I am a long time MKR holder but participating in the forum for the first time. Following a recent discussion on Reddit with @LongForWisdom I’d like to express some concern over DAI’s reliance on stablecoins to stay pegged and the long term vision for the PSM.
Right now, DAI is super tight on the peg because of the PSM. This is great and the PSM achieved what it set out to do. But while I thought the PSM was a temporary measure, things appear to be going in a different direction with the latest increase of the debt ceiling exceeding the previous debt ceiling + USDC-A vault’s debt ceiling. If it fills up, it seems that the governance response will simply be to increase the PSM ceiling, much like we do for other vaults. While it’s not as bad as it was at one point, the significant amount of stablecoins used to establish DAI’s peg is something I find troubling. Meanwhile, we’re also increasing stability fees across the board although DAI is above $1.
I believe there needs to be an effort to
Use the PSM as a last resort mechanism after interest rate based fixes cannot help. It doesn’t make sense to me to charge 5.5% to ETH-A vault owners and raise the USDC PSM ceiling because we expect demand for DAI to exceed supply. I am not sure I agree with the idea that leverage seekers are insensitive to the interest rate. During a bull market, the PSM should be emptying out, not filling up!
Have some long term plan to rely less on stablecoins. If this is the situation in a bull market, I can’t imagine how we will survive the next bear market except by loading up the PSM with huge amounts of USDC to keep DAI pegged.
I realize I am criticizing without providing solutions (apart from a recommendation to lower stability fees) but I hope some ideas can come out of this. Thank you for reading!