DAI debt of ETH-A vault type continues to increase and it is becoming hard for governance to react fast enough so that the debt ceiling doesn’t get not fully utilized. We believe Debt Ceiling IAM is needed and preferred for ETH-A vault type.
Given that there are no other contents for the executive proposal this week and that there is uncertainty over the demand for the ETH-A vault-type in the coming weeks, this change will be put up as an executive vote on Friday.
We have a pending signal request on potential DC increase of ETH-A and currently the 1.5bn debt ceiling is winning with about 55% approval. As @Risk-Core-Unit already mentioned in forums and on Governance & Risk call, the ETH exposure is starting to become an issue for overall portfolio risk as VaR levels don’t match Maker’s protection at hand currently (low surplus buffer, low box, liquidation 2.0 not released yet,…). On the other hand there are valid concerns about integration risks of ETH-A if the debt ceiling gets fully utilized. Also it seems the community supports higher LR ETH-C proposal, but I am not sure if we got a clear signal whether potential ETH-C implementation also assumes limiting ETH-A debt exposure.
Having all this in mind and trying to satisfy community preference we can continue to increase ETH-A Debt ceiling but then mitigate risks differently, with higher SF. Here we want to make sure that people are aware that stronger measures may need to take place to counter the increased risk from ETH-A exposure. This includes, but is not limited to: increasing the ETH-A SF at a more rapid pace, increasing the surplus buffer and increasing the
box. This is because the aim of higher SF would not only be to protect Maker, but also to lower the pace of ETH-A debt exposure increase. Note that higher SF doesn’t offer short term protection of increased debt exposure.
line parameter for DC IAM ETH-A to be set to 1.5bn, matching current community expectations and also high enough to make sense using DC IAM.
As already mentioned in our DC IAM analysis, we either want a combination of low ‘gap’ and low ‘ttl’ or combination of high
gap and high
ttl. You don’t want to be making low DC adjustments too rarely and you don’t want to be making high DC adjustments too frequently.
We believe a higher
gap is preferred for ETH-A. We saw how whale Vault users can mint 20m DAI or more instantly and we don’t want to prevent this since Maker is uniquely positioned in DeFi lending space to allow such mints without affecting the rate instantly.
Downside of higher
gap value is OSM risk, but since OSM risks are much lower for ETH-A vaults, we don’t think this could be a huge issue. Also we may want to make sure that enough unutilized debt ceiling can be available in case of DAI liquidity crunch when some of the keepers or market makers still prefer to use ETH-A vault to meet market demand for DAI.
Another reason for higher ‘gap’ is to prevent griefing attacks that we found for this IAM DC, but is less likely for someone to perform it since there are no benefits to it. Still, higher
gap limits this attack severely.
We propose a 30m
gap value for DC IAM ETH-A Vault Type.
Since we have proposed a bit higher
gap value we want the
ttl parameter to match certain conditions. If we assume governance can react and prevent further minting in about 48 hours (current GSM delay), we may want to set
ttl to match a number that prevents too high accumulation of debt on ETH-A before governance can react and stop minting.
ttl of 12 hours is a suitable number since it implies 120m max additional mints (48 GSM delay / 12h
ttl x 30m
gap) until governance can react and change DC. Further, this also enables 60m daily DAI mints on ETH-A, something we found to be quite common lately.
line = 1.500.000.000 DAI
gap = 30.000.000 DAI
ttl = 12 hours