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LUSD's growing usage on Optimism

LUSD's growing usage on Optimism


June 27, 2022

LUSD is at the forefront of the Optimism summer! Lately, several releases have provided additional utility to LUSD on the network: this article offers a comprehensive overview of the options and opportunities available for LUSD holders on Optimism.

Earlier this year, LUSD came to Optimism firstly because of Synthetix. Since then, a LUSD/USDC pool was also launched on the DEX Velodrome, as well as support for LUSD on the cBridge, creating new options for LUSD holders on Optimism and mainnet. We will detail what all three integrations entail.

The LUSD/sUSD Synthetix Wrapper

Synthetix was an Optimism pioneer and the first user of LUSD on this network. With the release of the Synthetix protocol on the network as early as July 2021. With a significant usage of Synthetix on the network, there was a need to stabilize the sUSD peg further.

Like MakerDAO's Peg Stability Module, Synthetix introduced stablecoin wrappers into their protocol, first with DAI. However, the reliance on censorable stablecoins became a concern for the community, and the DAI wrapper was unwinded in favor of the LUSD/sUSD wrapper.

Liquity's protocol connection to Optimism and Synthetix

This wrapper contract enables users to burn sUSD to redeem LUSD 1:1 (excluding the five bps fees) or lock LUSD (if there is an available capacity) to mint sUSD.

We covered more extensively how Synthetix uses LUSD in this article.

A LUSD liquidity source on Optimism with Velodrome

In June, a new DEX was launched focusing on the Optimism ecosystem: it draws elements from the Curve and Solidly model, with a gauge system governing VELO allocation amongst the various pools.

At launch, the top DeFi protocols of Optimism, including Liquity, received an airdrop of a veVELO NFT (VELO tokens locked in governance). The obtained voting power has been used to support a LUSD/USDC pool which has been one of the top stablecoin pools of Velodrome since its inception.

It facilitates the exchange of LUSD on Optimism and provides an additional yield source for LUSD holders who provide liquidity to the pool:

USDC/LUSD Stable Pool Pair on Optimism

Fast withdraw back to mainnet with the cBridge

With the growing usage of LUSD on Optimism, there was a need for a fast withdrawal option back to mainnet. Indeed, while the Optimism bridge enables transfers from mainnet to Optimism in just a few minutes, withdrawing is subject to a seven-day delay to allow sufficient time for verifiers to detect fraud on the Optimistic Ethereum network.

Holders of LUSD on Optimism and/or the Ethereum mainnet can also supply liquidity and earn their share of the bridging fees.

While the LUSD token is bridged to and available on Optimism, the Liquity protocol is not deployed there: trove-related operations must still be performed on the mainnet. A new cost-effective way to interact with the Liquity protocol will soon be available, powered by the Aztec Network.

Useful Links

Bridging LUSD to Optimism

Fast withdraw (back to mainnet)

Supply Velodrome LUSD Pool

LP APY stats

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