Adjusting Auction Parameters for ETH vault types

Hey all,

The Parameter Proposal Group has recently proposed an increase of ETH-B Debt Ceiling to 300,000,000 Dai and we (@Risk-Core-Unit) recommended to adjust auction parameters for ETH-B. We also recommended to adjust auction throughput defined by ilk.hole for all ETH vaults.

One way to mitigate greater risks of losses in ETH-B auctions is to shorten auction duration and make the auction price curve more aggressive (steeper). We have written in the past this has certain trade-offs; shorter duration means lower market risk but increases risks of delayed bids.

Because the debt exposure of ETH-B will likely increase if the latest parameter proposal passes, we think we should lower the market risk by shortening the auction duration for ETH-B vaults, as low collateralized vaults present greater risks for losses at Maker. At the same time we will use this opportunity to test for lower auction duration in general. We also believe that some differentiation in auction duration among different vault types should be beneficial for auctions in general (all auctions settling at the same time has certain risks as well).

Newly proposed ETH-B Liq 2.0 parameters described below will define auction price curve as such:

Characteristics of the auction price curve:

  • Starting price of 120% of last OSM
  • 1% drop every 60 seconds
  • Expected auction settlement duration of 19 minutes
  • Time until auction reset = 90 minutes
  • OSM price at auction reset = 48%
  • Maker loss for 130% LR vault type at lowest auction price is estimated at about -37%

Auction Parameters for ETH-B

cut = 0.99

step = 60 seconds

buf = 1.20

cusp = 0.4

tail = 90 minutes

chip = 0.1%

tip = 300 DAI

ilk.chop = 13%

tolerance = 0.5

ilk.hole = 15m DAI

Global Auction Parameters:

hole = 100m DAI

We are also proposing to increase auction throughput by increasing ilk.hole for ETH vault types. One reason for increasing it is expected higher debt exposure on ETH-B and ETH-C vaults, but also because we saw many auction participants are using flash loans, which means less reliance on capitalized keepers as was the case in Liq 1.2.

ETH-A ilk.hole = 30m DAI

ETH-B ilk.hole = 15m DAI

ETH-C ilk.hole = 20m DAI

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