Debt Ceiling Allocation to Stablecoin Class

In the past few governance calls, a recurring topic of conversation has been the total allocation of debt ceiling to the general stablecoin class. For example, if TUSD is to be ratified and added this week (with a debt ceiling of 2 million), does that mean the USDC-A debt ceiling should be reduced from 20 million to 18 million? How would the emergency facility of USDC-B (with a proposed debt ceiling of 10 million) fit into this? Does the community want to consider having an informal cap on stablecoin exposure (roughly 20 million? higher?). Intuitively, the concept certainly makes sense, but (my personal opinion is) it could be quite difficult to quantitatively make any hard rules here unless someone can propose some sort of rating system amongst the different stablecoin issuers in terms of counterparty risk.

I would love to open this up to community discussion.

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I think a percentage of total supply makes sense. We could target roughly no greater than 10-20% of supply to come from stablecoins or whatever the community thinks is a reasonable risk tolerance. You could set the total to a fixed amount but as overall supply increases this risk goes down and I’m sure people would want to increase the cap. Agreeing to a % now reduces governance overhead at a future date.

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I agree that percentage likely makes sense. I also think that the risk of stablecoins as a category decreases as we see more different tokens added. We should therefore try to keep the debt ceilings for individual stablecoins similar to the rest of the stablecoins added, and so not let a few dominate the total category holdings. This way we gain a real diversification benefit with each stablecoin we add.

Personally, I would think this makes sense. Would allow for management of that piece of the portfolio of debt in the ecosystem as a sort of “cash” equivalent.

Intuitively, a sort of scorecard mechanism to assess “cash equivalents” would look fairly heavily weighted by qualitative aspects of the stablecoins to account for counterparty risk. But if a little framework comparing each of them on the same basis can be drafted up, I would say that is feasible to bring qualitative into quantitative. Having that qualitative assessment could also further inform the discussion on weightings of each in the portfolio, and some sort of re-balancing mechanism as the system portfolio global debt ceiling increases.

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I believe that the proportion of stablecoins should be customized based on counterparty risk and market share.

I suggest the following limits:

  • 20% of total supply limit for all centralized stablecoins combined
  • 5% of total supply limit for each new collateral except WBTC and USDC

Why single out stablecoins like this? I think the concept here is the risk of collateral with a centralized custodian- this would include wBTC and BAT as well. If you make a cap, it should be all centralized collateral types.

This makes sense to me too, but I don’t think we want to be changing this every week, so maybe a percentage of total supply rounded to the nearest 5mil?

I’d accept 5-10% I think. Definitely no more than that.

I think this is an interesting point, but I’d suggest that we do separate caps for each type of asset (dollar-backed centralized stablecoins and otherwise centralized assets.) I think this is because the correlation between the two groups isn’t 100%. There is a chance of us losing the stablecoins without losing wBTC, and vice versa. Within dollar-backed stablecoins though, one could argue that the correlation is more closer to 100%.

So I’d like two caps. In my mind, 5-10% for dollar backed stablecoins. 5-10% for centralized crypto-collateral. Total of 10-20% of the collateral portfolio.

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Rating system example - post here. To attract community support for a system like that, it seemed providing the most context possible would be the best way to then grow education which ultimately can grow understanding and lead to a support for the ratings approach! Hope it’s helpful!

For non-centralized coins something along these lines might be a good addition

Short answer: Evaluate the ceiling by the amount of gas that it pays on the network (TWAP) relative to the amount of gas paid by DAI transactions at primary trade venues (I would use only on-chain venues. Oasis, Uniswap, others). Then incorporate the number of CDP holders to identify the broader exposure possibilities of a doomsday scenario.

A loose starting point to establish a baseline like the best way to determine network activity, which ultimately determines risk as it relates to the ability to liquidate badly held positions, which results in the most predictable behaviors of the system as a whole.

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