How does mUSD generate interest?

GLP yields variable APR every week. The yield is paid out in WETH tokens on Arbitrum. WETH income from GLP is converted to mUSD based on the USD value of WETH at that time. After accounting for Protocol fees to be shared with esMETA holders and rebase incentive, the remaining income is distributed proportionally to mUSD holders, with an average APR of approximately 20%+.

For Example,

  • User A deposits $2,000,000 GLP and mints 1,000,000 mUSD

  • User B deposits $1,000,000 GLP and mints 500,000 mUSD

  • Current mUSD circulation = 1,000,000 + 500,000 = 1,500,000

  • Current collateral = $2,000,000 + $1,000,000 = $3,000,000 GLP

1 year later,

  • GLP Yield = $3,000,000 * ~20% = ~$600,000 WETH

  • User B uses his holding 500,000 mUSD to buy Ethereum

  • Service Fee during the past 1 year = mUSD circulation (i.e. 1,500,000) * 1.5% = 22,500 mUSD

  • Rebase Incentive = $600,000 x 0.5% = 3,000 mUSD

  • Dividends = $600,000 WETH - 22,500 mUSD - 3,000 mUSD = 574,500 mUSD is distributed among all mUSD holders proportionally.

Current situation:

  • User A

    • Collateral = $2,000,000 GLP

    • Debt = 1,000,000 mUSD

    • mUSD holding = 1,000,000 + 574,500 * 2 / 3 = 1,383,000 mUSD

    • mUSD APY = 383,000 / 1,000,000 = 38.3%

GLP yield of 20% is distributed on mUSD circulation of 200% collateral ratio, giving mUSD yield of 40%, less the fees & incentives

  • User B

    • Collateral = $1,000,000 GLP

    • Debt = 500,000 mUSD

    • Holding = 0 mUSD and $500,000 ETH

  • Current collateral still = $2,000,000 + $1,000,000 = $3,000,000 GLP

  • Current Debt still = 1,500,000 mUSD

  • Current mUSD circulation = $1,500,000 + $600,000 = $2,100,000

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