Now that we have started onboarding more collateral types and SCD is shutting down, I believe we should start thinking about how to restructure the stability fee votes from their current form.
Currently we have the following governance fee polls:
Dai Stability Fee -> Sets the stability fee for both ETH-A and BAT-A.
USDC Stability Fee -> Sets the stability fee for USDC-A.
Presumably if wBTC is added that would be yet another separate, weekly stability fee vote.
This system made sense at the start of MCD as there was really only one type of collateral available (ETH). As we add more collateral types it will become unwieldy to vote on each collateral’s stability fee each week. I believe it’s time to refactor how we are voting on the fees before the flood gates of collateral are opened.
I propose we refactor this legacy setup to the following:
The weekly “Dai Stability Fee” vote becomes the “Base Rate” vote. The base rate will remain a weekly vote to control for peg stability. The Dai Savings Rate Spread poll will continue to be a delta from the Base Rate poll.
All vault types (ETH-A, BAT-A, etc) get a “Vault Fee” that is voted on only when needed. The vault “Stability Fee” is calculated as
Base Rate + Vault Fee. I want to call this a more general “Vault Fee” instead of “Risk Premium” because it may consist of more factors then just the Risk Premium in the future. Terminology is not a big deal though if more people prefer the term “Risk Premium” or something else.
The Base Rate can be negative to allow for MKR subsidization of peg support (such as what we are doing now).
Encoding of these governance parameters into the Maker system variables works as follows:
If Base Rate is positive:
base = Base Rate
duty = Vault Fee
If Base Rate is negative:
base = 0
duty = max(Vault Fee + Base Rate, 0)
This conditional is only because both
duty can only be positive.
For example to encode the current setup of ETH-A = 0%, BAT-A = 0% and USDC-A = 6% we can do this:
Base Rate = -2% (MKR is subsidizing the risk premium in exchange for peg stability)
ETH-A Vault Fee = 2% (Risk Premium of 2%)
BAT-A Vault Fee = 2%
USDC-A Vault Fee = 8%
If wBTC is added with a target Stability Fee of 1% (as per the governance poll currently up), then it would get a Vault Fee of 3%.
This allows us to set the relative risks between collateral types once and move all the fees up and down in tandem to control overall Dai supply (and thus peg stability). It should not matter which collateral type is used to generate Dai. The only thing that matters is that moving the Base Rate down pushes Dai supply up on average and moving the Base Rate up pushes supply down on average.
I will leave about a week or so for some feedback before moving to a signalling thread.