Today, Kamino is launching its USDG Growth Initiative, aimed at establishing USDG as one of the leading DeFi stablecoins on Solana and rapidly expanding USDG circulation on the network. In this post, we cover the value proposition of USDG, why we believe it can grow into one of the core Solana stablecoins, and how the Growth Initiative will encourage USDG usage on Kamino.
Introduction
Solana has emerged as the dominant blockchain ecosystem in terms of on-chain trading volumes. This enormous growth in on-chain activity is also reflected in significant stablecoin flows to the chain, with a 345% YoY growth in Solana’s total stablecoin market cap—from $2.7B to $12.36B.
Kamino itself has also seen rapid stablecoin growth, becoming the largest stablecoin venue in Solana with over $700m stables supplied.
This trend is in no small part due to new stablecoins extending to support Solana issuance. In the case of USDG, the Global Dollar Network expanded to Solana in late February, and has since grown to over $50M market cap.
Now, in its next growth phase, USDG on Solana will be positioned to serve core DeFi use cases such as borrowing and leverage. With the launch of Kamino’s USDG Growth Initiative, Kamino’s products will sit at the heart of this next phase of USDG expansion.
What is USDG?
USDG is a 1:1 USD-pegged stablecoin launched by the Global Dollar network, and issued by Paxos—one of the largest stablecoin issuers in the world. USDG is fully-backed, with monthly reserve reports to ensure reserve transparency.
USDG Growth Initiative
Kamino’s goal is to scale USDG on Solana via an aggressive growth initiative. The goal of this initiative is two-fold:
- Encourage productive USDG usage on the platform
- Attract rapid USDG flows
Initiative Overview
The initiative will give USDG rewards to users borrowing USDG against their assets. Simply put, the more USDG you borrow, the more USDG you earn. Rewards will scale as the total amount of USDG borrows on Kamino increases.
To kick off, USDG is being onboarded to the JLP Market, and the Main Market. In the two respective markets, the first month will reward borrow activity as follows:
JLP Market
- USDG Borrows against JLP Collateral
- 30,000 USDG per month
Main Market
- USDG Borrows against JitoSOL Collateral
- 30,000 USDG per month
- 7,000 JTO per month
JLP has proven to be a highly sought after leverage trade, with large demand for stablecoin borrows to loop and increase JLP exposure. Via USDG in the JLP Market, users can now earn rewards for doing this loop with USDG.
As for JitoSOL, we believe that the deployment of LSTs into Solana DeFi still has immense room for growth—particularly as collateral for stablecoin borrowing. Thus, in collaboration with Jito, users borrowing USDG against their JitoSOL will earn dual incentives in USDG and JTO, totaling ~$46,000 monthly at current rates.
Rewards Calculation
Users earn rewards by borrowing USDG. Reward amounts are thus a function of the amount of USDG borrowed, and the collateral backing the USDG borrows.
Rewards Criteria
- A position must contain JLP or JitoSOL collateral and USDG debt
- In a position with multiple collateral/debt assets, only the weighted amount of USDG borrowed against JitoSOL or JLP is considered
Rewards Calculation
A user’s reward is determined by the amount of USDG borrowed against JitoSOL or JLP respectively. In the calculations below, we’ll use JitoSOL as an example, but the exact same logic applies to the JLP Market.
- Max APY
This is the value shown in the market list, and refers to the maximum possible APY a user can earn on their debt:
farm apy = total rewards annualized / total USDG debt backed by JitoSOL in market
- User APY
This is the actual rewards a user is earning on their debt based on their collateral/debt composition:
user apy = farm apy * ( user USDG debt backed by JitoSOL / total user USDG debt )
Where user USDG debt backed by JitoSOL is calculated as:
user USDG debt backed by JitoSOL = user JitoSOL collateral / user total collateral * total user USDG debt
A user’s reward amount thus considers the weighted amount of USDG borrowed against JitoSOL in their position, in relation to the total USDG borrowed against JitoSOL in the market.
We’ll cover a few examples below:
Rewards Examples
Example #1:
Position with only JitoSOL collateral and USDG Debt
- JitoSOL Collateral = $100
- USDG Debt = $50
user apy = farm apy * ( user USDG debt backed by JitoSOL / total user USDG debt )
user apy = 10% * ( 50 / 50)
user apy = 10%
In this scenario, the user earns the Maximum APY value on their debt. With 50 USDG Debt, the user would earn 5 USDG annually. At a 10% Borrow APY, for example, their USDG rewards would offset 100% of their annual borrow cost.
Example #2
Position with SOL and JitoSOL collateral, and USDG Debt
- SOL Collateral = $50
- JitoSOL Collateral = $100
- USDG Debt = $50
In this scenario, we first calculate how much of the user’s USDG debt is backed by JitoSOL:
user USDG debt backed by JitoSOL = ( user JitoSOL collateral / user total collateral ) * total user USDG debt
user USDG debt backed by JitoSOL = (100 / 150) * 50
user USDG debt backed by JitoSOL = 33.33
This means, out of the total 50 USDG debt, 33.33 USDG is backed by the JitoSOL collateral. We can then calculate the user’s APY:
user apy = farm apy * ( user USDG debt backed by JitoSOL / total user USDG debt )
user apy = 10% * ( 33.33 / 50 )
user apy = 6.6%
In this scenario, the user earns a 6.6% APY value on their debt. With 50 USDG debt, the user would earn 3.3 USDG annually. At a 10% Borrow APY, for example, their USDG rewards would offset 66% of their annual borrow cost.
Example #3
Position with JitoSOL collateral, and USDG and USDC Debt
- JitoSOL Collateral = $100
- USDG Debt = $50
- USDC Debt = $20
In this scenario, the user is borrowing at a 70% LTV, but is earning rewards on only the USDG portion of their debt. In practice this comes down to the same calculation as Example #1, where the user earns:
user apy = farm apy * ( user USDG debt backed by JitoSOL / total user USDG debt )
user apy = 10% * ( 50 / 50)
user apy = 10%
In this case, the user earns 10% APY, but only on the USDG portion of their debt, so 5 USDG annually. Were the user to switch their USDC debt to USDG, they would be earning 7 USDG annually.
This rewards initiative thus encourages users to shift their stablecoin borrows against JitoSOL and JLP exclusively to USDG, thus leading to a net increase in borrow activity on the protocol, and ultimately attracting additional USDG deposits as well.