I have another potential solution to the stablecoin Vault issue.
Basic idea: Autoliquidation of Vaults after a certain time.
Let’s face it, the current setup we have going with stablecoin Vaults is a temporary measure enacted to keep the peg following Black Thursday events and the DeFi craze. It is far from optimal, possibly not even sustainable, so let us change how it works.
The proposed action sequence:
- For existing stablecoin Vault types (USDC A etc etc) we introduce upwards creeping liquidation ratios, the suggested pace is 0.25% increase per week until approximately 103% is reached. The increase is to ensure that if liquidations happen they do not eat into Maker buffers. Exact figures will of course be as per the Risk team’s recommendation. This slow pace of increase will allow Vault owners time to close maxed-out Vaults.
- We reduce the Debt Ceiling to 0 for the existing stablecoin Vault types, effectively ensuring no new Vaults of this type.
- At the same time we open a new Vault type especially for stablecoins. It works as before but with the added feature that the Vault will be auto-liquidated after a certain amount of time (blocks) has passed. How long? Some months to a year to start, but these are suggestions. This fully eliminates the potential issue of unbacked DAI in buffer/burner. As the new Vaults will be auto-liquidated anyway we could have a spectrum of Vault types, some with extremely low liquidation ratio or other experimentation to help with the peg.
- After the new Vault type is introduced we keep raising both the stability fee and the liquidation ratio for the older stablecoin Vaults, creating clear incentive to migrate to the new auto-liquidating Vault type.
Not everyone is going to like this proposal. It is tough love on the stablecoin Vault holders and it forces them to be more proactive with their Vaults. But for Maker it solves the potential issue of unbacked Dai in the buffers and it allows for more creativity with regards to Vault types as they will be closed after some time anyway.
Feedback appreciated. EDIT: grammar