TIP-122: Deprecate the Fuse Protocol

Summary

Below is a proposal to deprecate the Fuse Protocol. While the majority of Fuse users have closed their positions, some positions remain open and there is a material amount of liquidity that could be returned to the pools and withdrawn. There are also ~1.7m in fees that need to be consolidated to one asset, I propose DAI, and sent to the DAO.

Context

As part of the emergency response to the Fuse exploit, interest rates in exploited Tribe pools were set to a flat 3% to mitigate losses. 3rd party pool operators were encouraged to do the same. While this was necessary at the time, currently borrowers lack the natural incentive to close out their position. Because of this, it may take significant time before liquidity is returned to the pools.

Proposal

I suggest setting the interest rates for assets with a flat rate in Tribe pools this interest rate model. This will give borrowers the intended incentive to close out their positions when utilization is high. For Tribe pools, this includes pool 8 and pool 156. This is not necessary for pool 146 as the pool has negligible borrows. We would also recommend that 3rd party pool operators do the same.

There are also ~1.7m of Fuse fees largely composed of various stable assets. I propose consolidating these to DAI and then sending them to the DAO’s DAI holding deposit. The Rari Capital Infrastructure team can do the consolidation on behalf of the DAO.

Voting

As Fuse was never migrated to on-chain governance, there will be no on-chain vote and a Snapshot vote will be binding on this proposal.

The Snapshot will go live this Friday 12pm ET and use approval voting with the following options.

  • Set interest rate models in pool 8 and 156 to the suggested implementation
  • Do not change interest rate models
  • Consolidate Fuse fees to DAI and send to the DAO’s DAI holding deposit
  • Do nothing with Fuse fees

I think it is best if voting on this topic is delayed until there is certainty around a Fuse hack reimbursement. If full reimbursement goes through the Fuse Fees can be used to pay off the Rari Capital USDC vault before any remaining funds are transferred to the DAO. This reduces the complexity of the overall reimbursement and also ensures there is certainty about repayment before changing interest rates.

Now that there is certainty about the Fuse exploit reimbursment I’ll be bringing this proposal to a vote on Monday.