This proposal removes vaults using wrapped stablecoins from IPT rewards.
IPT borrower rewards are substantial, and meant to distribute protocol control to those who use the protocol. The recent introduction of yield-bearing stablecoin collateral has resulted in large amounts of CHAI entering the protocol as collateral. While this collateral is thought to be quite safe - and it is desirable for users to borrow against it - it skews where IPT rewards will go.
This is because this type of collateral it lends itself to a recursive borrowing strategy where a user could place a stable collateral in their vault, borrow USDi, convert to USDC, acquire more stable collateral, and repeat. A recursive borrowing strategy that allows high leverage to farm IPT rewards is probably not in the best interest of Interest Protocol or IPT holders.
Borrower rewards will be disabled for any vault posting collateral that consists of a $1 face value stablecoin, or yield-bearing derivative of a $1 face value stablecoin.
This exclusion from rewards applies to both present and future collaterals. At time of writing, only CHAI meets this definition. For the avoidance of doubt, the following hypothetical collaterals would also result in vault exclusion: cUSDC, USDP, GUSD-USDC Uniswap LP position, OUSG, tokenized money market funds, tokenized treasury ETFs, and any other stable-value instrument pegged to a $1 face value, whether or not it accrues yield.
This proposal would be in effect no earlier than April 30, 2023.