GUSD: Yield Generation, Tiered Liquidity & Guardrails

GUSD reserves are managed under a tiered liquidity structure

The goal is to:

• guarantee user liquidity and peg stability

• generate sustainable yield only from clearly defined “excess reserves”

• separate risk-taking capacity from the funds needed for redemption and stability

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1. Tiered Liquidity Structure & Reserve Management

To ensure maximum safety while generating sustainable yield, GUSD reserves are divided into two tiers based on liquidity profiles. Allocation ratios are indicative and can be adjusted via governance.

Tier 1: Immediate Liquidity Reserve (L1) – ~25%

• Purpose: Primary buffer to guarantee immediate 1:1 redemptions, even during periods of elevated demand.

• Composition: Approximately 25% of total GUSD reserves held in major dollar stablecoins (e.g., USDT, USDC).

• Core Principle: Non-yielding. This capital is strictly treated as “do not touch” funds and reserved solely for user redemptions.

Tier 2: Yield-Generating Reserve (L2) – ~75%

• Purpose: Generate protocol revenue while maintaining a collateralization ratio (CR) above 100%.

• Composition: Approximately 75% of total reserves.

• Investment Scope: Restricted to high-liquidity, low-risk positions (e.g., institutional staking, short-term RWAs, T-Bills).

• Risk Absorption: Acts as the first-loss buffer. In the event of yield or principal loss, L2 absorbs the impact first to protect the integrity of L1.

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2. Core Risk Metrics & Guardrails

The protocol operates under strict quantitative constraints to maintain peg stability and solvency.

1) Collateral Ratio (CR) with Safety Margin ($\sigma$)

The system mandates that reserves always exceed liabilities by a defined safety margin ($\sigma$).

$CR = \frac{\text{총 준비금 (Total Reserves)}}{\text{GUSD 총 발행량 (Total Supply)}} \ge 1.00 + \sigma$

• σ (Sigma): Target safety margin (e.g., 0–15%), adjustable via governance based on market volatility and risk appetite.

• Mechanism: If operational losses in L2 cause CR to fall below $1.00 + \sigma$:

  • New minting is paused

  • L2 positions are unwound to restore collateral and liquidity

  • Fees or haircuts may be adjusted to recapitalize the buffer

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2) Liquidity Coverage Ratio (LCR)

LCR ensures that short-term liabilities can always be met with immediately available assets.

$LCR = \frac{\text{Immediately Liquid Assets (L1 + Liquid L2)}}{\text{Projected Short-Term Redemptions}} \ge 1.0$

• Function: If LCR drops below 1.0, the protocol automatically rebalances L2 assets back into L1 (or more liquid forms) to restore immediate liquidity.

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3) Whitelisted Strategies Only

L2 capital is deployed only into pre-approved, whitelisted strategies.

• Criteria:

  • verified audit history

  • sufficient TVL and operational track record

  • predictable unwinding and settlement periods

• Exclusions:

  • no hidden leverage

  • no complex derivatives with unbounded downside

  • no unverified or unaudited protocols

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4) Exposure Caps & Haircuts ($h_i$)

To mitigate concentration risk, specific limits apply to each asset, chain, and counterparty.

• Caps: Maximum allocation per asset/chain/custodian (e.g., “Max 25% in USDT on Chain-X”).

• Haircuts($h_i$): Assets are valued conservatively based on risk.

  • Example:

    • Example (Prime stablecoin): $h = 1\%$ ($100 \to 99$)

    • Example (Higher-risk asset): $h = 5\%$ ($100 \to 95$)

• Dynamic Adjustment: In stress scenarios (e.g., de-peg events, credit concerns), haircuts can be increased immediately to protect the protocol and reduce effective exposure.