protect the stabilisation fund. Another option would be to change the profitability rate or the address from which Kolibri Savings Rate would get the funds.
How Does Youves Saving Pool Work and Why Its Profitability Rate Is Higher
Just like in Kolibri, youves users block uUSD in the pool and get the profits. The pool takes the payout funds from the Lending Fee, i.e. the fee for token minting. It comprises 7.7% of the issued uUSD, of which the pool gets 6.7% and the governance token YOU staking pool.
So, why does youves with a 7% fee pay 15% while Kolibri with a 21.5% fee ensures only 10.75%? The thing is that Kolibri uses a fixed fate while storing the rest “just in case.” Youves uses nothing like a stabilisation fund, so nearly all fees are distributed between users.
Therefore, the profitability of youves Saving Pool depends on the number of blocked coins. At the time of writing, users have pooled 43% of all the issued uUSD, so the rate is (6.7 / 43) × 100 = 15.3%. If the share of the blocked uUSD increases to 65-70%, users will make only 10% a year.
Even though youves has no stabilisation fund, uUSD is also protected against price drops via Conversion Right, i.e. a miner’s right to exchange a part of a uUSD collateral from a special pool to increase the rate and save the remaining tez from liquidation. In that case, the minter buys uUSD at a higher price which helps the system to correct the USD pegging of the stablecoin.
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