On the 3/17/2020 installment of the Daily Governance and Risk call, the community discussed parameter changes on upcoming scheduled flop debt auctions. At present, auctions will open at 10:28 ET (14:28 UTC) on Thursday 3/19/2020.
The flop auctions have been well documented in the forums and here. The technical parameters are detailed here as well. One of the details that has been discussed has been the current starting price. During the MCD launch in 11/2019, the parameters were set for lot sizes of 250 MKR at 50k DAI lot which works out to 200DAI/MKR. Although DAI/MKR is largely illiquid, it would currently sit at ~215 DAI/MKR at time of this writing. Given the recent volatility of all assets (ETH, MKR, DAI), this DAI/MKR pair could be volatile and change during the run up and/or over the course of the auctions. As a result the starting bid could prove to be problematic if 200 Dai for the flop auctions were more expensive than the market rate. This would be the main issue and would interfere with smooth running auctions.
What is the goal of this adjustment:
- to ensure that the process of debt auctions clears the market and the debt can be removed from the system
- to keep the auction on schedule
Should governance adjust the flop auction parameters ahead of Thursday? Suggested adjustments would be between:
- Increase the lot size (lower the starting bid price for the flop auction)
- Decrease the flip (allows quicker auction resets)
- Increase the size of the discount factor such that minimum bid price drops faster in between failed auctions
General Pros and Cons
- lower starting price welcomes more bidders to the auction and increases likelihood that market will clear
- decreases likelihood of failed auctions that could potentially hurt confidence, especially if bad debt lingers in the protocol for a long time
- avoids potentially delaying schedule for flop auctions if we were to experience extreme liquidity event over next day or so
- introduces confusion of logic behind starting bid price. Selected values could seem arbitrary
- keeper software might have to be updated on short notice, increasing technical risk, especially if the executive vote clears in the middle of the auction. Additional technical risk to implementing governance poll and executive vote on such short notice
- could be an opportunity for speculators (would this open up opportunities to short MKR?)
This forum post is a high-level overview of adjusting the upcoming flop auction parameters. The next step could be a poll for the suggested adjustments.