[Discussion] cDAI/aDAI collaterals as a peg enabler tool

The peg issue led to an emergency increase of the DC of all collaterals. Still most are not full. On the other hand, after this discussion, the base rate will likely be lowered to -4%. Governance is not at ease with either large amounts of ETH collateral (today’s meeting) neither large amount of USDC, neither not being compensated for all the risk taken. The near future promise just more of the same.

I hope all those actions will be enough, but I’m not sure. I think DeFi is more efficient than we assume. When a whale decide to stop using the USDC-A facility, I assume it follows our discussions. Getting to SF = 0% on USDC-A will bring $100k annually to the whale. $100k for checking a forum once a week. And if not this whale, there are other whales (3 whales were sinking 90% of the 80M DC of USDC-A).

Within this context, none of the actions (raising strongly DC and lowering base rate) are silver bullets. We will see. Let’s forgot this post for a year if the peg goes to 1 next week if you want.

But in any case, having all collateral with a SF of 0% is not sustainable. If we hope DAI to have greater adoption, demand will remain strong. M1 just for the US is 5 trillions. In a short timeframe, when USDT will fail, 10 000 M DAI will be needed. Okay I’m getting too far, you get the idea.

It will mean no interest rate to secure the system, pay for the operations and remunerate the MKR holders.

As I already tell, I think using stablecoin as collateral is crazy. Nevertheless, they can be a powerful policy tool (we will see when USDC-A SF will be 0%). It’s like the PSM which is unlikely to see daylight in the near future.

cDAI is not as real collateral, it’s more a financial leverage, a money multiplier or a better way to impact interest rates on money markets.

The nice thing is that we can keep a stability fee on first order collaterals (not DAI based) and set the cDAI stability fee as needed for the peg to stay around 1. It should be punishing rates in general, something like 90% of the average supply rate on compound…

Is it risker to have 200M ETH at risk or 100M ETH + 100cDAI ? I would argue that it would be twice less expensive to make ETH vault whole in the later.

I would also argue that central banks are doing just that. They are buying bills and treasuries, i.e. a $ lent for 3 months to 10 years, in repo operations to issue $ and add liquidity to the system.

I understand there are many points to analyze. Like how to proceed a recursive ES. What are the impacts of COMP farming on that. Are aDAI/cDAI the good way to express that. Maybe we should think the whole thing differently.

But it seems to makes sense from a real world financial policy perspective and it would have a more direct impact on the DAI peg. As a cherry, we would help, and take a cut of, all DeFi lego block we support (see Uniswap discussion as well ).

If there is interest, we can work the subject and later ask for a signal request. Let me know.


Completely agree that cDai and also curve tokens and other defi product tokens are great collateral in general, but especially well suited to deal with the current peg/imbalance issue.

The main downside is that they come with technical risk. The more cDai you enable, the more the Maker system and MKR holders are exposed to losses from a bug in the compound infrastructure. This speaks towards spreading the risk across as many different defi platforms as possible (which will take time since each collateral onboarding is a lot of work).


This is a very creative suggestion, but I am really worried about the technical risks.

1 Like

Please find below a capture of the last balance sheet of the Fed regarding the collateralization of dollar bills (federal reserve notes).

You can see that most of the collateral is US bonds which are promise to pay dollar bills in the future which is like aDAI/cDAI in a sense.