US Treasury Pool
As the interest rate continues to hike, the risk free rate in the USD environment has outperformed the yield farming rate in DeFi. Therefore, Cytus provides every DeFi user with seamless access to this investment instrument. The US treasury pool will use the perpetual dynamic rate pool model. Below are predefined parameters:
- Pool start date: Nov 1-15, 2022
- Pool target utilization rate: 90%
- Baseline APR of the underlying RWA debt: real-time daily APR of 1 month and 1 year US treasury bills (the mix of 1-month and 1-year will be targeted at 1:9 for this pool to start-with)
This pool will invest into only 2 instruments: 1 month US treasury and 1 year US treasury. This is to achieve balance between return and liquidity. 1-month US treasury is primarily used for liquidity management. 1-year US treasury is to achieve a higher interest rate. The liquidity management methods are outlined below:
- Utilization rate < target rate: Funds in the pool will be withdrawn to bring the utilization rate as close to target rate as possible. The withdrawn fund will be used to buy 1 month treasury and 1 year treasury such that there are around 10% of value of the entire treasury portfolio invested in the bonds with duration smaller than 1 month.
- Utilization rate > target rate: When a treasury expires, cash is added to the pool, which brings down the utilization rate. If the target rate is reached, and there is still cash left, the remaining cash will be reinvested into 1 month treasury and 1 year treasury such that there are around 10% of value of the entire treasury portfolio invested in the bonds with duration smaller than 1 month.
Note that even if we try our best to manage liquidity, there is still a possibility that the utilization rate reaches 100% and no funds can be withdrawn. But since the APR of the pool is dynamically adjusted, higher utilization means higher APR which means more users are attracted to deposit funds which automatically brings down the utilization rate. Also, in the current environment, 1 year US treasury generates an APR of 4.2% which is significantly higher than the common yield farming yield. Therefore, we foresee a huge inflow into our pool instead of outflow.
Last modified 5mo ago