SWEEP compares to a typical fiat-backed stablecoin on these dimensions
- Interest pass-through
- Proof of reserves
- Asset protection
- Capital buffer
- Liquidity and redemption
Sweep designs saver protections into its asset placement structure
Sweep intends to offer better returns than a typical fiat-backed stablecoin. It may also offer better returns than competing interest-earning coins such as DAI because it adjusts rates based on market demand, rather than using governance to set a savings rate that is at a safe lower bound for the protocol.
Sweep pays interest, in the form of an increasing target price. Sweep allows borrowers to compete for funding, which will move the rate of interest into a competitive range for placement into money market securities.
Sweep intends to offer better transparency and proof of reserves than a typical fiat-backed stablecoin.
Sweep commits to providing a detailed view of all assets, at least once per day. This information is available from
- Assets held in on-chain strategies and Stabilizers
- Protocol assets in AMMs
- Securities custodians and brokers, with delivery through the collateral agent
- Intermediary wallets and settlement accounts
Transparency is the DeFi superpower. Sweep is committed to pushing DeFi levels of transparency into related CeFi assets.
Sweep intends to offer better asset protection than a typical fiat-backed stablecoin.
The securities handling system provides protection for margin lenders. Custodians hold the assets. The collateral agent can liquidate the assets. There is no commingling with borrower operations. This protects SWEEP holders even if borrowers run into financial problems.
The off-chain financial system allows DeFi participants to diversify away from technology-related risk. The collateral agreements are designed, as much as possible, to recover funds for savers even if the related blockchain or protocol has operating problems.
Note: Off-chain placement has different risks than on-chain placement. On-chain assets run the risk of hacks, mistakes, and custody losses. Off-chain placement largely eliminates these risks by providing a process to fix mistakes. Technology and custody losses are essentially zero. Instead, off-chain losses can be amplified by lack of transparency. In a typical case, you think an intermediary is holding and investing your assets, but actually, those assets are no longer in place because of financial losses or fraud, and it takes some time to find out. Pushing daily transparency into this system will help us gain safety from both DeFi and CeFi features.
The Sweep protocol requires a capital contribution from borrowers. Borrowers that are executing on a money market mandate will need to contribute 1% to 3% capital buffer to protect against losses. Stabilizers will match the capital contribution to the volatility in the portfolio. We can take guidelines from similar arrangements with repo borrowers (about 1% "haircut") and short term bond dealers (about 3%).
Top fiat-backed stablecoins have reported these capital buffers in November 2022:
Circle USDC: 0.6%
Paxos BUSD: 1.7%
Tether USDT: 0.3%. This number is unverified and infrequently reported. The balance sheet may have some commingling with operational liabilities.
Sweep intends to offer worse on-demand liquidity than a typical fiat-backed stablecoin, in exchange for a higher confidence about the ability to meet redemption demands in a one-week time window.
Sweep does not promise to redeem at the target price, on demand. If a lot of people want to redeem at the same time, the price will discount. This discount is an important stress reliever. It allows Sweep to be more fully invested and earn higher returns for savers.
Sweep will attempt to meet all redemption demand within 7 to 10 days. Sweep will minimize the discount by providing a high level of visibility into the asset base and the process of redeeming assets. If this system can establish confidence that money will arrive within one week, then the discounts for SWEEP sellers will be limited by the high annualized return that arbs can gain by buying SWEEP and holding it for one week.
Sweep will run a weekly dutch auction to clear large transactions with low slippage.