What’s the problem?
We have had a few developments in parallel regarding the USDC PSM.
The amount of USDC in it has gone up from 800M to 1.4B over the last week - see here for current amount. With the additional 240M USDC in vaults, 37.2% of DAI is backed by USDC.
The PSM debt ceiling will soon be raised to 3B.
The tout fee looks like it will be reduced to 0.
Some shady stuff is going on with how USDC is backed. I have to admit, this point is extremely worrying, at least for me. I’m sure similar stuff happens with all the other centralized stablecoins too.
What can we do about it?
We do not have a good short to medium term solution to boost DAI supply and get it below $1. Given the current situation, I propose that we raise the tin fee and decrease the amount of USDC flowing in.
What are the consequences?
The upsides are
- We will decrease the rate at which USDC gets added to the PSM. This combined with other measures will be what we need to eventually make DAI independent of other stablecoins again.
- We will earn more fees from the PSM.
The downside is
- DAI may now trade for higher than $1.01 before the PSM kicks in.
Why is it worth doing anyway?
Personally, I do not think the downside is as bad as it first sounds and here’s why:
- During calm market periods, DAI is mostly below $1.01 anyway. The change to the tin will have no effect during such periods. This is today’s (26/05) chart from dai.stablecoin.science
During volatile market periods, DAI goes off peg anyway (as does USDC) and it takes a while before arbitragers use the PSM to get it back in line. Our response time to bringing it back to peg will get longer but I find this acceptable.
DAI was always meant to be soft pegged to USD. There is nothing special about $1.01 and if we’re happy/unhappy to see DAI trading at this price in the worst case, then we would also be similarly happy/unhappy to see DAI trading at some other 1 + delta as long as delta is widely seen as “reasonably small”.
TL;DR I think the “off-peggedness” of DAI will not be as bad as some might fear.
The higher tin balances our two conflicting goals of keeping DAI pegged and staying a decentralized and fully backed stablecoin. I think this is a reasonable compromise, particularly with questions being raised around the backing behind USDC. Please vote and make your voice heard!
- Increase tin
- Keep tin the same
If there is some consensus here, I will start a signal request with a poll for new tin options.