Flamingo is absorbing the Lyrebird stablecoin project and plans to launch a new stablecoin tentatively called FUSD. The new stablecoin will be modeled after MakerDAO’s DAI token, which uses over-collateralization of digital assets to ensure its peg is held to US $1. Regarding the merger, the Lyrebird team said:
In light of recent market events and the continued negative sentiment toward algorithmic stablecoins, Lyrebird has decided that the best course of action is to shift to an over-collateralized stablecoin model pioneered by DAI. The original plan to purchase fractional reserves through seigniorage is no longer feasible due to the low liquidity of LRB.
Both Lyrebird and Flamingo are committed to ensuring that LRB and USDL holders will benefit from the adoption of FUSD, and that this mechanism is as transparent as possible. We look forward to bringing you an ever-improving DeFi experience on Neo N3.
The Lyrebird / Flamingo team plans to launch an LRB Fund, which will initially be matched with donations of NEP-17 tokens from ecosystem projects. Further, the LRB Fund will accrue interest on fees from minting and burning FUSD, as well as FUSD liquidations.
At the onset, FUSD will only use Flamingo’s DEX-Traded Fund, FLUND, for underlying collateral. As a risk mitigation strategy, Flamingo will require users to over-collateralize the FUSD, and use compulsory liquidations to maintain its peg. As the collateral is locked in a smart contract, transparency negates the need for a centralized management model.
The FUSD Stablecoin
To create an FUSD stablecoin, users will be required to lock up FLUND tokens and can mint up to 35% of the FLUND tokens’ value (i.e., $100 of FLUND will mint $35 of FUSD). FLUND is a single-staking feature that receives portions of daily minting rewards and fees accrued on the Flamingo Finance DeFi platform. The FLUND pool accrues 20% of daily FLM minting rewards and approximately 16% of trading fees on the platform.
Once the user has minted FUSD, they will pay a 6% annual interest rate, which will be tallied each block and added to the FUSD token holders’ wallets. When the user exits their initial FUSD position, they’ll have to redeem the value of the initial mint and pay the additional interest to reclaim ownership of the underlying FLUND tokens.
For example, if a user mints 100 FUSD, after a year, the wallet will have 100 FUSD plus an additional 6 FUSD in interest to pay back if they want to gain access to the FLUND that was initially provided for collateral. If the user doesn’t redeem, the user is incurring interest at 6% on 106 FUSD.
Looking forward, the Flamingo team intends to integrate support for other forms of collateral to back FUSD.
Remaining USDL and LRB
When Lyrebird launched in May 2022, the team delayed the release of a FRP-FLM-USDL pool on Flamingo until the price of LRB showed signs of reduced volatility. The purpose of the LRB token was to absorb the volatility of USDL. However, the Lyrebird project was met with a series of setbacks that have forced a change in course.
First, Terra, the protocol Lyrebird was initially modeled after, suffered a “death spiral” in the face of rapidly decreasing demand for its UST (USDL equivalent) stablecoin and LUNA reserve token (LRB equivalent). Then, in June 2022, the LRB token suffered a significant decrease in liquidity necessary to operate a fractional reserve stablecoin model.
The LRB to USDL minting function has since been removed from the Lyrebird site. Further, Flamingo will remove the FRP-FLM-USDL pool from the DeFi platform, and will only offer the ability for liquidity providers to withdraw assets. Users are encouraged to exit the USDL LP or to burn the remaining USDL for LRB on the Lyrebird website.
The FRP-LRB-FLM pool will remain open so token holders can swap into or out of LRB.
Moving forward, the newly formed entity has established the LRB Fund, which LRB token holders can claim access to in two years. As LRB will no longer be used to mint USDL, it has lost its utility and is now a speculative asset based on the future value of the LRB Fund.
The LRB Fund will initially be seeded with NEP-17 token donations from projects across the ecosystem and earn 1% of the interest on FUSD. Once the two-year mark has passed, the amount of LRB an individual has will determine the percentage of the LRB Fund they can claim.
Once the LRB Fund is live and begins accruing assets, the team intends to implement a dashboard on the Flamingo platform similar to that of the FLUND.
The full announcement can be found at the link below: