rUSDC: Mechanism and Risk Disclosure

rUSDC is a collection of USDC wrappers, one for each L2 or L1, that allows lending market risk curators to relend their Ethereum mainnet TVL to another chain.

Users can mint rUSDC on Ethereum by supplying USDC and then bridging it to one of the supported chains, where they can use it and often get incentives from the ecosystem of the chain.

Minting process

For a supported chain C, users can mint rUSDC-C by supplying USDC to the

RelendWTokenL1 contract, and there is a separate Ethereum contract instance for every chain.

Permissioned risk curators can also mint rUSDC-C and supply it to lending markets on chain C.

Redemption process

On chain C, rUSDC-C can be traded on DEXes vs other assets, and to maintain a stronger peg we implement two price stability modules, a local one for each chain and a global one for all supported chains.

Local price stability module (Local PSM)

Users can redeem their rUSDC-C back to the available USDC in the RelendWTokenL1 contract instance that was deployed for chain C (but not in other chain instances).

Global price stability module (Global PSM)

Borrowing of rUSDC-C in the chain lending market adds additional rUSDC-C into the circulation which is backed by collateral but not by USDC. Hence, the USDC supply in the local price stability module might be depleted.

In such a case, a global price stability module, currently implemented by the MorphoBank contract, may kick into effect.

The MorphoBank is operated by the Relend Network vault curator on Morpho, and it allows the curator to borrow USDC with rUSDC-C collateral, and consequently inject fresh USDC supply into the local price stability module of rUSDC-C, and enable users to redeem via the local price stability module.

Maintaining the price peg with USDC

Upwards deppeging

The price of 1 rUSDC-C is not expected to be over 1 USDC as it is always possible to mint additional rUSDC-C with USDC and bridge them to chain C. However, short-term price fluctuation might occur due to bridging time and costs.

Downwards deppeging

The first backstop towards short-term price deppeging is the local chain DEX liquidity and the redemption mechanism. While very short-term price fluctuations are always possible, the rUSDC-C price will always bounce back to 1 USDC as long as a redemption option is available.

If both local and global PSMs are depleted, the second backstop is the collateral that backs the additional rUSDC-C circulation. By design, the local PSM is depleted only if borrowed rUSDC-C was bridged and redeemed on Ethereum mainnet.

In such a case, the risk curator of the lending market is expected to increase the borrow interest rate and incentivise rUSDC-C borrowers to repay their debt.

To repay their debt, a borrower will have to either buy rUSDC in the local DEX or mint it with USDC, and in both cases, the price of rUSDC-C will get closer to the peg.

Risks

Smart contract risk

rUSDC is implemented with a set of Ethereum smart contracts. The code base is minimalistic, was audited twice, and in both cases only low severity issues were found.

Curators are supplying minted rUSDC to lending markets that are also operated by a smart contract.

General smart contract risks are applicable to both cases.

Chain and lending market risk

rUSDC is designed to be deployed into many different L1s and L2s. Each such chain carries technological risks, e.g., going down, being hacked, etc.

In each chain, the corresponding lending market might become insolvent, due to bugs or poor risk management.

The design of rUSDC segregates the risk between the different chains, and if chain A gets rekt or if the lending market there accrued bad debt, then it will only affect the local PSM of rUSDC-A, and not the local PSMs of rUSDC-B, rUSDC-C, etc.

Such an incident may also affect the global PSM if it already injected USDC to rUSDC-A, but otherwise the global PSM will not inject further liquidity to rUSDC-A.

Curator risk

rUSDC curators may supply minted rUSDC into markets who later become insolvent, and more generally even to malicious markets. Hence, it is assumed that the curators are trusted entities.

It should be noted that the user of rUSDC-A need not trust the curators of rUSDC-B.

Morpho bank curator cannot compromise the integrity of rUSDC, however the liquidity in the global PSM is subject to his discretion, which can affect the short term price but not the long-term peg.

Price deppeging

The following incidents may have consequences on the price stability of rUSDC-A:

• Smart contract bugs: permanent deppeg.

• Insolvency in a lending market on chain A (or in particular a bug in chain A): permanent deppeg.

• Insolvency in a lending market on chain B (or in particular a bug in chain B): potential short term deppeg.

• Malicious curator for chain A: permanent deppeg.

• Malicious curator for chain B: potential short term deppeg.

• Malicious curator for the Morpho Bank: potential short term deppeg.