Gyroscope - sGYD STEP Application

Applicant information

Gyroscope (Gyroscope Foundation)

Address (Headquarters)
PO Box 707, 3rd Floor, Landmark Square, 64 Earth Close

City, State, Postal Code
Grand Cayman, KY1-9006

Cayman Islands


Primary contact

Glenn Kennedy


Cayman Islands

Email, Telegram, Forum, & other methods of contact

Key Information

Expected Yield
9-10% annually as of 30 Apr 2024 (subject to variation)

Expected Maturity
The reserve is open ended with no maturity.

Underlying asset
The fundamental aim of the Gyroscope stablecoin, GYD, is to provide a yield-bearing stablecoin that specifically aims to diversify risk in its reserve to the greatest possible extent. This is achieved by storing reserve assets entirely on-chain in an all-weather reserve, logically partitioned into different vaults. This has the effect of limiting contagion risk within the reserve in a number of failure scenarios.

The reserve will comprise of the following crypto assets, in the following proportions, after the GYD bootstrapping pool (which provides a preset amount of GYD which can be minted against sDAI) is unwound:

  • 20% fUSDC (yield bearing USDC)
  • 12% aUSDT (yield bearing USDT)
  • 48% sDAI (yield bearing DAI)
  • 20% LP shares of a Gyroscope LUSD/crvUSD Rehype pool

These vault weights achieve the following risk diversification:

  • 38% exposure to centralized stablecoins
  • 43% exposure to decentralized stablecoins
  • 50% exposure to RWAs

Yield sources:

  • Protocol for Loanable Fund interest (aUSDT, fUSDC, rehypothecated LP shares)
  • Yield from swap fees
  • RWA yield

These weights and exposures are expected to evolve through time as the Gyroscope DAO votes on changes to the reserve. This process is designed with a multitude of safeguards in place (see governance documentation).

Minimum/Maximum transaction size
There is no minimum or maximum.

Current AUM for product
2.5m USD (as of 30 April 2024)

Current AUM for issuer
23.9m USD across all pools (as of 30 April 2024)

Volume of transactions LTM

  • 1bn USD through all ECLPs (as of 30 April 2024)
  • 87m USD through GYD pools

Source of first-loss capital
GYD holders (if portion of yield retained by reserve insufficient and GYD Recovery Module depleted. The Recovery Module is due to be deployed and scaled in coming months).

Basics and background

1. How will this investment improve Arbitrum’s RWA ecosystem?
There are two main stated aims of the Arbitrum Stable Treasury Endowment Program (STEP):

  1. Short and medium term, to diversify Treasury held ARB into assets that are stable in value, liquid, and will provide yield uncorrelated to crypto markets that is at least commensurate with the so called “risk free rate of return” of US Treasuries (hereby called ‘stable RWAs’); and
  2. To function as a trial run, both in terms of the smooth functioning of the legal and infrastructural piping as well as to provide a proof of concept that Arbitrum Treasury diversification can simultaneously support ecosystem growth.

Gyroscope’s GYD stablecoin is uniquely positioned to enable the Treasury WG to achieve both of these objectives.

  1. GYD is stable in value. See here. The stablecoin was designed from the bottom up to be as resilient as possible as a store of value. This means:
    1. A widely diversified all-weather reserve (as described above) with smart contract encoded safety checks to keep the vaults comprising the reserve within defined bounds;
    2. Smart contract encoded minting/redemption pricing which seeks to promote long-term stability, autonomously balancing the goal of maintaining a tight peg with the goal of long-term GYD stability in the face of short-term crises;
    3. A new on-chain oracle system, the Consolidated Price Feed, which minimizes trust on single oracle systems such as Chainlink and improves fault tolerance.
  2. GYD is liquid. GYD is perhaps the most liquid stablecoin for its size, able to do more volume per day than its total circulating supply while remaining on peg. GYD also leverages Gyroscope E-CLP pools that are the most capital efficient in DeFi. Further, GYD is directly redeemable through a primary market.
  3. RWAs are a core part of GYD as currently calibrated, providing yield uncorrelated to crypto markets. RWAs are to comprise around 50% of the GYD Reserve. The expected yield on the GYD reserve is 9-10%, significantly more than the risk free rate on US Treasury bonds while featuring a very great degree of risk diversification. It should be noted that as of the time of writing, the GYD Reserve is mostly contained in an sDAI/GYD bootstrapping pool. This bootstrapping pool is implemented at the protocol level and has provided an initial simplified way to acquire GYD by providing a pre-set amount of GYD that can be ‘minted’ against sDAI as a reserve asset by swapping through the pool. Ahead of receiving an allocating from the Arbitrum Treasury, these sDAI reserves from the bootstrapping pool would be partially unwound into the proposed wider Gyroscope reserve as outlined above, across the 4 vaults (fUSDC, aUSDT, sDAI and LP shares of a Gyroscope LUSD/crvUSD pool). Through time, other bootstrapping pools may be created including on other chains and L2s.

In relation to the long-term aims of Arbitrum’s Treasury diversification program, GYD is exceptionally well placed to showcase ecosystem growth. An ARB allocation could significantly boost the GYD stablecoin supply, with an allocation on the upper-end of the considered scale of 20m USD igniting growth for the GYD stablecoin on Arbitrum.

This would greatly serve to benefit both Arbitrum and Gyroscope long-term. Gyroscope is ideally placed to showcase such ecosystem growth, with an allocation of ARB under the STEP programme serving to supercharge growth alongside Gyroscope’s separate LTIPP and ecosystem grant.

2. Identify key management personnel and individual experience. Also include third parties utilized for managing assets and their qualifications.
Gyroscope and GYD is a decentralized stablecoin run by decentralized governance on Ethereum mainnet. The initial calibration and deployment of the protocol was undertaken by FTL Labs.

Name Title Qualifications Past work Role
Ariah Klages-Mundt Research and Development PhD in Applied Math at Cornell, Bloomberg Fellow, Commercialization Fellow Predicted Black Thursday-type crises in Dai; Quant development in fintech Leading research initiatives, mathematical modeling, and protocol optimization.
Steffen Schuldenzucker Research & Development CS PhD from University of Zurich, Former PostDoc at Goethe University Algorithmic game theory in financial markets, Market Designer for Worldcoin Research on financial market design, stability studies, and algorithmic strategies.
Lewis Gudgeon Development & Operations CS PhD from Imperial College London, MPhil in Economics Research from Cambridge University, UK DeFi risks publications (>1000 citations) Development oversight, risk assessment, and operational streamlining.
Daniel Perez Development & Operations Software engineer with 10+ years of experience, CS PhD from Imperial College London 3,000+ GitHub stars, blockchain security research (>1000 citations) Full stack development, system security, and codebase management
Jonas Klemm Growth & Governance Dual MSc in International Business, BSc in Industrial Engineering Co-authored most frequently cited paper on stablecoins, Research Team at Binance, Innovation Team at European Central Bank Governance strategies, partnerships, and integration.

3. Describe any previous work by the entity or its officers/key contributors similar to that requested. References are encouraged.

4. Has your entity or its officers/key contributors been subject to an enforcement action, criminal action, or defaulted on legal or financial obligations? Please describe the circumstances if so.

5. Describe any conflicts of interest for your entity and key personnel.

6. Insurance coverages, guarantees, and backstops Name of insurer or guarantor Per incident coverage Aggregate coverage

7. Historical tracking error in your proposed product, or similar to that being proposed Product 2024 YTD 2023 2022 2021

8. Brief reason for above tracking error

9. Please describe any experience your firm has in working with decentralized organizational structures
Gyroscope is itself a decentralized organizational structure. Within the protocol community, not least with regard to FTL Labs, the project has substantively worked with protocols and protocol service providers such as Balancer, Aave, Tokenlogic and Karpatkey.

10. What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
23.9m USD across all pools (as of 30 April 2024)

11. How many of these assets held are present on Arbitrum One, if any?
335k USD (as of 30 April 2024)

Plan design

1. Please describe your proposed product, including a description of the underlying assets and, if more than one asset, the proposed allocation among assets and general investment guidelines. Where appropriate, include targeted maturity mix and credit quality. Attach supplementary documents as appropriate.
The proposal is that ARB would be converted to a yield bearing version of GYD, which in turn is backed by the GYD stablecoin reserve in the following proportions:

  • 20% fUSDC (yield bearing USDC)
  • 12% aUSDT (yield bearing USDT)
  • 48% sDAI (yield bearing DAI)
  • 20% LP shares of a Gyroscope LUSD/crvUSD Rehype pool

Do investors have any shareholder, investor, creditor or similar rights?

1. Describe the legal and contractual structuring for your product including regulatory bodies overseeing your business and the product and identifying all legal jurisdictions interacting with your product. Attach supplementary documents as appropriate.
GYD is operated by a DAO with an associated Gyroscope Foundation.

2. Would Arbitrum’s assets be bankruptcy remote from your own entity and its officers/key contributors? If so, please explain the legal and contractual basis. On a confidential, non-reliance basis, provide any third party legal opinions to support the conclusions.
N/A. Funds are stored entirely on-chain in a non-custodial manner.

How are Arbitrum’s assets protected vis-a-vis the bankruptcy of the brokerage or applicable financial institution (e.g., bank deposit insurance, securities insurance, etc.)?
N/A since funds are stored entirely on-chain in a non-custodial manner.

Does the Issuer issue more than one asset? If so, what is the priority relationship between different asset classes?

1. Provide a detailed cash flow diagram that shows the flow of funds from ARB/Fiat conversion, investment in underlying asset, payment of expenses, sale of underlying asset, and repayment (Fiat/ARB conversion), including the counterparties and legal jurisdictions involved.
Perhaps the primary advantage of placing ARB in the GYD reserve compared to actors that use off-chain centralized solutions is that, realizing the original value propositions of DeFi, the funds are stored in a non-custodial vault with their safe storage observable directly and transparently on-chain.

2. Describe anticipated tax consequences (if any) in transacting on the underlying and/or receipt of yield.
All users of GYD, including the Arbitrum Treasury, necessarily remain solely responsible for their tax obligations and should consult with a tax adviser.

3. Describe the process and expected timeline for liquidation of assets, if given instructions to do so by Arbitrum governance.
Since GYD is entirely non-custodial, Arbitrum governance can undertake a liquidation immediately. GYD is directly redeemable through a primary market and may be sold in secondary markets.

4. What amount of first-loss equity will Sponsor provide to ensure over-collateralization, how is the first-loss equity denominated, and what is the source of capital?

5. Describe the liquidity and stability of the proposed underlying assets, including anticipated settlement times from the sale of the underlying to the repayment of ARB.

  • fUSDC (20%) — USDC held in Flux.
    • fUSDC has been stable but relatively small historically (about $3.5M with utilization stable around 90%).
    • This means that about $350k + 10% of GYD TVL in these markets could be liquidated instantaneously out of this vault.
    • For the remainder, we expect that the borrow side would sufficiently contract within a few days.
    • USDC is extremely liquid.
  • aUSDT (12%) — USDT held in Aave.
    • The Aave USDT market is large ($1.14B) and utilization rates have historically been below 93%, suggesting that the whole supply can likely be liquidated instantaneously.
    • USDT is extremely liquid.
  • sDAI (48%) — DAI deposited in the DAI savings rate via Spark.
    • Any amount can be instantaneously withdrawn.
    • DAI is extremely liquid.
  • LUSD/crvUSD (20%) — An LUSD/crvUSD mix deposited in an AMM and rehypothecated to Aave (a Rehype ECLP).
    • Any amount can be instantaneously withdrawn in the form of Aave deposit tokens, for which underlying assets can be withdrawn from Aave.
    • LUSD and crvUSD Aave markets are not very large currently, and so Aave liquidity may be limited.
    • LUSD has historically been around 5M supply at utilization not above 86% sustained, so that likely $700k + 14% of GYD TVL in these markets can be liquidated instantaneously.
    • crvUSD has historically been around 400k supply at utilization at most 85% sustained, so that likely $60k + 15% of GYD TVL can be iquidated instantaneously.
    • Aave borrowing is adaptive to interest rates, and we expect the borrow side would sufficiently contract within a few days.
    • LUSD and crvUSD have deep liquidity on various DEXs and any amount can likely be converted into other assets instantaneously.

6. If relying on the blockchain for any of the transactional flows, please describe any blockchain derived risks and mitigations.
GYD is entirely on-chain. Specifically considering the question of the risks relevant to transactional flows, the risks include:

  • Smart contract risk: As with any smart contract system, there is an inherent risk that an exploit or bug puts committed assets at risk. This risk can be reduced by conducting code audits and testing, but it cannot be fully excluded.
  • Risks of reserve assets: The Gyroscope system is backed by reserve assets, which may include other stablecoins, LP shares in AMM pools, and other tokens. Each of these assets has its own risks, and there is no guarantee that Gyroscope reserve assets always have enough value to fully back the system. More information on stablecoin risks is described, for example, in this paper. More information on LP risks is described in the CLP docs. While these asset risks have been studied (like in the provided links), cryptocurrencies remains a new space in which risks may not be fully understood yet. The Gyroscope reserve may in principle incorporate volatile assets, such as WETH, as future reserve assets. Should this happen, the system may be expected to become under-reserved at times due to the volatility of such assets. Stable assets also contain risks, and a depeg of such an asset could also cause Gyroscope to become under-reserved.
  • Price oracle risks: The Gyroscope system relies on a system of price oracles to import asset pricing information from off-chain markets and to read pricing information from on-chain markets. At times, these oracles may provide wrong information or may be manipulated, which may lead to system losses on reserve assets. Oracle risks are described further, for example, in this paper and in the oracle system specification. While the Gyroscope design attempts to mitigate oracle risks, some residual risk always remains.
  • Risks of using the DSM: The DSM defines the system’s monetary policy of how reserve assets are used toward maintaining a stablecoin peg. The DSM is designed to balance maintaining a peg with preserving reserve assets in the scenario that reserve assets experience shocks and the system becomes under-reserved. By the design of the DSM (and transparent on-chain), there is no guarantee that users are able to redeem GYD from the system at a value near the peg price at all times. In addition to drawdown risk due to volatility of reserve assets, the DSM may lead to additional drawdown of reserve value. The DSM monetary policy is designed to allow some level of redemptions near the stablecoin peg while the system is under-reserved, which would draw down the overall reserve ratio available for later redemption. This additional drawdown depends on the level of inflows and outflows that the system experiences while under-reserved and on the calibration of the DSM. The DSM is designed to be bounded by a DSM parameter, as described in the DSM technical paper.
  • Bootstrapping pool risk: GYD is launched with a ‘bootstrapping pool’, which allows a pre-set amount of GYD to be minted in a simplified manner against a specific reserve asset. The bootstrapping pool structure bypasses the normal Gyroscope minting and redemption structure, including the extra minting and redemption safety checks and reserve diversification mechanisms. Should the single reserve asset held in the bootstrapping pool depeg, it would have an outsized effect on the Gyroscope system while the bootstrapping pool is large in comparison to the rest of the system.
  • Upgradeability risk: Many contracts forming the GYD stablecoin system are upgradeable, meaning that the smart contract code may change over time. While it is intended that smart contract upgrades for GYD would fix any code bugs that may materialize, upgrades may also introduce new vulnerabilities and have their own smart contract risk.
  • Blockchain infrastructure risk: The GYD stablecoin contracts are deployed on the Ethereum blockchain, and any interaction with the smart contracts inherits the risks of the Ethereum network.
  • UI and blockchain interaction risks: When a user interacts with the Gyroscope system through the Gyroscope web UI, they are exposed to technical risks. While the Gyroscope UI has been carefully reviewed to avoid bugs and vulnerabilities, these cannot be completely excluded. A UI bug may lead to an incorrect transaction being generated, or the UI may become unavailable. A user’s own IT setups (e.g., web browser, wallet software) may further contain bugs and vulnerabilities.

Any of the above risks can lead to a partial or complete loss of the user’s assets.

7. Does the product rely on any derivative product (swaps, OTC agreements?)

8. List all the third party counterparties linked to your assets including and not restricted to prime broker if any, custodian, reporting agent, banks for derivatives or loans and provide primary contact details for the third party counterparties

9. Can you explain how is risk management (inv and operational) being done? Can you provide a copy of your risk management policy?
The central design aim of the Gyroscope protocol and stablecoin is to minimize and diversify risk to the greatest extent possible. At the center of GYD is a novel all-weather stablecoin design. It is designed to be fully backed by a basket of assets with fundamental innovations in risk control built in at the protocol level.

GYD’s risk management innovations aim to segment and contain risks from across the asset space and include:

  • Automated risk diversification rules,
  • Optimized minting and redemption bonding curves that guide the protocol on how to use reserve assets to maintain stability,
  • A new resilient oracle and circuit breaker system that handles stress.

GYD is designed to protect against the main risks of holding stablecoins, placing risk control at a high degree of automation in a decentralized, non-custodial way. It serves as a principled risk control layer for stablecoin holders. GYD, which aims to form the safest on-chain stable asset, implements these design principles.

At the smart contract level, a number of safety checks are performed as part of every minting and redemption operation. Further information is available here.

  • Circuit Breakers. The Oracle system has a series of circuit breakers that are designed to protect the application protocol in case faulty oracle information makes it through the consolidation mechanism as well as providing protection against more general risks, such as mitigating the effects of smart contract bugs.
    • Flash Crash circuit breaker. If oracle prices as reported by Chainlink change by more than a threshold in a given amount of time, then the flash crash circuit breaker initiates safety mode in the protocol.
    • Excessive flow rate circuit breaker. Other circuit breakers initiate a safety mode, which is a pause of protocol operations over a set time period. It is designed as a last resort to protect against oracle exploits as well as smart contract bugs and unknown exploits. It operates by measuring ultra-short term flows within the protocol and triggering safety mode if they would exceed thresholds. Atomic exploits are also limited by adding a respective threshold amount.
  • The Dynamic Stability Mechanism (DSM) can be paused. The DSM is an automated market maker that defines minting and redemption of stablecoins against reserve assets. The circuit breaker parameters can be calibrated by taking into account the manipulation costs of the price checks in the consolidation mechanism.
  • Oracle guardian mechanism. A DAO-elected whitelist of oracle guardians can initiate safety mode for a defined period of time. The DAO is able to replace the list of guardians at any time. This mechanism is designed as an emergency response lever, which only has pause control, and is intended to be activated in the event of an oracle failure or if a smart contract bug is found.

Performance reporting

1. What are your proposed performance benchmarks? If this is substantially different from the underlying assets, please explain why.
The performance of sGYD will be transparent with respect to the performance of the underlying assets, namely fUSDC, sDAI, aUSDT and LP shares of a Gyroscope LUSD/crvUSD Rehype pool.




Rehype pool LP shares: yield will derive from underlying lending market yield from capital rehypothecated to Aave and the swap yield.

2. Describe the content, format, preparation process, and cadence of performance reports. This should include proof of reserves, if appropriate. Please include a sample report.
Since the entire allocation of the Arbitrum Treasury will be managed and stored on-chain, performance reporting will be available in real time. Anyone will be able to observe the performance of sGYD live either through a front-end application such as a Dune dashboard ( will feature sGYD performance information). By design, the reserves will be transparently observable on-chain; showcasing the core value propositions of DeFi, it is not necessary to trust third parties to correctly store the reserves.

3. Who provides the performance reports in respect of the underlying assets?
Overall, performance of the underlying assets will most straightforwardly be observable on-chain or via dashboards such as provided on Dune. In respect of the RWA components of the underlying assets themselves (subject to change as the underlying assets evolve):

4. Describe any formal audit process and timing of such audits.
In an on-chain environment, anyone is able to audit the state of the GYD reserve in real time as all data is transparently and publicly available. One visualization of the GYD reserve is made available at and other dashboards are available.
Separately, as detailed below, the protocol has undergone very extensive code audits.


1. Provide a copy of your standard contract, or one similar to what is being proposed here.
N/A as this is a noncustodial solution.

2. Fee summary: Inclusive of the full scope of services requested. Product Fee schedule If asset based Fee calculation for our plan if asset based Annual fee if flat fee Any other fees (including redemption or minting fees)
Largely N/A aside from fees set at the protocol level:

  • Minting fees: 0bp
  • Redemption fees: fUSDC vault (2bp); aUSDT vault (3bp); sDAI vault (3bp); ECLP vault (5bp).

3. Describe frequency of fee payment and its position vis-a-vis payment priority compared with other expenses (i.e., cash waterfall)
Minting and redemption fees are paid for each minting and redemption operation. So for a single mint of GYD with ARB, the minting fee would be paid once. Likewise for a redemption. These fees accrue to the reserve backing GYD.

Smart Contract/Architecture

1. How many audits have you had and name of auditors? Please provide a copy of reports.
The GYD system has been audited 4 times, twice by Nethermind and once each by Runtime Verification and Trail of Bits.

Latest audit reports:

  • Security Review: Protocol - Nethermind - 08/15/2023
  • Security Review: Governance - Nethermind - 08/15/2023
  • Security Review: E-CLPs - Nethermind - 08/17/2022

Other audits:

2. Is the project permissioned? If so how are you managing user identities? Any blacklisting/whitelisting features?
True to the core value propositions of DeFi in general, the on-chain GYD is fundamentally permissionless. Any address is able to mint or redeem GYD through the smart contracts. In relation to the Oracle Guardians, a whitelist of addresses is able to pause minting (but not redemption) of the protocol. This is a security measure to allow minting to be paused if suspicious activity is detected.

3. Is the product present on several chains? Are there any cross chain interactions?
At the time of writing, GYD has been bridged to Polygon zkEVM.

4. Are the RWA tokens being used in any other protocols? Please describe the various components of the ecosystem
GYD’s largest use case today is as an asset in LP strategies, many of which are supported by Balancer and Aura. Several other protocols integrate GYD as a pairing asset for secondary market liquidity. This includes Aave GHO in collaboration with Tokenlogic and Karpatkey as well as upcoming integrations with Frax, Mimo paUSD, and PrimeDAO D2D.

Further integrations in lending markets on Ethereum and Arbitrum are also underway.

5. How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
GYD is to be governed entirely on-chain by the Gyroscope DAO. Various stakeholders in the Gyroscope community control the system:

  • holders of the Gyroscope protocol’s native governance token, GYFI;
  • holders of the Gyroscope stablecoin who provide it as trading liquidity;
  • Founding Members of the protocol, community members who have been involved since the beginning;
  • Councillors, parties with expertise in DeFi protocol management;
  • other DAOs.

Votes can also be delegated.

Participants in the governance system make proposals, which are discussed and voted on. Some changes need more voters (higher quorum) and of the voters, a higher proportion of agreement in order to pass. This is because some governance actions are low-risk and routine, such as deciding on the recipient of a community grant, while others are high-impact and may implement changes to the entire protocol.

Proposed changes are subject to a timelock - a waiting period - before they are implemented. This is a protective measure to ensure that protocol participants have time to react to any changes they don’t agree with.

Since the risk of code bugs cannot be fully mitigated, it is important that both the Gyroscope community and the development team at FTL Labs, who was mandated to deliver v1 of the protocol, are able to quickly address smart contract issues that may be found. For this reason, a centralized control multisig will temporarily retain control of the system parameters and protocol update and design decisions in parallel with decentralized governance. This multisig is led by the Gyroscope Foundation, a foundation company associated with Gyroscope governance.

Following full decentralization, this centralized control vector will be removed, and further updates to Gyroscope contracts will have to be enacted by Gyroscope governance. This is fundamentally important to launching Gyroscope as a decentralized protocol.

6. Is there any custom logic required for your RWA token? If so please give any details.