Here is my take on the PSM. Check it out, all thoughts are greatly appreciated!
As far as the governance meeting goes, I watched it earlier today and wanted to give my responses:
@cmooney I agree that the PSM should likely be set at $1.00 low end and $1.02 first batch high end to start with a low first debt ceiling of maybe $10,000,000 and then at $1.03 maybe 20, $1.04 30 and $1.05 50 or 100 as a starting point.
@MakerMan Heavier hands as MakerDao goes up on each step just like you wanted. By the time Dai got to $1.07 if it ever did the debt ceiling should be practically unlimited. (Do have to make sure that oracles are giving correct pricing though).
@cyrus I agree that the PSM is sort of acting as a negative rate which is why it is so useful. MakerDao does not want to go negative rates on Dai directly. This method would allow for negative rates but keep the value of Dai intact. You mentioned the max debt ceiling as being the biggest thing you want figured out right now. I would suggest we start with what I suggested to @cmooney above but if what I wrote for the PSM solution is workable the debt ceiling at the high end if Dai makes it up to $1.07 ever would be essentially unlimited.
@rich.brown Relating to the crises in March a PSM would have made the maximum Dai price maybe hit $1.03 or $1.04 in this model. As a result it would have made things a lot smoother. However, just having more Dai liquidity wasn’t going to necessarily help for those zero bid auctions that took place. We will have to have the updated liquidation system fix that moving forward. The PSM would have been helpful though and MakerDao would have profited from it. You also asked for pain points of a PSM. I mentioned a few of them in the con list I made for the other post. Please give that a look and hopefully people will chime in with their thoughts in the comments over there.
@monet-supply I agree, once we start a PSM it will be super hard to take it away if MakerDao ever wanted to. The hope is that there will not be a need to do so and that MakerDao can simply make the PSM a functional part of the ecosystem. It will require a lot of thinking though so please share your thoughts both for and against the PSM as they come to you.
@mrsky @akash.patel @akash98 @brianmcmichael Not sure which Akash you are and I lumped you in here Brain because my notes merged. You are right that the PSM will be much needed confidence to both vault owners and to Dai market participants. You mentioned that “nobody knows when to sell Dai right now”. This seems to hit the nail on the head. There is too much uncertainty going on and the ecosystem will benefit greatly from a show of MakerDao doing something to defend the Peg. A PSM appears to be the best option at the present time. As far as keeping the USDC vaults at 4% as well to let vault owners try to run Arb on the peg, I am not sure if this makes sense or not, it should be discussed further IMO.
@LongForWisdom You made a lot of good points but two stood out. “How far off the Peg is too far?” Which I would say for MakerDao is up for debate. The suggestion I made was to start at $1.02 and scale up to a max of $1.07 in the extreme just before a global settlement (meaning MakerDao would likely never see Dai anywhere near $1.07 and certainly not above it.) $1.02 might be OK short term but ideally I feel like $1.02 at the most is too far before intervention is taken at least lightly for a PSM. You had also mentioned that the system would work itself out as confidence in Dai falls if MakerDao just sort of lets this all happen. I disagree. The integration partners may never come back and also the vault holders also lose confidence so even if the confidence was spread evenly to all areas it would still be a feedback loop and not something that simply settles itself. I appreciate your thoughts as always.
I split this into a second post because I got cut off.