In this thread, we discussed how maintaining a tight peg requires significant stablecoin reserves that folks arbitrage in and out of. From what I see there, nobody really likes having that much USDC in the PSM but it is seen as a necessity for the medium term. The other thread here has a discussion on the surplus buffer with many raising the concern that it does nothing i.e. we have millions of DAI sitting idle.
I wonder if it’s worth thinking of the surplus buffer as an alternative/complement to the PSM. That is, whenever we have an oversupply of DAI, we increase the surplus buffer and this acts as a DAI sink. Typically, this happens during a bull market when we also need the surplus buffer to increase anyway. When we have an undersupply of DAI, we burn MKR using the DAI from the supply buffer and it acts as a DAI source for the market.
A rough estimate on the first linked thread said we require around 20% of outstanding DAI available in the PSM to ensure the peg stays where we want it. Perhaps it is worth asking the following questions
- How much deviation from $1 is acceptable for DAI price over, say, a one week period? For example, are we okay with a consistent 1% deviation?
- Given an answer to 1., how much minting/burning capacity do we need? Presumably, the 20% answer came about in the other thread with some deviation in mind.
- Are changes to the surplus buffer large enough to achieve 2. while also serving the role of reducing risk to MKR holders?